Fixing EPLI

Employment Practices Liability Insurance (EPLI) is facing multiple well-documented challenges.  Claim frequency is up, verdicts in excess of $10 million are up, and there are indications that claim severity generally is on the rise.^[1] The overall picture is grim for EPLI insurers and employers alike. Meanwhile, employee discontent is on the rise.^[2] Everyone is looking for a better strategy. Rate adjustment and cost mitigation comprise stop-gap strategies, but if we want to reduce EPLI exposure, we need to analyze the product itself and the HR ecosystem it created. This analysis begins with two structural problems that directly impact claim costs and severity.

Structural Problem One: EPLI’s Third-Party Liability Structure is a Category Error

EPLI’s third-party liability structure is based on a fundamental category error, one that keeps frequency stubbornly high and drives a growing wave of retaliation claims. Namely, employee-on-employee EPLI claims are not third-party claims. The target of harassment is not a third party; they are an employee of the insured and are presumably a valuable asset of the organization. They are a first party.

The impact of this category error is a systemic disincentive for employees to report harassment or discrimination. For many obvious reasons, most employees do not want to be adverse to their employers. That is why upwards of 87% of employees never report Title VII violations.^[3]

And it’s not just employees; everyone involved in the EPLI universe is trapped by negative incentives. Employers are incentivized to mitigate claims by subtly discouraging reporting. Managers are incentivized to manage incidents themselves rather than admit bad behavior on their watch. HR is incentivized to isolate reporting employees by limiting communication or even telling them to stay home while an investigation is ongoing. Legal departments advise HR to keep the progress and results of the investigation confidential.

The unfairness experienced by employees who make credible reports is understandable when we consider that as long as the bad actor remains an employee, they meet the definition of “Insured” under the policy and therefore receive coverage under the company’s EPLI policy in the form of defense costs and settlements.

One consequence of this ecosystem and its negative incentives is that employees build up resentment toward their employers who appear oblivious, hypocritical, or cruel. If true harassment or discrimination is added to this stew of resentment, the result can be a severe claim, sustained by grievance.

Early reporting is widely seen as the solution to large, expensive claims. Employers respond to the under-reporting of Title VII violations with training, hotlines, ombudsmen, and zero-tolerance policies. But these efforts nibble at the margins.^[4] The incentives of the adversarial system control HR, and employees know it. Employees also have their own resources and incentives. They talk to each other. They exchange knowledge with employees of other organizations. They know that if they report a Title VII violation they will be adverse to their employer. They may not know the specific structures and systems that drive negative incentives, but they understand and prioritize their self-interest.

Rather than be adverse to an entire organization, employees who experience harm at work quit, quietly quit, or silently endure harassment while their co-workers look on and their employers appear oblivious. And with no incentive to stop them, harassers live to harass another day, causing more resentment and costing the employer even more. This is a source of severe claims. On a more subtle level, the employer’s data on its workplace is inaccurate, given that the employer only knows about a small fraction of its employees’ Title VII violations.

Structural Problem Two: EPLI Policies Overlook the Primary Risk to Employers

Toxic behavior in the workplace poses multiple risks to employers. Claims are one of those risks, but focusing only on claims has proven counterproductive. Employee-on-employee harassment or discrimination, whether or not it ever results in a claim, is an essential and costly risk to an organization. Mitigate that risk and you mitigate the risk of claims. Everyone knows this, but it’s hard to muster effective strategies because claims absorb our focus and capacity. Yet, if we focus on the impacts of bad behavior from the C-Suite to the assemblyline, the pervasive, expensive risk reveals itself.

Toxicity in the workplace leads to a host of costs that employers struggle to track to their source. With a bit of digging and de-siloing, however, significant costs can be traced to toxic pockets in the workplace. These costs include low productivity, unwanted attrition (and accompanying recruiting costs), increased healthcare needs, brand tarnishing, and inability to source top talent. In an unpredictable market where businesses are seeking to reduce inefficiencies wherever possible, addressing these amalgamated and sizable costs is worthwhile. So is reducing the frequency and severity of claims.

