“Bad actors are not at all new to any industry,” says Carrie Kurzon, national EPLI product manager at The Hartford. “What is new is the increased visibility to those bad actors, particularly in the entertainment space.” In turn, the conversation is certainly changing in the employment practices liability insurance (EPLI) space.

Shifting market

EPLI remains a competitive market, says Kurzon, “but we expect to see a shift given the high visibility of these bad actors that have made it into the mainstream news lately.” A lot of insurers that have more recently entered the market, she explains, may not understand how comprehensive the coverage can be — and once their understanding of that develops, “we may see some carriers exit the space. On the other hand, the ones that have been around for decades have a greater understanding of the risks in this changing climate.”

“We've all heard what has been happening in the entertainment industry; this appears to be a systemic problem, and the industry is doing what it can to clean up the mess,” says Pete Campbell, vice president of wholesale broker/MGA Worldwide Facilities. “I do believe this is the tip of the iceberg, and there will be more allegations. The heightened awareness may also trickle out of Hollywood and into other industries and government.” He cites the Nov. 1 resignation of U.K. Defense Minister Michael Fallon amid claims of harassment as one example.

“I had a claim a few years back where a manager of a company had inappropriate images on his screensaver,” Campbell recalls. “An employee of the company saw the images; this individual was terminated for cause at a later date and filed suit alleging harassment, specifically citing the pictures. The matter was settled out of court for a significant amount of money. The point is, the law frowns upon employers that do not provide harassment- and discrimination-free work environments.”

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Leading causes of claims

Of course, sexual harassment is not the only type of bad management behavior that can result in claims.

“Today's landscape, with its decreasing enforcement of political correctness, is allowing some managers to do or say what they will, with the feeling that they cannot be held accountable for their words or actions,” states Michele Epstein, vice president–professional and management liability for Santa Rosa, Calif.-based RIC Insurance General Agency Inc. “In one recent case, a manager was accused of being racially insensitive by complaining to an employee about an item spilled in the kitchen that was an 'ethnic' food.” This type of behavior, she explains, is leading to an increase in discrimination claims.

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Currently, the biggest source of claims in the EPLI space is retaliation. “Retaliation claims are clearly the front-runner as far as claims filed,” says Campbell.

The Equal Employment Opportunity Commission (EEOC)'s 2016 report noted more than 39,000 reported claims for all statutes and more than 31,000 claims for Title VII retaliation claims. Texas and Florida are the leading states in EEOC claims filed in 2016, followed by California, Illinois and Georgia.

“Holistically speaking, the marketplace mirrors EEOC statistics,” Kurzon says. “Retaliation is the most frequently brought cause of action, alleged in just under 50% of claims. Due to the nature of a retaliation claim, it typically raises questions of fact and, therefore, is not likely to be summarily dismissed. Retaliation cases can be tenuous but, typically, the timing of any adverse employment action can be problematic for the defense. Employees can complain about any protected right. They could have a disability and have no real claim but just feel they've been wronged. If they feel they are treated worse than before they complained, they may allege retaliation.”

Increase in retaliation claims

For example, Kurzon says, if an employee broke her ankle and said she needed to work from home, and then came back to work and her manager took some of her responsibility away, the employee may have a retaliation claim.

“There has been a significant increase in the number of retaliation claims filed over the last 20 years,” says Chris Williams, employment practices liability product manager at Travelers. “In fact, the percentage of charges alleging retaliation has increased every year over the last 20 years except for one. One reason is that anybody can bring a retaliation claim. You don't necessarily need to be a member of a protected class in terms of your race, disability, age or gender. Anybody in the working population can potentially bring a retaliation claim. If someone brings a claim for discrimination, which may have no merit, the retaliation claim still could have merit.

“One of the things that makes these cases particularly difficult to defend is they involve factual disputes as to what happened, and it's often difficult to have a court dismiss those cases on a motion for summary judgment — which means a lot of times an employer is facing a jury trial if they are sued,” Williams continues. “Somebody who's been terminated after lodging a complaint about an issue, or somebody who complains about something in the workplace and then is given less-desirable work assignments, can bring a retaliation claim.”

RIC's Epstein and others also predict increases in discrimination claims due to the aging workforce population.

Sales and competition heat up

Experts agree that EPLI remains a competitive market. “More companies are purchasing EPLI now than in the last 10 years,” Campbell says. “Because employees are becoming more aware of their rights, I believe the need for coverage will continue to expand. The market is very competitive; to my knowledge there are more than 30 carriers offering a stand-alone EPLI product.”

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That competition helps to keep rates “lower than they probably should be, and carriers are still offering broad coverage,” he continues. “With as many carriers offering coverage as there are, it's hard for insurance companies to get the rates they would like.

“Identifying and keeping up with emerging trends is one of the greatest challenges” in serving EPLI clients, Campbell adds. “In this space, things appear to be evolving, and it's important for brokers to keep up with all the changes in the marketplace.”

How can carriers and brokerages differentiate themselves to clients in this market? “Find the best terms, conditions, and pricing possible for your clients that are available in the marketplace. Do policy comparisons for your partners. Stay knowledgeable about the changes in this space. Know who is offering what and who is not,” Campbell advises. “Be a resource, not a paper-pusher. Know your products and be articulate when explaining your message. You are the expert, and your insureds need you to be able to explain the reasons they need insurance.”

