The Options Available

Some clients and their producers have chosen to obtain coverage by means of endorsing an existing policy, such as a D&O policy, or as an added-coverage part on a BOP policy. “It would be wise for producers and insureds to carefully compare policy coverages,” Mrozowicz noted. “BOP or similar combination policies may not provide sufficient protection. If a BOP includes EPLI, then it will likely have a small sub-limit, usually $50,000 or $100,000. In addition, coverage may be limited by restrictive wording, especially in policy definitions.” As an example, the definition of a wrongful act may be limited to harassment or discrimination only.

Shapiro noted that the option via a BOP policy “is not really coming up as much as it used to — the BOP markets that are left are now excluding it and writing it separately. If it's included, it's indeed a much lower limit than the policy limit.” He agreed with Mrozowicz that limits are normally restricted to no more than $100,000.

Shapiro also mentioned another change in the marketplace, one that's not what most of us would expect. “A limited number of carriers have only recently started providing Illegal Alien investigative coverage cost. This coverage comes into play if the federal government investigates a company for hiring illegal aliens. The coverage provides for investigative costs and defense costs incurred by the insured entity.”

Niche Markets

Like many other policy coverages, there are niche markets within the EPLI universe that require unique knowledge and solutions to industry specific problems. Tony Davenport is vice president of Restaurant Programs of America, and has been in the restaurant market for more than two decades.

Davenport pointed out that business owners and their agents need to become familiar with employee classifications (exempt versus non-exempt), especially as it relates to their business operations. “An example of a potential problem would be a chef working 60 to 70 hours a week and being paid a salary because the chef has been made a manager,” he said. “But that job classification may not meet the definition for manager according to the federal guidelines.” In the event of a termination or a disciplinary action against the chef, a claim involving FLSA could emerge.

While the example above relates specifically to the restaurant business, there may be similar situations involving your insured's business operations. It's critically important to know the details of the insured's operation to protect the entity, especially if one of your risk management tools is to choose proper coverage.

In addition, Davenport pointed out that buildings constructed before 1990 may not meet guidelines of the ADA, and there are attorneys aggressively trying to find those businesses. The process of finding said businesses can be as simple as driving around and physically inspecting the premises for doorway openings, restroom accommodations, proper size and type ramps, and other similar requirements.

If you're the agent of a business operation it will pay — in more ways than one — to make sure your clients or prospects realize what they're up against. Davenport pointed out some challenges his market faces, including “an increase in attorneys targeting EPLI issues, especially restaurants, along with working conditions that can be a recipe for trouble (late hours, men/women working together, alcohol availability) to name a few.” Again, your clients have their own potential landmines, so make sure you know the business operation well enough to identify them; make the client aware of the issues; and present viable options for a win/win solution.

Increase in Claims

Mrozowicz, Shapiro, and Davenport all agree that like many other lines of insurance, EPLI has been impacted by soft-market conditions in both pricing and coverage options, and they all expect more of the same on both rate and form.

“The current economic conditions could also generate an increase in claim activity,” added Mrozowicz. It certainly makes sense that an employee who has been terminated may not be as willing to simply move on, especially if the job market prevents that from happening. Sometimes with a disgruntled former employee, the former employer becomes the target of legal action. Employees are becoming more aware of their rights as time goes on, and attorneys are becoming more aware of the coverage.

Whether from increased customer claim activity, fear of same, marketing tactics, or a number of other reasons, new business is increasing for some carriers, and for Mrozowicz, it's all industries across a broad spectrum. Regardless of the reason, Shapiro commented that “It is more important than ever to obtain EPLI coverage.” Davenport agreed, saying “coverage is pretty reasonable considering all that's included, so while almost everyone is looking at cutting business expenses, selling or buying only on price has never been the best way to buy coverage, and certainly EPLI is no exception.”

Agents should be able to find fairly broad coverage and affordable pricing for EPLI. To help differentiate the product, Shapiro suggested looking at carrier service as part of the product. “Company-sponsored EPLI hotlines are a good resource — check with the carrier to see if such a service is offered and if so how it works.” You or your customers may already have access to such a hotline, but if you don't, most are operated where the phone call (from the insured) is for additional information for guidance from the specialist carrier. The idea is for the insured to get expert help before the claim occurs. The hotline answers some specific questions as they relate to the insured and the policy.