Employment Practices Liability Insurance - Do we need to buy it?

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May/June 2000 - Volume 79, Number 3

When I went to college, a woman professor was known for her special ABC grading policy: "A is for athletes in my classes; B is for Boys in my classes; C is for coeds in my classes." While this was not, in fact, how the professor graded and was considered an amusing, oft-told story about the professor, I expect in today’s environment it would be a comment that the professor would have to expunge in order to hold her job. Comments, like this one, meant to be funny, are now viewed as discriminating and inappropriate.

Employment Practices Liability is one of the fastest growing areas of claims in the insurance industry. It has long since replaced workers’ compensation claims as a remedy for the remembered pain employees felt over potential layoffs and salary freezes. It is also a fertile area for plaintiff attorneys: Recent jury decisions suggest a pendulum swinging in favor of claimants.

Ten years ago the coverage was rarely used"now many corporations have purchased it. Among other triggers, employment practices incidents can be a result of sexual harassment, sexual discrimination, age discrimination, wrongful termination, and race or religious discrimination/ retaliation.

A claim may be filed by one person or by a group of people, a class action, or the federal government.

Employment practices is a serious issue today. If you think it won’t happen to you . . . don’t be so sure.

Agents and underwriters often see themselves as immune from incidents they may think can only occur in organizations with large workforces such as insurance companies, retail operations, and financial institutions.

Title insurance executives often think employment claims are not a problem because of the fact that their organizations have fewer people than public corporations, and often have employees who are extended family. The title insurance executive gets lulled into a false sense of security.

Today’s environment distorts these positive work force characteristics: Family members do sue other family members; long-time employees sue, and organizations with just a few people get sued as well. The suit can be a result of a disgruntlement, genuine anger, or a perceived or legitimate event. Inevitably, the suit can be very expensive in terms of aggravation and money for both parties.

The courts have seen suits from both genders, from members of just about every religion and race, and from people of all ages.

In fact, the real-life examples cited below suggest agents and brokers are as exposed to Employment Practices Liability risks as any other organization:

• A private theme-restaurant developer was happy to see a clerical person sorting files on the floor. He said to her "I’m going out to lunch now. I hope you are still on the floor when I return." (The individual not only sued, but organized several others to join her with separate claims of sexual harassment.)
• A group of laborers collectively sued the general contractor and the building owner for inappropriate slang references used by the construction manager during a renovation. ("I’ve always used these nicknames," said the construction manager, "they are terms of affection.")
• Two long-time partners had a bad fight. Distribution allotment was the source of the feud. It was an old source of friction. This time one partner quit. (The partner who quit said he was unfairly compensated by the other partner that year and every other year because he was 10 years older than the more dynamic, younger partner.)

When someone sues for employment-related actions, they will often sue both the individual who has allegedly caused the affront and the entity itself.

Agents and brokers should purchase Employment Practices Liability as a separate, free-standing policy that protects not only the directors and officers of the organization, but the corporate entity itself. Key advantages of this insurance include: (1) defense costs are covered (above the deductible); 2) defense costs can be advanced; 3) experienced defense counsel can be provided; and 4) coverage is quite reasonably priced.

Employment Practices Liability insurance will not only pay for any covered indemnity or settlement - depending on the applicable jurisdiction, coverage for punitive damages may also be available.

The insurance company that writes these policies will work hand-in-hand with their policy holders (as do insurance brokers) to help build best practices loss control methodologies that will help you to avoid employment practices lawsuits.

Key best practices might include:

• Putting together and distributing an employment practices handbook.
• Training, using case studies.
• Setting the right example.
• Explaining how ego can interfere with developed best practices.
• Discussing appropriate employment issues at management meetings.
• Promoting fairly.
• Consulting with outside specialists for independent comments.
• Demonstrating senior management concern.
• Analyzing and resolving grievances as they occur.

Title insurance organizations have to be very sensitive to jokes being circulated on e-mail; ethnic or racial slurs; untoward gender comments; bad language; temper displays, and; hasty firing. Thinking before acting is the best loss control measure.

Employment Practices Liability insurance is useful for agents and brokers today because, as the numbers point out, it is more likely that their bottom line will be negatively affected by an Employment Practices Liability suit than it will be by losses from a fire"a risk for which they routinely buy property insurance.

Pamela J. Newman is Executive Vice President of Manhattan-based Aon Risk Services Inc. of New York. She can be reached at pamela_newman@ars.aon.com  or 212-441-1000.