By Brendan Zyvoloski, CPCU, ARM — Manager, Market Specialists (P&C), Zywave
AI-assisted claims, pay transparency laws, and sharper EEOC enforcement are reshaping employment liability risk heading into renewal season.
Employment liability (EPL) risks continue to evolve as employers navigate changing workplace laws, rising litigation costs and new expectations around employment practices. While discrimination, harassment, wrongful termination and retaliation remain the most common causes of claims, emerging trends are changing how claims arise and how much they can cost to resolve.
Artificial intelligence (AI) is making it easier for individuals to pursue legal claims, pre-litigation demand letters are becoming more common, and new pay transparency and AI laws are creating compliance challenges. Meanwhile, rising claim severity and shifting enforcement priorities add complexity for employers and their insurance partners. Zywave’s 2026 Broker Services Survey found that compliance is now the second-highest challenge employers report to their broker, and at its highest urgency since 2021, a sign that employers are feeling this pressure well beyond EPL and have less bandwidth to manage it alone.
For retail insurance brokers, wholesalers and insurance carriers, understanding these developments can help identify potential exposures, guide risk management discussions and determine whether clients’ employment practices liability insurance (EPLI) coverage remains appropriate.
The Rise of AI and Pro Se Plaintiffs
Generative AI tools can help individuals research employment laws, draft demand letters and prepare court filings without hiring an attorney. This is contributing to a rise in claims brought by self-represented plaintiffs, commonly known as pro se litigants.
Data from LexisNexis’ Lex Machina 2026 Employment Litigation Report illustrates the trend. Federal employment cases involving plaintiffs without legal representation increased from 2,052 in 2021 to 4,388 in 2025. Their share of federal employment litigation also grew, from 9.7% to 16.5%. Meanwhile, federal employment lawsuit filings reached a reported 26,635 in 2025, the highest annual total in at least a decade.
AI-generated filings may appear polished and legally detailed, even when their arguments or citations are inaccurate. However, employers may still incur substantial legal expenses responding to claims that ultimately prove unsuccessful.
Brokers should encourage clients to maintain accurate employment records, apply policies consistently and investigate complaints promptly. Employers should also route legal inquiries, demand letters and litigation threats to counsel and insurance partners immediately rather than responding informally, as pro se plaintiffs and the AI tools assisting them often probe early correspondence for admissions that can later be used against the employer.
An Increase in Pre-Litigation Demand Letters
Employment disputes do not always begin with a formal charge of discrimination or a lawsuit. Current and former employees, sometimes with legal representation, increasingly use pre-litigation demand letters to outline allegations and seek compensation or other relief before formal litigation begins.
These letters may involve wrongful termination, discrimination, harassment, retaliation or wage-related disputes. AI tools can also help individuals prepare formal-looking letters without hiring an attorney.
A demand letter does not establish wrongdoing or mean a lawsuit is inevitable, but it can signal a potential EPL claim. An employer’s response may influence whether the dispute escalates or resolves early.
Brokers should encourage clients to establish clear procedures for handling these letters. Employers should promptly notify their broker or carrier when required by the policy, preserve relevant records and consult employment counsel before responding. They should avoid ignoring letters, contacting represented employees directly or signing settlement or tolling agreements without legal review.
During renewal discussions, brokers should ask whether clients have a process for escalating legal threats and reporting potential claims. Early recognition and appropriate handling can help prevent disputes from becoming more expensive.
Increasing Claim Severity and Defense Costs
Rising legal expenses, substantial settlements and the potential for large jury verdicts remain important EPL concerns. Social inflation and increasingly complex litigation can add to claim costs, even when insurance market conditions are relatively stable.
Recent employment cases illustrate the potential scale of damages in specific disputes, although outcomes vary based on the facts, applicable law and appeals:
- Roque v. Octapharma Plasma, Inc. A California jury awarded more than $11 million in an age discrimination and accommodation case, including $9 million in punitive damages and more than $2.2 million for physical injuries and emotional distress.
- Boyle v. Wayfair, Inc. A Massachusetts jury awarded approximately $4.68 million in a retaliation case, including $4 million in punitive damages and $600,000 for emotional distress.
- Katz v. Cleveland Clinic Foundation. A jury awarded $2.275 million in compensatory damages for age discrimination and retaliation.
These cases are examples of the potential financial exposure in employment disputes, not proof that every EPL claim will result in unusually high damages. Even claims with more limited potential payouts can generate significant defense costs.
Brokers should encourage clients to look beyond premium during renewal. Employers should evaluate whether limits remain appropriate for their workforce, geographic footprint and potential exposure to multiple-claimant claims. The goal is to ensure that coverage reflects the client’s current risk profile while reinforcing practical measures that can reduce claim frequency and severity.
