Other insurance and legal experts, however, provided a list of reasons to suggest those single-plaintiff cases may not be severe from a cost perspective, including the fact that potential jurors work for companies that are similarly impacted by economic pressures as defendant employers.

In addition, Ms. Padalino noted that midsize and large employers, by effectively managing layoff processes, are lowering the potential for class or mass actions by groups of employees. Termination activity “is a facet of employment that an employer can actually control upfront,” she said.

“Having [an insurance] customer appropriately manage a workforce reduction with outside counsel is something that really has an impact on the loss experience,” she said. “So there's good news there, because obviously layoff statistics are at unprecedented levels.”

Phil Norton, vice chairman for the Midwest region of A.J. Gallagher & Company in Chicago, Ill., reviewed the history of EPL insurance, noting that carriers have developed and fine-tuned service offerings to help employers handle employment events over the past decade.

“Now a reduction-in-force comes, and they [employers] have a lot of defensive measures in place–everything from how they've been running employee reviews and [providing] feedback and documentation [to] how they handle the actual layoff, including having someone talk to each employee prior to the layoff.”

Mr. Norton said some reductions have been “handled extremely well” to the point where “not only are the employees not concerned about suing their employers, but they're actually departing on good terms.” Some even express a desire to return to their employers when the economy recovers because they admire how their employers have handled this tough issue, he reported.

“I am impressed with the enhanced risk management I see across the client base,” he said, noting that Gallagher services accounts of all sizes in all industries, and has special expertise in 20 industry classes.

NUMBERS REVEAL BAD NEWS

Good processes, however, don't erase the fact that sheer numbers are working against employers. Unemployment is at record levels, and experts say terminations are the major trigger of EPL lawsuits.

Melissa Mattioli, vice president and EPL product manager for Liberty International Underwriters, a unit of Boston-based Liberty Mutual, noted that 99 percent of the EPL insurance applicants currently have either had a reduction-in-force or are planning one.

Mr. Norton noted that a study of a large collection of EPL claims that he worked on some years ago with a New York City law firm, revealed that 55 percent of all EPL claims were driven by a termination. “What was interesting was when we looked inside the 55 percent, a very small number were alleging wrongful termination. Most alleged discrimination, harassment and retaliation,” he explained.

Admitting his interpretation of the results was somewhat cynical, he said that “we found it fascinating that these individuals” were not aware of any of these issues when they were working. But when an individual got terminated, he or she would suddenly realize, “'I've been discriminated against the last few years,' or [would say], 'I never really thought about it until I was fired, but I've been harassed the last 12 months.'”

Charges of age discrimination in particular are rising quickly, Ms. Mattioli pointed out. She said charge statistics for 2008 released by the U.S. Equal Employment Opportunity Commission earlier this year show that age discrimination charges grew more than any other category, jumping nearly 30 percent to over 24,000.

“With age discrimination, once you're over the age of 40, it's a protected class,” she said. “It's much harder to prove sex or race” discrimination, she said. “So it's not shocking to see [the] spike in age claims.”

“We call it the baby boomer generational issue as we underwrite,” said Chubb's Ms. Padalino, noting that a rise in claims from aging baby boomers would be a factor for EPL insuers to deal with even absent current economic conditions.

In today's economy, “just simply based upon the demographic makeup of the baby boomer generation, the odds are higher and higher as the clock ticks that someone [losing his or her job] is going to be of [that] protected class,” she said. “And juries are very sympathetic to age” issues, she said.

Jack McCalmon, a partner with the law firm of Titus, Hillis, Reynolds, Love, Dickman & McCalmon, PLC in Tulsa, Okla., said that “typically, when [companies] lay off, they want to cut salary and overhead costs,” noting that older employees make more money and typically have higher benefit costs. “They're going to cut the people who are the most costly,” and even though it's illegal to do so, “that tends to be older workers,” he said.