“There is a lot of capacity available in the marketplace; however, not all capacity is created equal,” notes Beth Goldberg, chief underwriting officer, financial lines at Starr Companies. “Insureds need to assess both coverage and carrier when choosing where to place coverage.

“Carriers typically do not use standardized forms nor do they have in-house claims teams, so it's important for the broker and insured to understand the differences,” adds Goldberg. “Carriers and brokers can differentiate themselves from others by identifying and providing risk management services to insureds to help mitigate risk.”

“Given that EPLI coverage has the highest claims frequency of any management liability insurance product, insurance carriers can successfully differentiate themselves in the marketplace based upon quality of claims service, loss-prevention offerings, and access to broad, cost-effective, and top-quality legal defense firms,” says Mike Schraer, senior vice president/Employment Practices Liability and Not-for-Profit Product Manager at Chubb.

Worldwide Facilities Broker Jeremy Huang advises insurers to seriously reconsider how to evaluate EPLI risk/exposure: “Consider new factors that present a better or more refined approach to evaluating risk/exposure for EPLI,” he says. “Don't just look at adjusting your underwriting guidelines using existing underwriting criteria — look to innovate and create better evaluators of EPLI risk/exposures.”

“The No. 1 thing I feel most strongly about is service: stellar service and commitment to the market,” says Kurzon. “Brokers and carriers need to understand their clients' risks and advise them on how to best protect themselves given this challenging legal landscape.”

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Want fewer claims?

Campbell, Epstein, and other experts predict that companies will be seeing further examples of harassment, discrimination and retaliation claims related to poor management behavior if they do not take steps to create an appropriate environment.

“Prevention is still the best tool to minimize these claims. Companies must develop a culture, emphasized and acted upon by all executives, of zero tolerance toward acts of harassment, discrimination and retaliation,” says Williams. “Companies must provide training to all employees within the organization, as well as implement a policy and review it periodically to ensure it is up to date. And finally, a company may want to consider purchasing an employment practices liability policy to address these exposures.”

Epstein adds, “Brokerages need to impress upon their insureds the need for good, solid EPLI coverage. Too many small firms feel that they have little or no risk, when in fact they may be the ones that are more likely for a claim to be filed. Carriers and brokerages that succeed will assist the policy holders in risk management techniques, pre-claim assistance and employee training.”

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“Employers should have appropriate policies and procedures that comply and keep pace with evolving federal and state legislation and are properly disseminated to all employees,” stresses Schraer. “They should diligently and consistently follow and adhere to those policies and procedures and should effectively document any material decision-making and actions regarding employment relationships to successfully survive future challenges.

“One EPL challenge is that it's an ever-evolving landscape from a legislative environment,” Williams adds. “Primarily, it's making sure that clients have an appropriate culture that has zero-tolerance toward discrimination, retaliation, harassment, and that type of conduct in the workplace.”

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Age becomes an EPLI landmine

According to the U.S. Bureau of Labor Statistics (BLS), about 40% of people ages 55 and older were working or actively looking for work in 2014. That number, known as a labor force participation rate, is expected to increase fastest for the oldest segments of the population — most notably, people ages 65 to 74 and 75 and older — through 2024.

RIC's Epstein and others predict continued increases in discrimination claims due to this aging workforce population. In 2016, 20,857 age discrimination complaints were filed with the EEOC (up from 20,144 in 2015), representing nearly one-quarter (22.8%) of total discrimination complaints filed with the agency. The penalties can be substantial: In March, the EEOC announced that Texas Roadhouse, a national, Kentucky-based restaurant chain, would pay $12 million and furnish other relief to settle an EEOC age discrimination lawsuit seeking relief for applicants aged 40 years and older who had been denied front-of-house positions (servers, hosts, server assistants, and bartenders) due to their age.

In October the EEOC filed suit against Professional Endodontics, P.C., a Michigan dental surgery practice, on the basis that the practice violated federal law by firing an employee four days after her 65th birthday. She had worked as a receptionist there for more than 37 years. “Terminating an employee because he or she turns 65 is illegal,” Miles Uhlar, trial attorney for the EEOC's Detroit field office, said in a statement. “Federal law provides specific protection to members of our workforce … who are age 40 or above.”

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In one recent situation, a 55-year-old male who interviewed for a position with an IT company was advised by the interviewer that he was not going to be considered for the position as “we can hire someone straight out of school, pay them a lower salary, and because they're younger they won't need to use their medical insurance,” Epstein says. “In another situation, an employee who had been in his job for more than 35 years was 'downsized' because he was approaching retirement and would soon have been receiving pension and retirement benefits.”

“There's the potential for many more [age discrimination claims] given our aging workforce and employers' effort to control costs,” warns Steve Gladstone, who oversees Professional Claims globally for XL Catlin. “In an effort to save money, organizations often eliminate higher-paid positions and, of course, these actions generally affect older employees. With the potential for more affected workers in a protected age group, such actions of companies trying to attract young talent and looking to save on higher salaries, by eliminating positions with more tenure, could be problematic.”

Outdated assumptions about age and work deprive people of economic opportunity and stifle job growth and productivity — and leave your clients exposed without EPLI.

Related: Are your clients using HR effectively to manage risk?