EPL market continues its boom

Rough Notes, Jun 1998 by Clapp, Wallace L Jr

An updated summary of some of the sources for coverage

he market for employment practices liability coverage (EPLI) has increased even more since we reported on it last October. More than 60 facilities offer the coverage on a monoline basis or in conjunction with D&O or professional liability insurance.

Court decisions will continue to influence the growth of EPLI sales. At a recent Professional Liability Underwriters Society (PLUS) seminar, a discussion about the growth of EPLI sales revealed that such policies have not grown as quickly as was expected. The reason for this is, in part, because companies are resisting the purchase of another insurance coverage, and because many agents do not understand what more the policy offers that cannot be obtained by general liability and D&O insurance.

The market, however, is likely to grow to reflect the changing legal atmosphere of EPL exposures affecting the workplace. In addition, specialty insurers are constantly broadening their EPLI forms to reflect these changing EPL exposures.

The EPLI policy, which originally provided defense and judgment awards for sexual harassment, wrongful termination and discrimination, has since been broadened by many insurers to cover a broad range of employment actions including the three original risks, as well as breach of employment contract, workplace harassment, failure to employ or promote, deprivation of a career opportunity, negligent evaluation and employment related misrepresentation, defamation or wrongful infliction of emotional distress. Some markets have extended their policies to cover punitive damages and prior acts.

The United States Supreme Court is considering three cases of harassment that may affect employers' liability to employees for sexual and other types of harassment.

Sexual harassment is one of three major exposures covered by the Employment Practices Liability (EPLI) policy, the hottest product in the specialty nonstandard marketplace.

The concept of sexual harassment was previously clarified by earlier court decisions which defined two types of harassment covered under civil rights legislation. These were "quid pro quo" and "hostile workplace" doctrines which have provided for payments to plaintiff victims in civil rights actions under E.E.O.C. More recently the Supreme Court judges have ruled that on-thejob sexual harassment can be illegal even when the offender and the victim are of the same sex. (Joseph Oncala vs. Sundowner Offshore Services, Inc., U. S. Supreme Court #96-5625, March 4,1998). This ruling extended provisions of Title VII of the Civil Rights Act. This provision was originally intended to address sexual harassment by opposite sex offenders.

The case is not thought to have any major effect on employers' liability, as the situation is only a small percentage of all sexual harassment incidences.

Cases before the Supreme Court yet to be decided may have a much greater influence on extending the exposure of employers for harassment, if decided against the employer.

Beth Ann Faragher vs. the City of Boca Raton, FL is a case that will help spell out an employer's liability for sexual harassment actions of its supervisory personnel when the plaintiff does not notify the employer of the harassment. Another case, Gebser vs. Lago Vista Independent School District (Texas), could determine the liability of a school district under Title IX of the 1972 educational amendments to the Civil Rights Act for a teacher's sexual relationship with an underaged student who never told anyone about it until the two were discovered by the police.

A third case concerning employer's financial responsibility is when a supervisor's pressure for sexual favors is accompanied by a retaliation threat that turns out to be empty. The employee was not fired when she refused sexual advances but later quit and sued, alleging sexual harassment. (Ellerth us. Burlington Industries). This is similar to the recent federal judge's ruling in dismissing Paula Jones' case against Bill Clinton.

Another important aspect to the EPLI insurance market is the increasing awareness in the area of loss prevention. Employers have to fill out forms assessing their human relations department's actions and procedures. In addition insurers are requesting employers to adopt positive practices and procedures regarding sexual harassment, termination, hiring and promoting and making these generally known to all employees and supervisors in the form of signs and employee handbooks. In order to help them avoid wrongful employment practices, employers are provided with other risk management tools, such as: fax hot lines; training for sexual harassment and other exposures; counsel by employment practices risk management firms; and newsletters.

Most markets provide limits of liability of at least $100,000. The limit ranges up to $25 million for large corporations, but a few markets have the capacity to offer up to $50 million if needed. Deductibles usually start at $2,500 and can be extended to as high as $25,000 for large firms. There is a trend to eliminate the coinsurance penalty. Policies are being broadened and minimum premiums are dropping. The introduction of a "standard" form in April 1998 by the Insurance Services Office, for use by all insurers, will further influence the market.