What Does Employment Practices Liability Insurance Not Cover?

Employment Practices Liability Insurance (EPLI) provides businesses with a defense and indemnity against claims made by employees alleging wrongful acts related to employment practices. These policies typically cover various issues, including discrimination, wrongful termination, and harassment. However, EPLI is not an all-encompassing solution for every type of business risk. Understanding the specific exclusions within an EPLI policy is crucial for employers to identify potential gaps in their overall insurance coverage and manage their liabilities effectively.

Claims Covered by Other Insurance

EPLI policies generally do not cover claims that are typically addressed by other specialized insurance products. For instance, claims related to physical injuries or illnesses sustained by employees on the job are excluded from EPLI. These types of incidents fall under Workers’ Compensation insurance, which is designed to provide medical benefits and wage replacement for work-related injuries or occupational diseases.

Similarly, EPLI does not cover claims for bodily injury or property damage to third parties, such as customers or visitors, or damage to the company’s own assets. These risks are typically covered by Commercial General Liability (CGL) insurance, which protects businesses from liabilities arising from their operations, premises, or products.

Claims arising from the mismanagement of employee benefit plans, such as 401(k)s or pension plans, are also excluded from standard EPLI policies. These types of claims fall under Fiduciary Liability insurance. Fiduciary Liability coverage protects the individuals and the company responsible for administering employee benefit plans from claims alleging breaches of their fiduciary duties under regulations like the Employee Retirement Income Act (ERISA).

Specific Employment-Related Exclusions

Beyond claims covered by other insurance, standard EPLI policies often contain exclusions for specific types of employment-related issues. Wage and hour violations, which include disputes over unpaid wages, overtime pay, minimum wage adherence, or employee misclassification under the Fair Labor Standards Act (FLSA), are frequently excluded. While some insurers may offer limited “defense-only” coverage for these claims through an endorsement, it typically covers legal fees but not back wages or settlements, which can be substantial.

Fines and penalties imposed by regulatory bodies, such as the Occupational Safety and Health Administration (OSHA) for workplace safety violations, are generally not covered by EPLI. These are considered regulatory compliance issues rather than insurable liability claims.

Operational disputes like strikes or lockouts, and any financial losses incurred as a result, are also typically excluded from EPLI coverage. These events relate to collective bargaining and labor relations, which fall outside the scope of individual employment practices claims. Furthermore, while EPLI covers wrongful termination, claims based purely on a breach of an employment contract (e.g., disputes over compensation terms not tied to discrimination or harassment) may have limited or no coverage.

General Policy Exclusions

EPLI policies, like most insurance contracts, incorporate broad exclusions that reflect fundamental principles of insurability. Claims arising from intentional wrongful acts or criminal acts committed by the insured are routinely excluded. Insurance is designed to cover unforeseen and accidental losses, not deliberate misconduct or illegal activities. This exclusion prevents individuals or entities from insuring against the consequences of their own willful wrongdoing.

Punitive damages, which are awarded to punish a wrongdoer rather than to compensate a victim, are often excluded from EPLI coverage. The insurability of punitive damages can depend on jurisdictional laws, with some states prohibiting coverage for such penalties on public policy grounds.

EPLI policies also commonly exclude claims arising from incidents that occurred or were known prior to the policy’s effective date or retroactive date. This “prior acts” or “known claims” exclusion ensures that businesses cannot purchase insurance for a problem they are already aware of or that has already manifested. Additionally, claims stemming from fraudulent conduct by the insured are generally excluded, aligning with the principle that insurance does not indemnify deliberate deception or dishonesty.