The Expansion of Pay Transparency Requirements
As of October 2026, statewide pay transparency laws have been enacted in California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, Nevada, New Jersey, New York, Rhode Island, Vermont, Virginia and Washington, as well as the District of Columbia. Requirements vary by jurisdiction, including which employers are covered and when compensation information must be disclosed.
These laws can create exposure when employers omit required salary ranges, publish inaccurate information or fail to provide disclosures at the required time. Greater pay visibility can also prompt employees to question compensation differences, potentially leading to unequal pay or discrimination allegations.
Brokers should encourage clients to review hiring and compensation practices across all jurisdictions where they recruit or employ workers. Employers should confirm that job postings comply with applicable rules, maintain accurate pay records and use consistent criteria for setting salaries and making promotion decisions. Tools like Zywave’s state and federal labor law comparison tool, and the law-change notifications built into its Employee Handbook Builder, can help employers keep up as this list of 17 states and D.C. continues to grow.
During renewal, brokers should ask whether clients have reviewed their compensation practices and whether they have a process for addressing employee questions about pay. Identifying inconsistencies early can help prevent compliance issues from becoming employment disputes.
New EPLI Exposures From AI Laws and Employment Tools
Employers increasingly use AI to screen applicants, assess performance and support hiring, promotion, discipline and termination decisions. These tools can improve efficiency but may also produce biased results or create new compliance obligations. Employers can face allegations of discrimination even when a third-party vendor developed the technology.
Several states are establishing specific rules for workplace AI:
- California: The No Robo Bosses Act (SB 947), signed in September 2026 and effective July 1, 2027, restricts employers from relying solely on automated decision systems to discipline or terminate workers. It also requires human oversight and verification when such systems assist with these decisions. Separately, California WARN Act requirements generally call for 60 days’ advance notice of qualifying mass layoffs, relocations or terminations by covered employers. Employers should also monitor additional notice requirements related to workforce reductions.
- Colorado: Revised AI legislation, SB 26-189, is scheduled to take effect January 1, 2027. It establishes requirements for developers and employers deploying covered automated decision-making technology in consequential decisions, including employment. Relevant obligations may include transparency, documentation and human review.
- Connecticut: The state’s 2026 AI legislation, SB 5, introduces requirements addressing automated employment decisions, discrimination, disclosures and certain AI-related layoff notices. Requirements have different effective dates, including provisions beginning in October 2026 and additional notice requirements scheduled for October 2027.
Brokers should ask whether clients use AI in employment decisions and whether they have processes to evaluate these tools, review vendor practices, test for discriminatory outcomes and maintain meaningful human oversight. Employers should also monitor applicable state and local requirements.
For EPLI, the key question is whether AI use creates new allegations of discrimination or other employment-related wrongdoing and whether policy terms adequately address the resulting exposure.
EEOC’s Focus on National Origin Claims and “Unlawful DEI”
The U.S. Equal Employment Opportunity Commission (EEOC) has emphasized enforcement against national origin discrimination affecting American workers, including allegations that employers favor foreign workers. The agency has also increased its focus on potentially unlawful discrimination associated with diversity, equity and inclusion (DEI) programs.
National origin protections apply to both American-born and foreign-born workers. Employers may face allegations when hiring, compensation, promotions or other decisions appear to favor individuals based on national origin or related assumptions.
The EEOC has also stated that DEI initiatives may violate Title VII when employment decisions are based on protected characteristics such as race or sex. This does not mean all DEI programs are unlawful. Their design and implementation matter, particularly when access to employment opportunities, training or advancement is involved.
Brokers should encourage clients to review, alongside legal counsel, relevant employment policies and programs, train managers on discrimination prevention and investigate complaints consistently. Zywave’s Learning Management System includes manager-focused training on harassment and discrimination prevention, and its Employee Handbook Builder gives employers a documented starting point for consistent, defensible policies. These steps can help employers identify practices that may create avoidable exposure.
What Brokers Should Prioritize This Renewal Season
Brokers can make renewal discussions more effective by focusing on five areas:
- Coverage adequacy: Review limits, retentions, defense-cost provisions, exclusions and reporting requirements alongside their clients.
- Emerging exposures: Ask about AI use, pay transparency compliance and changes to workplace policies.
- Risk management: Discuss documentation, employee handbooks, complaint procedures, manager training and demand-letter handling.
- Business changes: Consider workforce growth, expansion into new jurisdictions, acquisitions and restructuring.
- Leverage risk management resources: Discuss available , HR hotlines, training and risk management services available through your brokerage, insurance carriers or HR risk management partners. Zywave’s HR Hotline, and Learning Management System courses are built specifically to help brokers put these resources in clients’ hands without building them from scratch.
Looking Ahead to 2027
Employment practices risks are changing, but consistent workplace policies, thorough documentation, effective complaint procedures and timely legal guidance remain essential. By understanding emerging exposures and connecting them to appropriate coverage and risk management, brokers can help clients prepare for the EPL challenges ahead.
See how can support your clients this renewal season by requesting a demo.
