EPL PEO Staffing


EPL Policies and PEO Staffing Insurance Exposures

Employment Practices Liability (EPL) policies are now commonplace and available for nearly any firm with employees. But what if your client is considering moving their “employees” to a Professional Employer Organization (PEO) or a leasing firm? There has been rapid growth in the PEO and employee leasing industry, as more companies are trying to reduce their exposure and liability to workers’ compensation and other forms of insurance, benefits management, etc. The typical sales approach with a PEO or leasing firm is to eliminate the administrative and liability issues surrounding the employees by transferring those responsibilities to the PEO. But what happens to the EPL exposure? There is a lot of confusion surrounding the approach to take with an insured that has carried EPL coverage but has reduced employee count, significantly or completely, by moving them to the PEO or leasing firm. 


There are specialty policies written and geared towards PEOs and staffing firms, with unique language and endorsements that apply to the specific exposures within this class. But those forms are focused on the PEO and staffing firm and not the exposures for the employers (“Client Company”) that transfer employees to the PEO/staffing firm. 
A firm that is transferring employees to a PEO or staffing firm has to consider how its liability and EPL coverage could be affected by this move – and it’s not as simple as transferring the employees and having a clean slate. There may be EPL coverage gaps (as well as Errors & Omissions, or E&O, issues) if the EPL policies are not handled properly. The following provides an overview of some of the key coverage and liability questions and issues to review with a client to ensure that they, and their employees, receive the protection they need.

Responsibility and Liability

  • Who is the employer of record for the employees – the Client Company, the PEO or leasing firm, or both? Often there is co-employer liability, meaning the Client Company may still have liability even if its workers are considered “employees” of the PEO, so addressing the EPL coverage for the Client Company is important. Many EPL policies include language to cover “leased employees” on the Client Company policy. 
  • What’s the difference between legal liability and contractual liability, and how does this impact EPL coverage? Legal liability is determined by state and federal laws and statutes, regardless of whether there is insurance in place. Contractual liability (such as indemnity provisions or hold harmless) does not in and of itself create legal liability. If insureds rely on this provision, they may discover that their insurance doesn’t respond as intended if there is a lack of legal liability.  
  • How should warranties, applications, and known or unknown circumstances be handled? If the Client Company carries EPL coverage, they should only complete a renewal application, without warranty statements whenever possible. If the PEO requires an application, they should avoid warranty questions. EPL circumstances should be reported during the policy period, not waiting until there is a claim, as it may jeopardize coverage by both the PEO and Client Company EPL carriers. 
  • Is your client liable for wrongful termination, discrimination, or harassment lawsuits once the employees are transferred to the PEO or leasing firm? The question of co-employer and Americans with Disabilities Act (ADA) models can make a difference here. With co-employer liability, the Client Company usually retains liability, as does the PEO, so both insurance policies and carriers could be responsible. ADA responsibilities of the PEO (versus the Client Company) are less stringent since they’re not the operational entity. 
  • Are there coverage issues to be aware of if there are two EPL policies in place (one for the client, one from the PEO)? Yes, if the Client Company drops EPL coverage after transferring employees to the PEO/staffing firm, gaps in coverage arise for former employees of the Client Company. The PEO/staffing firm’s EPL policy is not going to pick up wrongful acts occurring prior to their involvement.
  • Is it possible that the coverage provided by a PEO’s/staffing firm’s EPL program will be less broad, or more limited, than a policy purchased by a Client Company? Yes. Many PEO EPL programs have a large aggregate limit but smaller sublimits available to Client Companies. The sum of each sublimit will often be a fraction of the total number of Client Companies handled by the PEO firm. For example, a PEO/staffing agency may work with 50 Client Companies, but may only purchase a $10 million limit with $1 million per client sublimits. It is much more cost effective for the PEO to purchase coverage this way rather than attempt to buy a dedicated $1 million limit for each and every Client Company. As a result, a high frequency of claims may reduce the insurance available to protect the Client Company. It’s also possible that the terms and conditions are not as broad as necessary. That doesn’t mean the Client Company’s liability goes away; it just means that there will be an uninsured portion that will have to be paid by someone – likely the Client Company.

Claims Made and Wrongful Act Policy Provisions

  • How does the retroactive date (or lack thereof) have an impact on coverage for EPL claims when the claim is made after employees are transferred to the PEO or leasing firm? PEO and staffing firm policies should include full prior acts coverage, but it is imperative to carefully review how liability from prior acts has been handled for employees before they were a responsibility of the PEO. You may see prior acts coverage on one page of the policy, but only for acts of the employees while under the control of the PEO.
  • How are prior and former employees handled, as well as their prior acts, and how do policies respond? Moving employees to a PEO/staffing firm may not cover prior acts and related exposures for Client Company employees that retired, quit or were terminated prior to the use of the PEO. Former employees may not be covered under the PEO/staffing policy, so dropping the Client Company policy leaves a gap. 
  • What if a claim names the Client Company but it’s because of a wrongful act of the PEO?There are endorsements available that address this situation, but it’s important to know how to manage the claims process to ensure both the Client Company insurer and the PEO/staffing company insurer are put on notice and that they work together. 

