Employment practices liability insurance

Rough Notes, Jun 1999 by France, Larry

Litigation spurs continued growth

If you had a 2,000% increase in auto liability claims filed in the past 10 years you would be alarmed, providing you still had a company contract of course. That is approximately the increase in Employment Practices Liability Insurance (EPLI) cases according to some reviews of this exposure. It is a need that can be filled with comprehensive coverages and prevention programs; but if you don't address it properly, your agents E&O will be the next 2,000% increase.

Judgments of close to $200 million have been awarded in employment practices lawsuits, and it seems that every day additional incidents are eligible to trigger claim payments. The marketplace is reacting with better coverages, intense training, and lower premiums.

Harassment and discrimination come in many forms-sexual harassment, civil rights violations, age discrimination, wrongful termination, and violation of the Equal Pay Act or the Americans with Disabilities Act are a few possibilities.

Recent court cases have ruled that a company or entity could be held liable for acts of its supervisors even though they were not aware of the harassment and could not take action to stop the acts.

The Internet, our constant companion, is in the news. E-mail is flowing into the workplace in the form of adult-oriented, racist, sexist, or other offensive transmitted material. Don't forget that e-mail is discoverable and can be retrieved for a long period of time.

Certain types of businesses have a higher occurrence of EPLI claims. These include: professional offices, such as law offices and stock brokerages; government, local, state, and federal; entertainment risks; supermarkets; hotels/motels.

Today's workforce is a mixture of many different cultures and backgrounds-individuals of different race, religion, ethnic background, economic and social standing, and sexual preference. It matters little if you agree or disagree with an individual's personal views. The employee's legal rights are protected, and if a company violates these rights, it may well wind up in court.

In the case of EPLI placement, you will experience a much different attitude from carriers as opposed to most other coverages. The client is getting loss control services. The path taken with EPLI exposures is prevention, prevention, and prevention. Some providers include legal hotlines with initial free time allotments and additional consultation at a reduced rate.

Underwriting concerns to look for that could increase loss potential are:

No written and signed acceptance of company sexual harassment policy

Risks with multiple locations and no consistency in policy from one to the other

A risk that makes frequent acquisitions that result in layoffs, demotions, and job transfers (Any industry that comes to mind?)

Low percentage of women or minorities in the workplace or in management

No human resources training in place for the handling of EPLI complaint and claims

No employee manual distributed and signed by the employees stating they have read and understood it.

A major exposure and rating factor is the number of employees-which can be broken down into additional classes in the case of temporary or part-time employees. The more employees, the greater the punitive damage award that may be assessed in a judgment. Some programs may include volunteers as well.

EPLI policies can be on an occurrence or claims-made basis. ISO Form EP 00 01 is a claims-made policy. Each type has its advantages and disadvantages depending on the client and carrier. Stand-alone policies and endorsements to existing policies can be placed. Key coverage elements to look for are co-pay provisions, full prior acts, intentional acts exclusions, third-party coverage, downsizing exclusions, wrongful acts, defense inside or outside limits, strikes and lockouts. Some policies will exclude coverage for these; others have provisions to endorse the policy.

In most cases, the CGL will have very limited, if any, coverage for claims arising out of employeerelated violations. Check for ISO CG 2147 Employment Practices Exclusion which excludes any coverage on the CGL.

According to Glenn Clark, CPCU, president of Rockwood Programs, Inc., a subsidiary of E.W Blanch which has written EPLI since March 1997, "We have registered over $15 million in new accounts on behalf of Gulf and Lloyd's. The biggest hurdle for us has been to teach agents how to sell the product. There is a lot of quoting going on, and the bind ratios are lower than most products. There are a lot of reasons for this including: EPLI is usually a discretionary insurance purchase and you are not quoting against an expiration date; 80% of commercial insureds already think they have the coverage in their GL or D&O; and the normal gestation period between quote and bind is often eight weeks or more.

"Our approach," Clark continues, "has been to provide the agents tools to methodically quote their renewal books. A 24-hour fax-on-demand `tool kit,' quote indications software, Internet access to quotes, and sample letters requiring a prospect to sign off that his/her agent presented the coverage helps to increase sales, lessen an agent's E&O exposure, and even