Fortunately, we know how to mitigate the behavior that results in Title VII violations. Peer-reviewed, evidence-based, heavily-cited research demonstrates that the most effective approach to mitigating employee-on-employee harassment and discrimination in the workplace is threefold: support employees who report; hold harassers accountable; and communicate transparently to everyone impacted about the steps you took.^[5] Employers rarely implement this advice, however, because communicating about potential claims would violate the cooperation clauses and defense cost coverage of their EPLI policies.

And it’s not just EPLI policies that cause problems; in an effort to mitigate claims, EPLI insurers recommend, or even demand, an HR ecosystem of handbooks and policies that shape how HR professionals and legal teams set strategies. These strategies include freezing communications with employees who report Title VII violations just when the organization should be supporting them for providing critical data about the risk of bad actors in the workplace.

In other words, we are all so conditioned to fear claims that we are willing to ignore cruel treatment of harmed employees at the same time we tolerate hidden harassers in our organizations. There is a moral component to this reckoning.

By focusing on claims, the EPLI ecosystem kicks in too late in the process and robs employers of their most effective tools in fighting the actual risk of harassment and discrimination. Obviously, mitigating the risk of harassment would mitigate claims, but ironically we can’t seem to get there because we can’t look beyond claims.

The Solution: Remove EPLI’s Structural Problems

Employee-on-employee harassment and discrimination that is reported to the employer and verified by an investigation is only part of the coverage provided by an EPLI policy. It can be reformed without impacting the effective aspects of EPLI coverage.

An EPLI policy can be revised in the narrow context of credible reports of employee-on-employee Title VII violations to provide first-party coverage to the employer for costs incurred supporting the reporting employee. These costs are minimal and include counseling, healthcare, or moving to a different team or a different location.

Meanwhile, the harasser can be excluded from coverage once the investigation finds that the report is credible. Harassers would then be required to pay their own legal bills, providing real accountability. If a final determination finds that the harassment did not take place, the alleged harasser can be reimbursed for reasonable costs. D&O policies have addressed negative incentives through reimbursement in this fashion.

Finally, if the harasser sues for wrongful termination, the EPLI policy can operate in its normal, third-party fashion. This restructuring of EPLI coverage thus aligns employers with employees who report credible Title VII violations, and places the harassers where they belong: outside the protection of the organization and its insurer.

If these EPLI reforms are incorporated in HR policies and properly rolled out, employers will be able to support survivors, hold harassers accountable, and communicate their actions to all stakeholders. Organizations can also begin building the trust with employees that is necessary for early reporting.  This will result in a healthier EPLI ecosystem, while providing considerable cost savings to employers and their insurers.

Meet the Author

Kit Chaskin

CEO, Third to First

After practicing insurance law for 28 years and leading Reed Smith’s Global Women’s Initiative Network, Kit now devotes herself to sharing what she has learned through her work as CEO of Third to First.  The team develops custom products that provide measurable outcomes for ending sexual harassment in the workplace by adjusting existing systems within an organization. Third to First realigns policies through the lens of workplace equity and safety. The return on investment of this pragmatic, confidential work is demonstrably superior to previous, ineffective approaches.

^[1] https://www.wtwco.com/en-us/insights/2025/06/employment-practices-liability-spotlight-carrie-kurzon-aig

^[2] https://hbr.org/2025/10/employee-discontent-is-on-the-rise-heres-what-to-do-about-it

^[3] https://www.eeoc.gov/select-task-force-study-harassment-workplace

^[4] Dobbin, Frank, and Alexandra Kalev. 2020. “Why Sexual Harassment Programs Backfire.” Harvard Business Review 98(3):44-52. https://dobbin.scholars.harvard.edu/sites/g/files/omnuum1871/files/dobbin/files/hbr_2020_dobbin_kalev.pdf

^[5] Dekker, I., & Barling, J. (1998). Personal and organizational predictors of workplace sexual harassment of women by men. Journal of Occupational Health Psychology, 3(1), 7–18. https://doi.org/10.1037/1076-8998.3.1.7