Risk Management Decisions for the EPL Policy of a Client Company and PEO/Leasing Firm

  • Should the Client Company drop its EPL coverage when moving employees to a PEO or leasing firm? Based on the comments above, it’s generally not a good idea to drop coverage. 
  • Will the Client Company’s EPL coverage premium drop once the employees are on the PEO payroll? The Client Company should make an effort to negotiate a discount on its policy based upon the employees outsourced to the PEO and the availability of coverage on the PEO EPL program (if one exists). There could be some reduction in premium, but it may not be a direct correlation to the drop in employee count, since some liability remains.
  • How will third-party EPL coverage be impacted after shifting to a PEO or leasing firm?The third-party exposure and entity liability remains even if 100% of the employees are moved to a PEO or leasing firm. The Client Company is still responsible for the treatment of customers, clients and vendors by its employees and staffed employees under its direction.
  • How will a claim be viewed, if the client’s existing EPL retention is different than that of the PEO? Working with both insurance carriers is important, as the difference in retentions will affect the negotiations, especially depending on which carrier takes the lead in the defense. You will need to review and possibly modify the “other insurance” provision in both policies to determine which EPL policy intends to respond as the primary policy.
  • With regard to EPL exposures, is there anything a client should look for when negotiating their contract with the PEO? The contracts may affect reporting of claim provisions and who has control of the claim and right to settle. The Client Company may not want to give the PEO the sole right to settle claims on behalf of the Client Company. There can be reputational damage from an employment claim and the Client Company may want to have input on the resolution.

Obviously, if a Client Company has any employees outside of the PEO arrangement, it will need to have its own insurance for the actions of and claims brought by those employees.


As evidenced above, there are many EPL insurance-related questions and issues a company should consider when transferring employees to a PEO or leasing firm. Weighing the advantages and disadvantages of stand-alone EPL coverage, compared to relying on the PEO or leasing firm’s EPL policy, or a combination of two policies, can be a complex decision. Coverage gaps can exist if these and other complications are not fully considered during the transition. AmWINS' Financial Services brokers can help navigate through the EPL exposures and decisions and ensure you are adequately informing and assisting your client with their EPL coverage. 

This article was authored by Dave Weller, a managing director of the AmWINS Financial Services Practice.
Contact Us

To learn more about how AmWINS can help you place coverage for your clients, reach out to your local AmWINS broker.  If you do not have a contact at AmWINS, please click here.

Legal Disclaimer. Views expressed here do not constitute legal advice. The information contained herein is for general guidance of matter only and not for the purpose of providing legal advice. Discussion of insurance policy language is descriptive only. Every policy has different policy language. Coverage afforded under any insurance policy issued is subject to individual policy terms and conditions. Please refer to your policy for the actual language.

(c) 2017 AmWINS Group, Inc.

Most Popular Insights

5 Strategies for Successful Small Business Renewals During COVID


In the current economic climate, many small businesses are struggling and some may even fail. Despite these challenges and the continued hardening market, there is opportunity for retailers to write and retain business. This article provides guidance on navigating the complex small business marketplace and helps retailers fine tune their understanding of what insurable risks will look like over the next 12 to 24 months.

What Product Recall Insurance and Risk Mitigation Plan Is Right for Your Clients?


​Product recalls are one of the most damaging events a business may encounter. In order to effectively respond to an incident, companies must be prepared with proper risk management strategies. As policy wording varies, it's also critical to ensure your clients have the right policy type in place to appropriately address their first- and third-party exposures.

State of the Market - Q2 2020


Our Q2 2020 State of the Market report provides a holistic view of highly impacted industry segments as well as overall market trends. This report is designed to help our retailers gain the knowledge they need to retain accounts, write new business, overcome challenges and capitalize on opportunities that do exist.

10 Catastrophe Claim Tips for Severe Weather Season


Severe weather can be unpredictable and strike at any time. Help your clients be prepared in the event their property is damaged by a hurricane, tornado, hailstorm or similar disaster with these 10 catastrophe claim tips.

On-Demand Webinar: COVID-19 Economic Impact and Future Outlook


As a result of the COVID-19 crisis, our industry is facing a broad array of challenges that impact insureds of every size and in every industry. In the first of a series of webinars, we hear from an economist on the financial impacts of COVID-19 and what we can expect in the future. This webinar is intended to complement your conversations with clients about how to plan for the next 12 to 24 months.

Lloyd's CEO and Property Underwriters Share COVID-19 Response and Market Update


This podcast features an update from John Neal, CEO of Lloyd’s, on the state of the Lloyd's market and their response to COVID-19 as well as a panel discussion with London Property underwriters on how they view the pandemic's impact both the Property sector and their syndicate's business.

