In such a labor-intensive industry, it may seem counterintuitive that so many vulnerable businesses carry no EPLI coverage. Some of the characteristics, however, that make the industry such fertile ground for employment practices and customer discrimination lawsuits also lead to owners and corporations that do not insure themselves for this risk.

Hotels and restaurants are fast-paced operations, peopled with many different cultures. These operations are often highly territorialcooks vs. wait staff vs. housekeeping, etc. Managers, particularly in restaurants, are generally younger and male. According to the National Restaurant Association, the typical non-managerial employee in a food service occupation is female, under 30 years of age, single, working part-time and averaging 25 hours a week, and living in a household with two or more wage earners.

These operations also demand long hours, high energy and quick-thinking activity among employees who must function as a team. Humor and constant banter relieve stresshowever, it can also lead to misunderstandings and confrontations that produce unintended consequences, including serious insurance claims.

Hotels typically do not have as high a claims frequency as restaurants do, but they share many of the same characteristics that can affect frequency. Long hours during nights and weekends can be stressful and demanding on family life. Hotels which have bars can lead to a party atmosphere among the staff. Some hotels, in trying to keep up a “business” image, have been subject to class action customer discrimination suits for changing room rates on the basis of race.

Verdicts and settlements in EPL lawsuits against restaurants can be very large. The negative publicity generated can be damaging as well. Consider the recent case of a Missouri Burger King that will pay $400,000 to seven young female employees to settle sexual harassment allegations, according to the Equal Employment Opportunity Commission. The women, all but one of whom were in high school at the time, charged that the store manager groped them and demanded sex. He was in his late 20s.

Or consider also several well-publicized cases earlier this year involving the Cracker Barrel chain. In one case, it was alleged that the chain discriminated in employment based on race and that employees were being forced to work off the clock and to perform non-serving duties while not being paid minimum wage. In another suit filed by the National Association for the Advancement of Colored People, it was alleged that Cracker Barrel discriminated against black customers, forcing them to wait longer for seats and to sit in segregated areas.

According to public filings and announcements, on Sept. 8, 2004, Cracker Barrel agreed to settle litigation alleging violations of the Fair Labor Standards Act as well as allegations of discrimination in employment and public accommodations, agreeing to a total payment of $8.7 million.

For restaurants and hotels, some of the best loss control procedures include:

The development and posting of concise and clear policies and rules for workplace behavior.

Tangible and visible top management support of such policies.

However, even the best loss control practices and taking all recommended preventative steps will not insulate a restaurant or hotel from a claim. As any hands-on restaurant manager or chef will acknowledge, banter of a sexual nature is common in the industry. In addition, some employees may not know, let alone understand an organizations anti-discrimination practices.

In the hospitality industry especially, high turnover compounds the difficulty of indoctrinating employees about an organizations rules and then updating them as needed. A local restaurant may not follow corporate dictates as much as senior management expects. A diligent human resources operation is a must, but so is proper insurance protection.

So why is EPLI coverage still not a standard coverage in many hospitality insurance packages? Some owners feel they can control whatever employee situation may arise.

Hoteliers and restaurateurs are typically proud entrepreneurs and believe they can and do run an effective, efficient operation.

Many hotel and restaurant operators are foreign-born and are not aware of the many U.S. laws regarding workplace conduct or of the litigious nature of the United States. They reason, “It was not a problem in the old country, why should it be here?”

Some operators are off-premises, so they may not see the problem first-hand.

In addition, many hotels and restaurants are running on tight budgets and do not want to spend the money on coverage. Coverage may also be difficult to find if the restaurant has had a previous EPL problem.

Some owners also hold the perception that trial lawyers will target only those firms that maintain enough insurance coverage, i.e., deep pockets.

If theirs is a smaller establishment, they may reason that EPLI coverage is unnecessary. There is some truth to this, however with one major flaw. In an EPLI claim, claimants may sue the individual, so an owners personal assets are wholly at risk. Proper EPLI coverage will help protect those assets.

Clearly, the cases here and literally hundreds of others that could be cited illustrate the dangers of “going bare”that is, without EPLI coverage. The frequency and severity of suits alleging employment-related wrongful acts has been on an upward spiral for years. This rise stems from many factors, not the least of which is employees heightened awareness of their rights, a more aggressive and growing body of plaintiffs' lawyers specializing in employment law, and more multiple-claimant and class action suits.

Hotels and restaurants because of their unique characteristics are particularly at risk. EPLI coverage is not a luxury. It is an absolute must.

Dale Diamond is the EPLI program manager at Shand Morahan Co., a wholesale-dedicated surplus lines insurer serving nonstandard and niche markets

based in Deerfield, Ill. For more information, see www.shand.com.

Reproduced from National Underwriter Edition, January 6, 2005. Copyright 2005 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.