A Fired Worker Sued Marcus for $400,000. His EPLI Paid – But Only After He Covered the First $25,000 Himself.

*5 min read · Last updated July 10, 2026*

In this article

– What an EPLI retention actually is – The retention is usually spent on lawyers, not a settlement – Defense costs also shrink your limit – How the two features combine on one claim – What to check on your own policy before you renew – Frequently asked questions

Marcus Bell fired a crew leader in March after two written warnings. Six weeks later a process server handed him a lawsuit: wrongful termination and discrimination, $400,000 in claimed damages. Marcus carried employment practices liability insurance, known as EPLI, with a $1 million limit. He assumed the whole thing was now the insurer’s problem. Then his agent explained the $25,000 retention. That was the money Marcus had to spend first, out of his own pocket, before the policy paid a single dollar.

What an EPLI retention actually is

A retention is the employment-practices version of a deductible. On most small-business EPLI policies it is written as a per-claim amount. That means it applies to each separate claim, not once a year. Retentions in this market commonly run from $2,500 on a very small firm up to $50,000 on a larger one. Marcus’s was $25,000.

Here is the part that surprises owners. A car deductible comes out at the end, when the shop hands you the bill. An EPLI retention comes out at the beginning. The moment your defense lawyer starts working, the meter runs, and the first dollars of that legal work are yours to pay under the retention.

The retention is usually spent on lawyers, not a settlement

Even a claim with no merit costs money to fight. Defense on a single employment claim frequently runs $50,000 to $100,000 or more, and that is before anyone talks about a settlement. Your retention gets absorbed by those early legal bills long before the case resolves.

This is the trap for the reader to see clearly. You can win the lawsuit outright and still pay your entire retention. In fact, winning is often how the retention gets spent. It pays for the defense that produced the win. Do not assume that “we did nothing wrong” means “this costs us nothing.” A frivolous claim and a serious claim both start the same legal meter.

Defense costs also shrink your limit

The second mechanic compounds the first. Most small-business EPLI is written as “defense within limits,” sometimes called eroding or wasting limits. In plain terms: every dollar the insurer spends defending you is subtracted from the same pot of money available to settle the case.

So a $1 million limit is not $1 million for a settlement plus separate money for lawyers. It is $1 million total. If defense burns $200,000, you have $800,000 left to resolve the claim. A “defense outside the limits” policy keeps legal costs separate and preserves the full limit for settlement, but it costs more and is less common at the small-business level. The same erosion problem shows up on professional liability policies where defense costs erode the limit, and it works the identical way here.

How the two features combine on one claim

Walk through Marcus’s numbers. Total defense on his case came to $90,000. Of that, the first $25,000 was his retention, paid from his own account. The insurer covered the remaining $65,000. The case then settled for $150,000, which the insurer paid.

Marcus’s out-of-pocket cost was $25,000. The insurer paid $215,000 in total, $65,000 in defense plus the $150,000 settlement. On his defense-within-limits policy, that entire $215,000 came off his $1 million, leaving him about $785,000 for any future claim that policy year. He was covered. He was also poorer and lower on limit than he expected on the day the summons arrived.

What to check on your own policy before you renew

Before your next renewal, pull your EPLI declarations page and find three specific lines. First, the per-claim retention. Ask yourself a blunt question: could you write that check this week if a claim hit tomorrow? Second, whether defense is inside or outside the limits. If it is inside, know that your usable limit is smaller than the number on the cover. Third, who controls the defense. Many EPLI policies give the insurer the “duty to defend,” meaning they pick the lawyer, not you.

If you are still deciding whether EPLI belongs in your coverage at all, start with the basics of employment practices liability insurance for small business and how it fits alongside the different types of business insurance. An annual business insurance coverage review is where these three lines should get checked every year, not the day a lawsuit lands.

Frequently asked questions

What is a retention on an EPLI policy?

It is a deductible for employment claims. It is usually a per-claim amount, meaning it applies to each separate claim. You pay it before the insurer pays anything, and it typically runs from $2,500 to $50,000 on small-business policies.

Do I pay the EPLI deductible even if I win the lawsuit?

Yes. The retention is spent on the cost of defending the claim, and defense begins the moment a lawyer starts working. You can be cleared entirely and still pay your full retention, because winning still required a defense.

What does “defense within limits” mean on employment practices insurance?

It means legal defense costs are subtracted from your policy limit. A $1 million limit covers defense and settlement combined, not separately. If defense costs $200,000, only $800,000 remains to settle the claim.

How much is a typical EPLI retention for a small business?

It varies by company size and claim history, but $5,000 to $25,000 is common for small firms, with some policies going higher. The larger the retention, the lower the premium, so the two move in opposite directions.

Can I lower my EPLI retention?

Often yes, in exchange for a higher premium. It is a trade-off. A lower retention means less out-of-pocket cost when a claim hits, but a higher yearly cost. Ask your agent to quote a few retention levels so you can compare.