Lloyd's CEO and Casualty Underwriters Share COVID-19 Response and Market Update


This podcast features an update from John Neal, CEO of Lloyd’s, on the state of the Lloyd's market and their response to COVID-19 as well as a panel discussion with London Casualty underwriters on how they view the pandemic's impact both the Casualty sector and their syndicate's business.

Lloyd's CEO and Professional Underwriters Share COVID-19 Response and Market Update


This podcast features an update from John Neal, CEO of Lloyd’s, on the state of the Lloyd's market and their response to COVID-19 as well as a panel discussion with London Professional Lines underwriters on how they view the pandemic's impact both the Professional Lines sector and their syndicate's business.

Flood 101: What to Know About Standard Flood Insurance


Ninety-eight percent of all United States counties were impacted by a flood event in 2018, yet many property owners remain unaware of their true risk of flood or what their existing policies cover. This article highlights key statistics about flood risk and outlines the differences between the National Flood Insurance Program and private market flood insurance.

Professional Lines Challenges and Market Response During the COVID-19 Crisis


The COVID-19 crisis has created a rapidly changing environment for the Professional Lines market. With the uncertainty of how claims will develop and the potential for increased exposure, retailers must be proactive. In this article, AmWINS specialists share their insights on why this is more important now than ever, including reactionary underwriting trends, D&O policy exclusions and impacts to EPLI, as well as the threat for increased cyber attacks and crime losses.

Small Business and Personal Lines During the COVID Crisis


Loss of revenue caused by stay-at-home orders due to the coronavirus pandemic has affected small businesses and the insurance industry serving them significantly. As retailers and carriers prioritize their focus to adapt to the “new normal” of daily transactions, underlying market dynamics remain unchanged. In this article, our experts share their insight on the current changes that we are seeing the small business and personal lines market, and how to navigate the market a this time of uncertainty.

Mind the Gap: COVID-19's Impact on the Logistics Industry


The disruptive impact of the COVID-19 outbreak on supply chains is already having a pronounced effect on the world of logistics and logistics insurance. Port closures, demand surges and production shifts are requiring nimble response to keep up with change. This article arms insurance brokers with the information needed to understand the changes taking place and plan for what is likely to occur in the months ahead.

Navigating the Casualty Market’s Response to COVID-19


The Casualty market’s response to COVID-19 is continuously evolving. With a wide array of factors already impacting this sector pre-crisis, segments of the Casualty marketplace are responding to the pandemic differently. In this article, our industry specialists share overall themes in the Casualty market and take a closer look at how various segments are being impacted.

Top COVID-19 Issues Impacting Builder’s Risk Insurance


The COVID-19 pandemic is causing historical disruption to the construction industry. These changes mean that risk mitigation strategies need to be implemented or revisited, policy language should be reviewed, and carriers should be apprised of all changes at the work-site. In this article, AmWINS specialists examine the major areas of concern for Builder’s Risk insureds, including government-mandated shutdowns, supply chain-driven slowdowns and policy wording that could limit coverage, and provide guidance for retailers to achieve the best results for their clients.

State of the U.S. Logistics Insurance Market


For decades, the logistics insurance market has been considered a sub-market of the cargo or ocean marine market. However, the continual rise of e-commerce and its effect on the global supply chain has carved out a complex and expansive industry niche. This article provides insight into the various lines of coverage, the specialized underwriting approach, and rate surges within the U.S. logistics insurance market.

Lloyd’s & the London Market’s Response to COVID-19


During the COVID-19 pandemic, Lloyd’s remains open for business and syndicates have successfully transitioned to working from home. However, there are notable changes in how the London market is approaching business. In this article, specialists from THB, AmWINS’ London broker, share their insight on consistent themes across the London Market as well as updates on various lines of business.

COVID-19 Claims Advice


There have been a lot of questions regarding COVID-19, in particular about coverage and claims handling. This claims advice is intended to offer guidance to help our retail clients through these difficult times.

Insurance Impacts of COVID-19 on the Healthcare and Senior Living Industry


As the healthcare industry remains on the front lines of battling the COVID-19 pandemic, staying abreast of the changing landscape and how the insurance market is adapting is critical to ensure new exposures are covered and renewals are successfully placed. In this article, our specialists share what they are seeing in the Healthcare and Senior Care markets, tips for risk control and mitigation, and how to get the best results for insureds.

Statute of Limitations Changes Cast a Shadow on Public Entities


​Public entities are facing a climate of change as the market continues to harden and insureds are faced with double-digit rate increases in property and liability. Contributing to this disruption are statute of limitation changes for sexual abuse victims, which have extended or removed the time limit for which a victim can file a claim. This article examines the impact of increased claim activity and discusses considerations that need to be made to better manage costs during this time of uncertainty.​

COVID-19 – Are Your Clients Covered?


The disruption to business and everyday life caused by the coronavirus (COVID-19) pandemic is resulting in an economic impact for insureds. Much of this disruption is likely not covered by insurance. We have consulted with several AmWINS insurance specialists across the Property, Casualty and Professional Lines sectors and offer a COVID-19 update.

Sign Up For Our Monthly Newsletter

Sign Up