“The main reason a [business] should get the coverage is because no matter how well the employer treats his employees, it seems there is always one [employee] who feels he or she has not been treated right,” noted Tom Caputo, program manager for Rockwood Programs, a managing general agency based in Wilmington, Del.

“There tends to be a feeling, with a fired employee, that they have been loyal to the company, so why did they do that to me,” he said. “They say, Why me and not the other person? They feel they have to get back at the employer because they were wrongfully terminated.”

There are other “horror stories” the agents tell, and Rockwood has posted a few on its Web site for agents to use in their marketing of EPLI.

Among them, said Mr. Caputo, is the situation for a business that feels it needs to bring younger blood into its practice. The younger person is paid more and promoted. The long-term 50-year-old employee who has not kept up with the times sees this. When the older person discovers there is a pay disparity, he or she sues for age discrimination.

Or there is the case of the worker who performs poorly and goes out on a disability claim, he continued. After his or her return, the employee is fired a few weeks later for poor performance. The employee can claim the he or she was fired in retaliation for the workers comp claim.

In another situation, he said, a male employee might receive a dirty joke by e-mail, and while reading it, a female employee walks past the desk and reads the joke that the male employee is laughing over. The female employee then goes into her boss and claims what she read has created a hostile work environment. That touches off a sexual harassment complaint, said Mr. Caputo.

“There may be no liability, but the employer has to defend the case and that is the problem,” said Mr. Hauge. “Clients dont see themselves as doing something that would result in a judgment against them, but they can all identify with defense costs.”

And defense costs, said Mr. Caputo, can run into thousands of dollars without the case ever seeing trial. EPLI provides the insured coverage for defense costs, which can get expensive when an attorney walks into the case and begins charging $200 an hour, he said.

“The exposure is particularly severe for a smaller company where the cost to defend the case alone can put them under,” said Mr. Caputo.

He added that to keep the costs of a settlement down, many insurers settle quickly when they find out an attorney has stepped into the picture.

“Smart trial lawyers know that insurance companies would rather settle smaller claim demands than defend them at a greater cost to the [carrier],” he said.

As for the agent, not offering EPLI can result in an E&O claim against him or her. Clients wrongly believe that their workers comp and GL cover is all the insurance they need for their business, these experts noted. The agent needs to inform the client that its not, they said.

At his agency, Mr. Hauge said that, routinely, every GL or workers comp policy is accompanied with an offer for EPLI and an explanation of what it covers.

And when it comes to offering the policies in the face of escalating costs, what clients respond to most are the liability horror stories that abound about the employee claims that employers never thought could occur in their offices, said Mr. Hauge.

He noted that EPLI claims, in his practice, are as common as GL claims.

“There are a lot of claims out there,” observed Mr. Caputo. “The public is more knowledgeable about sexual harassment than it was 10 or 15 years ago. It has become very widespread.”

He added that more often, higher-salaried professionals file the higher-dollar claims, noting that there is more demand for compensation for their value to the company.

Agents know what their clients need in the form of EPLI coverage, Mr. Caputo said. With that knowledge, he advised that producers must look carefully at their clients policies to make sure there are no exclusions in them that would adversely affect the coverage.

An example would be a manufacturer who gets a policy with a strike and lockout clause, which would not cover claims stemming from a labor action

Where Cal Insurance helps its clients is in reviewing the clients employee handbook. Mr. Hauge said many middle market companies do not have human resource departments to review and update their handbooks. Not having proper procedures in place, such as for hiring and firing, opens a company to potential liability suits.

“Our most valuable asset is the human resource information we offer clients,” Mr. Hauge observed. “It has saved a lot of people from being sued.”

Reproduced from National Underwriter Edition, June 16, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.