Employment practices liability insurance (“EPL Insurance”) is designed to protect companies against claims brought by employees and prospective employees for employment-related wrongs. EPL Insurance is becoming increasingly prevalent in management liability insurance programmes.

Senior Associate Hebe Peck in Stewarts’ Policyholder Disputes team examines the scope of cover and common coverage challenges.

What is EPL Insurance?

EPL Insurance is typically written on a “claims made” basis, meaning it covers claims made during the policy period, regardless of when the wrongful act that led to the claim occurred.

The definition of “claim” is generally broad and typically includes demands for monetary or non-monetary relief, as well as the instigation of formal litigation. Policies will typically be triggered when an employee makes a demand for relief following an alleged employment-related wrong.

EPL Insurance typically covers claims for discrimination, harassment, unfair dismissal, victimisation or data privacy breaches. Policies cover both defence costs and underlying liabilities, subject to policy terms and exclusions.

Cover is typically purchased by a company, but EPL Insurance will sometimes cover individuals who are named in an employment-related claim.

Why is EPL Insurance topical?

Companies have always faced exposure to employment-related claims; however, there are a number of reasons why this cover is currently topical:

• Employment Rights Bill – Following the government’s introduction of the Employment Rights Bill, the UK is anticipating significant changes to employment law in 2026 and 2027. The new law is expected to bolster employee rights, which may lead to an uptick in employment-related claims.
• Fair Work Agency – As part of the Employment Rights Bill, the government has proposed the introduction of a new regulatory body, the “Fair Work Agency” (“FWA”). The FWA will have powers to investigate, inspect and take action against businesses that breach employment laws. While much of the detail about how the FWA will work is still being considered, its introduction may lead to an increase in regulatory activity and/or claims faced by employers.
• The soft D&O market – EPL Insurance is frequently bought alongside or as part of directors’ and officers’ (“D&O”) insurance, either as an additional section of a D&O policy or as a part of a broader management liability insurance programme. Given the soft D&O market, many companies will be considering whether to purchase new or broader insurance cover, which may include expanding a programme to include new or improved EPL Insurance.
• Diversity, equity and inclusion – There has been an increase in discussion about diversity, equity and inclusion (“DEI”) in recent years. This heightened awareness and engagement, while positive for society, presents challenges for companies. Many argue that DEI-focused changes are not being implemented as quickly or widely as they should be, meaning the continued disadvantage of individuals with protected characteristics. On the other hand, companies are also facing the effects of the much-discussed “DEI backlash”, particularly where they have exposure to US operations. Companies facing increased DEI engagement and stakeholders with incompatible positions may see an increase in discrimination claims, which may include allegations that a company’s promotion of DEI principles is itself discriminatory.
• Increased use of artificial intelligence (AI) – The use of AI is rapidly increasing across multiple sectors and roles. AI is now regularly used in processes such as pre-employment screening, salary reviews and the payment of bonuses. Further, the increased use of AI across the board is often cited as a potential trigger for workforce changes or reductions. Accordingly, AI may lead to new employment-related claims, including: (1) discrimination claims arising from perceived algorithmic bias, (2) data protection and privacy claims arising due to concerns around transparency and how data is being used, and (3) the increased use of AI leading to redundancies and associated claims.

What are the common coverage challenges with EPL Insurance?

EPL Insurance is a helpful risk mitigation tool for companies facing employment claims. However, coverage may be limited due to policy exclusions and conditions.

• Contractual Liability – EPL Insurance does not generally cover contractual sums expressly or impliedly due under an employment contract, for example, unpaid wages, top-up sums following an employer’s failure to pay minimum wage or holiday pay or payment in lieu of notice. Instead, EPL Insurance is designed to cover unexpected sums arising from employment-related wrongful acts, such as discrimination or harassment. Given the contractual liability exclusion, it is not uncommon for an allocation exercise to occur following an employment tribunal award, to determine which aspects are indemnifiable and which are not. It is worth noting that although these underlying contractual liabilities will not be indemnifiable, related defence costs may be.
• Prior Acts / Claim First Made – One of the most frequent issues faced by policyholders relates to late notification. EPL Insurance is written on a claims-made basis, with a broad definition of “claim”. Policy wording and definitions will be crucial, but it is important for policyholders to be aware that policies can be triggered at an early stage if employees raise grievances that meet the definition of a claim. If a claim has been made, steps should be taken to ensure insurers are notified. It is not uncommon for policyholders to fail to notify employment-related grievances or disputes. This is perhaps because they consider them to be insubstantial, have little merit, or are waiting to receive a formal tribunal claim. However, policyholders should be mindful that a “claim” within the meaning of the policy may occur well before an employment tribunal claim is filed, and the insurance could be triggered at that early stage. In addition, it’s important to note that even unmeritorious claims can be costly to defend. It is always prudent to make a notification even if there is no expectation that a claim will develop.
• Bodily Injury – EPL Insurance policies will frequently exclude losses arising from bodily injury, which are more typically dealt with under employers’ liability insurance policies than EPL Insurance policies. These exclusions frequently contain carve-backs where claims are made for mental anguish or emotional distress. This is helpful for policyholders, as it is not unusual to see these types of claims included in discrimination and harassment claims.
• Trade Union Activity – EPL Insurance policies typically contain an exclusion for trade union activity. Trade union activity generally targets broader business decisions made by companies, rather than specific wrongful acts committed against employees. In addition, any activity involving large classes of employees may result in a significant aggregate exposure, which insurers are reluctant to take on. For this reason, insurers generally exclude losses relating to trade union or collective action from cover.
• Claims Handling and Insurer Consent – Policyholders should be mindful of policy conditions relating to claims handling and the extent to which insurers should be involved in the conduct and defence of any claim. It is rare nowadays for policies to impose a duty on insurers to defend claims. However, policies will frequently provide for insurers to be kept updated on progress, merits and settlement strategy. Insurers’ consent to the defence costs and settlement strategy is frequently required for these sums to be indemnifiable by insurers.

Does EPL Insurance offer useful extensions to cover?

EPL Insurance often includes helpful extensions for policyholders defending employment claims. In particular, we recommend that policyholders consider whether the following extensions are present and would be of assistance:

• Public relations (PR) costs – Although relatively rare, employment claims can become high-profile, and companies may engage public relations specialists to help manage PR risks. Most commonly, this occurs (1) where claims involve serious allegations of discrimination or harassment, like the claims which during from the #MeToo movement, or (2) with widespread claims involving multiple claimants or with sector-wide impact, such as the retailer equal pay litigation.
• Regulatory investigations costs – For regulated companies, employment claims may trigger or necessitate parallel regulatory investigations. In particular, this may apply to financial services firms whose senior individuals are subject to “fit and proper” tests. If employment claims contain allegations of discrimination or harassment by those individuals, companies may be required to report to regulators or respond to regulatory investigations.
• Sensitivity training costs ­– In addition to monetary awards, employment tribunals can order companies to carry out training and education, frequently in the form of discrimination prevention programmes. Some EPL Insurance policies will cover the costs of such training.

Top tips for policyholders

For all policyholders buying or renewing EPL Insurance, the following top tips should be front of mind:

• Inception / Renewal – Consider carefully the claims and potential claims that employees might make. Seemingly minor grievances can escalate into large claims and should not be overlooked. It may be helpful to include HR teams in renewal discussions to ensure insurers receive a fair presentation of the risk.
• Notification – Ensure claims and circumstances are notified promptly. Don’t overlook early-stage grievances or low-value, unmeritorious claims. Even small claims can be costly to defend, and underlying values frequently increase when claimants are required to fully articulate their claims or prepare schedules of loss.
• Claims Handling – Insurers should be kept informed about the progress of claims and their merits. Employment claims are frequently settled outside of court, and depending on policy terms, insurers’ consent is likely to be required. Settlement discussions may slow or stall if insurers are only asked or able to assess the merits of any settlement strategy after offers are made, as they will need time to consider the reasonableness of any settlement.

Conclusion: what do employers need to know?

Joseph Lappin, Head of Employment at Stewarts, comments: “In a rapidly evolving employment landscape, EPL Insurance is a helpful strategic safeguard. Employers must stay alert to legal reforms, social shifts and technological risks, ensuring their cover is not only current but comprehensive.

It should also be noted that while EPL Insurance can be a vital tool, it is not a full safeguard. Robust HR practices and a clear understanding of how evolving risks can translate into costly claims are equally essential.”

You can find further information regarding our expertise, experience and team on our Policyholder Disputes and Employment pages.

If you require assistance from our team, please contact us.

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