Ms. Padalino added that while most of the talk in the EPL insurance industry is about layoffs, “the other real challenge is on the hiring side. [Employers] have a tremendous qualified applicant pool, but that leads to a lot of challenges” and increased potential for age and other discrimination suits, as resources of financially sound companies are stretched to “go through stacks and stacks of resumes, as opposed to the handful they got a couple of years ago.”

SEVERITY TEMPERED

Beyond the increased likelihood of claims in a recessionary economy, employers face continued threats of retaliation claims, wage-and-hour class actions, and emerging exposures from an expanded Americans With Disabilities Act and a changing political landscape. (For more on these topics, see related article in the June edition of NU's monthly e-newsletter, E&S/Specialty Lines Extra.)

“I know a lot of people are running for the hills and saying, 'The sky is falling,' but there are a lot of mitigating matters that people need to take a pause on and really evaluate,” said Mr. McCalmon, who noted that more claims do not necessarily mean bigger verdicts or large settlement numbers, summing up the thoughts of several insurance company experts.

Carrie Brodzinski, EPL product manager for Beazley Group in Farmington, Conn., noted that at this stage of the economic cycle, insurers start seeing EPL claims a little bit earlier. Claims they might not have brought at all, or might have brought later on, are going to be brought and brought earlier when people are worried about losing their jobs, she said.

When people bring their claims a little prematurely, what they may really be seeking is to get a settlement that pays them while they look for other jobs, she said. Therefore, “I think the severity sometimes tends to not be quite what it would have been if times were better.”

She also noted that while people who sit on juries typically have a great deal of empathy for plaintiffs in employment cases, “when times are bad, people are a little less likely to award really big amounts of dollars.” She reasoned that “everybody's feeling it,” referring to economic pressures.

Mr. McCalmon agreed. “The general rule is a carrier is at its greatest risk at the time of termination. But that's in a normal economy.” In a recessionary economy, a person who is laid off “is just one of many.” In a good economy, when you're laid off, “you have the mentality that you've been picked on or singled out.”

Mr. McCalmon said “another huge mitigating factor is the extension of unemployment benefits,” noting that the benefits take away some of the financial fear that can drive lawsuits.

In addition, Mr. McCalmon and Ms. Padalino said the use of severance agreements or releases is more prevalent in these times, especially from larger, more sophisticated employers, further mitigating exposure to EPL claims for their insurers.

Ms. Padalino explained that employees who are part of a voluntary or involuntary termination are asked to sign legal releases stating that they waive their rights to bring an employment-related lawsuits in order to get their severance pay or some other consideration (such as an extension of benefits beyond those they're already entitled to receive).

It's “a good best practice tip” to get such releases, “and it's something that we always advise our customers to utilize,” she said.

Even where such agreements aren't in place, employers are effectively handling one-off situations as they arise, Mr. McCalmon said. He said in his legal practice he sees charges brought by individuals “being settled pretty quickly,” usually for amounts that would be contained in a typical severance agreement.

The employee will bring a charge with the EEOC, Mr. McCalmon explained, the situation will go into mediation, and the employer may say, “It's a bad economic situation, but I'm willing to give you two months for each year of service if you'll settle this claim.”

“So it gets settled early, but it's still a charge” in the EEOC statistics, he said. So while soaring charges are creating anxiety among EPL carriers, “it is a very different animal right now,” he said.

Another mitigating factor, Mr. McCalmon said, is the fact that “there are only so many plaintiff attorneys and so many EEOC people” to handle grievances. “There is a push [by] many attorneys just to settle this–not to make big, huge class actions out of them,” he said.

Tempering claims severity is the fact that a lot of companies laying people off are financially in distress. “If you take on a big class action as a plaintiffs' attorney, you're pouring a lot of your own money in, and you cannot afford to be just another creditor in a bankruptcy,” Mr. McCalmon said. “They have to really think about it–will their own class action send [the defendant company] into bankruptcy?”