Financial Services Industry

EMPLOYMENT PRACTICES LIABILITY

Rough Notes, Jun 2005 by France, Larry G

Do lawsuits begin at 40?

As the result of a recent U.S. Supreme Court ruling, any worker over 40 years old can allege age discrimination even if the employer never intended to harm the employee. The fact is that even though this looks like a new advantage, anyone filing will probably have a difficult time winning the case. Okay, that means that the losses will not increase. What about the duty to defend? With most limits inside the primary, defense costs could erode the policy limits. Who is the winner?

When taking a look at pricing, risk selection and other market conditions you must consider the geographical area, type of operation (nonprofit vs. public entity), and number of employees of the client.

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"Pricing on EPL policies is holding steady, with companies with smaller numbers of employees (approximately 750 or fewer) getting better rates than larger risks," according to Richard G. Clarke, CIC, CPCU, RPLU, senior vice president of J. Smith Lanier & Co. and a member of the EPL subcommittee for RiskProNet International, Inc.

Clarke said that although underwriters have been competing heavily for nonpublic D&O risks with EPL included, public entity D&O risks are not nearly as desirable to them and EPL is virtually never included in the same policy, but is underwritten separately.

According to Michael J. Maloney, senior vice president of Global EPL at Chubb Specialty Insurance, pricing for EPL appeared to have achieved a good balance by the end of 2004 "with carriers seeking rate increases to account for exposure increases. In 2005, most accounts should see flat renewal rates or maybe a slight price reduction, especially if they experienced several consecutive years of price increases and can demonstrate improved human resources controls and loss/claim activity on the account. Unfortunately, based on continued inflation in loss costs and claim activity, there seems to be scant room available for ongoing rate relief," says Maloney.

Maloney predicts that the industry can expect a small but steady inflation in EPL claims frequency and severity. More class action suits are in the future as evidenced by the recent Supreme Court ruling in the Smith v. City of Jackson, Mississippi case, which seems "to open the door to more costly age discrimination cases by allowing employees to allege adverse impact instead of outright intentional discrimination."

Chris Ketcham of Great American's Executive Liability Division agrees that the market remains very competitive in the small account area where a number of carriers have focused their underwriting efforts.

"We've seen EPL rates soften only moderately for small accounts (0-250 employees) over the past year (roughly 0%-5%), but rate increases can vary greatly depending on the account and the expiring rate," according to Ketcham. "The larger EPL risks have had less rate softening and some have been required to take higher retentions particularly if they have had significant claim frequency or severity. We expect the competitive market conditions to continue, given the softness of the public D&O marketplace."

Ketcham says that Great American expects to grow in the EPL market in 2005-but at a slower rate than in 2004.

Patrick Campbell of NIPC (National Insurance Professional Corporation), A/D/O Risk Placement Services agrees. "Median jury awards persistently march upward. While we are still seeing rate reductions, the pace of the decline has slowed considerably in recent months. Markets continue to hone their competitive focus to specific areas and cases of business that have proven profitable to them."

Campbell says that "challenged" accounts are now less difficult than a year ago and third-party coverage remains readily available, even for classes with significant exposures.

J. W. Edwards of Bailey Special Risks, Inc., observes that coverage forms have generally improved. The pricing has eroded in the past 12 months and loss control services are better across the board.

All in all, this class of business appears to be in better condition than most.

The following have responded to our survey and have indicated that they are a market for EPLI.

Agency Marketing Services, Inc.

P.O. Box 67218

St. Pete Beach, FL 33736

Contact: Stephanie Hays

Phone: (800) 542-2805

E-mail:

shays@agencymarketing. com

An E&S broker operating in AL, FL, GA, MS, NC, SC, TN and TX with limits of $25 million (minimum deductible is $2,500; minimum premium is $1,000). Available for most types of businesses (no size limitations). Can offer D&O. All carriers are A rated.

All Risks, Ltd. and All Risks, LLC

10150 York Rd., 5th Fl.

Hunt Valley, MD 21030

Web site: www.allrisks.com

Texas office

All Risks, Ltd.

12400 Coit Rd., Ste. 510

Dallas, TX 75251

Contact: Angela George, Ext. 104

Phone: (800) 590-022

Fax: (469) 791-9247

E-mail: