Who among us anticipates being sued by the 10 or 15 people we deal with on a daily basis and have for many years? But it happens every day. Just scan the local newspaper.

EPLI's Time Has Come

It is companies “on the move”–those with growing numbers and categories of employees and changing relationships between employees–that are most vulnerable to EPL claims. A comment on someone's attire or a pat on the shoulder may be misconstrued, with serious consequences, by new generation/new gender employees.

Outright violations related to sex, race, religion, culture, pregnancy status, age or physical appearance (Title VII-related) can and do occur, even in well-run organizations. (Title VII of the Civil Rights Act of 1964 prohibits employment discrimination based on race, national origin, color or gender.)

In addition, age discrimination and surveillance of employees in the workforce are particular “hot buttons” right now, as is the often-murky realm of wrongful discharge.

Sexual discrimination remains the most prevalent EPL discrimination claim, according to a report by Horsham, Pa.-based Jury Verdict Research–”Employment Practices Liability: Jury Award Trends and Statistics–2004 Edition.”

Moreover, we estimate that 60 percent of small-business employers don't purchase EPLI coverage, even as the coverage type has been become less expensive and companies increase their annual insurance budget. On a volume basis, each year we are processing as much as 40 times in general liability premiums as that for EPLI–a sobering statistic.

Ethical and thorough agents should be promoting and selling employment practices coverage to their small and midsized employer clients. There are many businesses and job categories without significant claims experience for which coverage is available at good rates, and there are special underwriters in the market to handle firms with incidents in the past.

In most cases, coverages and policy language are similar between the standard and non-standard markets, with recourse to surplus lines related (understandably) to past claims experience, business practices or specific industry.

A Misunderstanding?

Consider this scenario: A rude awakening to EPLI often comes in the form of a call from a businessowner to an agent: “An employee has taken exception to conversation in the office and is asserting that we have sexual harassment going on. It is nothing, but I am calling you to put my GL coverage on alert, as I must do.”

The businessowner might be stricken to find out–and the agent embarrassed to report–that the GL policy will not apply because it does not cover EPL issues.

Even with larger companies that have directors and officers liability insurance, the policies apply to individual actions, not companywide behavior. The D&O policy is more related to decisions made in the financial running of the company, and may already contain EPL exclusions.

A Basket Case?

To answer such issues, many carriers offer business packages that include a limited amount of EPLI coverage and perhaps a risk management tool in the form of an inquiry hotline. We generally advise against this approach for several reasons:

o The premium is generally kept low by a high deductible and low coverage limit, which can be easily exceeded in this area of the law.

o The risk management tool may be rather limited.

o The burden of “solving” the claim may still be for all practical purposes on the businessowner's shoulder.

The untangling of improperly addressed claims gets expensive and troublesome, especially if the media or company gossip quickly publicize the issue.

A Remedy

Full-service agents should instead recommend more comprehensive standalone coverage that provides realistic coverage limits, appropriate legal defense including working with claims specialists well versed in EPLI, and a sophisticated risk management tool.

The better EPLI programs will provide the online equivalent of an entire human resources department, whose value can well exceed the premium expense.

Many growing companies still lack an organized and professional human resources department. Through their EPL insurance program, employees and supervisors will receive standardized employment practices training, access to a wide range of customized HR forms and programs, and in some cases, undergo pre-coverage assessment of the existing employment practices “environment” (and reporting of existing issues).

Setting the proper tone for employment practices training is essential, for there is a subtle balance going on between educating people about behaviors that are not appropriate and educating people how to file claims.

This is a touchy issue, handled best by a quality human resources component, for in practice, employment practices claims are often a relatively easy “add-on” by employees otherwise reasonably being severed from their position.

Thus, when presenting your client's EPL risk management needs, do not just shop on price, consider all components of a complete program–deductible versus premium and coverage limit; defense cost limit; availability of claims specialists; and comprehensive training and human resources functions, as opposed to a simple hotline.

The better policies will also expand on Title VII perils and incorporate all claims, applying to any local, state or federal employment practices law, as well as the Fair Labor Standards Act. This is important as new employment practices laws are regularly being created at the local and state levels.

Going forward, we may expect to see more pre-coverage reviews of a firm's employment practices, and even closer monitoring during the coverage period. It may be an extreme example, but we are aware of one major market underwriter mandating a review of a company's HR policies by an outside consultant at the insured's expense before any employee could be terminated.

Regardless, the best agents today will fully educate their clients with respect to modern EPLI risks and programs, thus demonstrating their value as risk management specialists.

In doing so, they can ensure that their business clients have enforceable and defensible employment practices in place, backed by realistic coverage limits and insurance defense, and quality human resources support. When the workplace runs smoother, so will one's business fortunes.

David J. Price is executive vice president and chief underwriting officer for Burns & Wilcox, a managing general insurance agent headquartered in Farmington Hills, Mich. He can be reached at [email protected].

Dale Diamond is EPLI product manager with wholesale-dedicated, surplus lines insurance underwriter Shand Morahan & Company Inc. He can be reached at [email protected]

Business packages or coverage baskets can include EPLI at attractive prices, but with high deductibles, limited risk management and inaccessibility to claims specialists, employers can face problems that don't emerge under standalone coverage.

Infographic: (use only if needed)

Flag: Danger Zones

EPL Hot Buttons

While race and sex discrimination claims have been continual EPL issues, current “hot buttons” include:

o Age discrimination.

o Employee surveillance.

o Wrongful discharge.

Quotebox: with mugs (or use mugs with bio if fits better)

“The better EPLI programs will provide the online equivalent of an entire human resources department, whose value can well exceed the premium expense.”

David J. Price, Burns & Wilcox

“Setting the proper tone for employment practices training is essential, for there is a subtle balance going on between educating people about behaviors not appropriate, and educating people how to file claims.”

Dale Diamond, Shand Morahan & Co.