Employers Realize Proper EPL Coverage is Part of Successful Business Equation

Employers and employees have more to think about than production, hours and paychecks these days. The Employment Practices Liability scene continues to draw major attention both in and outside of the courtrooms.

Carrie Brodzinski, vice president and product manager for EPL with Travelers in Connecticut, notes that there have been some movements on the EPL scene over the last year.

“There are a lot of carriers who haven’t done so well with their EPL book, and I think we’re seeing pricing go up,” Brodzinski said. “There’s been a trend toward large employers having a lot of class-action claims, and claims are on the rise in general.”

Brodzinski noted that sexual harassment and wrongful termination are still at the top of the list, with discrimination claims also very noticeable, as they are often the reasoning behind a wrongful termination claim.

“There is a very positive trend where insurers are trying to give more meaningful risk management along with their policies; in other words, if you’re going to write the coverage, do what you can to make them a better risk,” Brodzinski noted. “It used to be that risk management for EPL was kind of novel—you’d give them something written and you’d give them a hotline and nobody would really use it.

“If I was buying EPL insurance today, I’d look into what I’m getting because some of the features that you get really could be almost like a ‘Peoplesoft’ for your office where you can customize it, assign the training, track who took the training—you can do all kinds of things on these websites. Not all carriers will offer training in the areas you want, so that’s what you need to look for.”

Numbers indicate fluctuation
The most current EPL statistics from the Equal Employment Opportunity Commission show that from 1992 to 2000, the number of total charges filed has fluctuated.

In 1992, a total of 72,302 charges were filed, compared with 79,896 in 2000. The peak year during that period for charges filed was in 1994, when 91,189 were documented. The EEOC lists eight types of discrimination: race, sex, national origin, religion, retaliation, age, disability and equal pay.

The high numbers during this time period for each classification are as follows:

race (1993—31,695); sex (1995—26,181); national origin (2000—7,792); religion (2000—1,939); retaliation (all statutes/2000—21,613; Title VII/2000—19,753); age (1993—19,809); disability (1995—19,798); and equal pay act (1994—1,381).

According to Carole Lynn Proferes, a senior vice president at Marsh who authored “Practices Liability: Escalating and Unpredictable Exposures in a Changing Economy,” the EEOC has received a slightly lower amount of filed charges annually since 1994. However, it has sharply increased its “reasonable cause” findings since 1996. In 2000, the rate of “reasonable cause” findings grew to 8.8 percent of filed charges, compared to 2.2 percent four years earlier.

It can happen to you!
While the statistics may indicate the importance of getting coverage, many employers must still be convinced that a lawsuit could happen to them, and that they need to prepare themselves to minimize potential problems in the first place.

“I think one of the biggest challenges agents face in offering this coverage is that the employers think it’s not going to happen to them,” Brodzinski said. “Especially if it is a small employer, they feel they know all the employees and ‘they won’t sue me.’ People in smaller offices tend to be a little more casual, and things can get a little out-of-hand. If [small business owners] get hit with a big claim, they don’t always have the capital to deal with it.”

Matt Whitelaw, EPL manager for San Francisco-based Carpenter Moore Insurance Services, agreed that sometimes smaller employers just assume that they’re immune from getting hit with claims.

“Basically [agents] look at what type of industry the company is in, the number of employees, what area they’re located in,” Whitelaw commented. “I think it’s a misconception that smaller companies don’t get EPL claims because you have people thinking it’s a family business, and it couldn’t possibly happen to us. Smaller companies usually have less control. The CFO might be a great businessperson, but are they a good HR person? Typically they’re wearing multiple hats.

“When you have larger companies, they typically have lots of policies and procedures and employment policies and sexual harassment policies, etc. You’d be surprised, however, how many companies don’t have employee handbooks and don’t have policies and procedures in place. When you get up to 50 or 100 employees and you don’t have that stuff, you’re just leaving yourself open for a situation where they could say ‘did you tell the employee not to sexually harass the other person?’ ‘Well, no, we really didn’t do that.’ In that case, it’s tough to defend yourself in court.”

Brodzinski pointed out that today’s current economic situation will factor into more people possibly filing a lawsuit. “With the economy going the direction it is, many may feel that [EPLI] is an expense they can’t afford, but they actually need it now more than ever,” she said. “Somebody losing their job for any reason now may have a harder time finding one and will be more likely to sue.”

Brodzinski also mentioned that false claims are another factor that employers and insurers must tackle. “[An employee] is going to say, ‘they treated me badly because I’m a minority,’ ‘the men all made more money then me,'” Brodzinski said. “There’s no penalty for someone to cause trouble like that. Maybe they’ll go to the EEOC and file a claim, and even if [the employer] is going to win because there’s no basis for the claim, it’s still going to cost you money to defend it. Sometimes what people are looking for is to be an annoyance, maybe bargain for more severance pay, or they think they’ve got something going. It is such a personal issue when you lose your job.”

Companies use the web for prevention
In order to nip the problem ahead of time, a number of companies are now offering Internet-based risk management information regarding employment practices liability to EPL policyholders. The idea is that using the web is a good way to reach people, as opposed to expecting someone to read pages and pages of a company manual.

Among the companies offering these services are The St. Paul Companies. Through EPLResource.com, The St. Paul provides policyholders with the ability to prevent incidents through training bulletins and expert forums, responding to them with services like best practices consulting. Up-to-date employment practices policies and procedures are posted on the website, along with advice for employers on smart hiring practices.

According to John Kearns, president for global financial and professional services, The St. Paul Companies is taking a proactive approach to aiding companies in mitigating potential EPL issues. Kearns added that by having immediate access to employment practices resources, employers have tools needed to prevent and respond to problems quickly and efficiently.

The EPL outlook for 2002
Brodzinski predicts that more EPL claims will develop in the coming year as layoffs unfortunately continue in the American workforce.

“I think we’re going to see a lot of employers facing a layoff,” Brodzinski said. “If you think about it, you can minimize your exposure to claims ahead of time. You need to keep in mind that when you’re doing a layoff, you may get sued based on how you handled the layoff. You should be doing an analysis to see the people you’ve chosen for the downsizing and see what the impact will be on your relative numbers of minorities and non-minorities. Even if you do that, you may get some claims coming out of the woodwork. People who feel they may have a claim, who were discriminated against in the past, will be more likely to sue.”

As far as the marketplace, Whitelaw noted that about 40 carriers presently write EPL coverage and that number will most likely shrink in the coming year. “Everyone sort of jumped in on the game because it was a growth area, and the insurance market was kind of soft and flat, so people wanted to make more money. If carriers pick their spots, it can still be a good area to write. The deductible is the key to the whole thing.”

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