Employment Practices Liability Exposures on the Increase, But Can Be Managed

Changes in workplace demographics play a role in the increase of employment practices liability (EPL) lawsuits, but applying effective loss control and risk management techniques can help control them, according to panelists at a satellite broadcast entitled, "Workplace Solutions: Managing EPL Exposures." The event was transmitted nationwide last month to an official audience of some 1,500 participants.

Identification is First

CPCU Society President Anita Z. Bourke, CPCU, CPIW, vice president of strategic planning, Willis Corroon Americas, Nashville, TN, moderated "Identifying EPL Exposures," a back-and-forth panel discussion that focused on demographic forces impacting EPL.

"A significant piece of recently passed legislation, the welfare bill, requires employers to hire individuals with limited or no attachment to the labor market," said Ronald L. Adler, president, Laurdan Associates, Inc., Potomac, MD. He noted that, "these employees need training not only in skills development, but also in the work ethic. Additionally, supervisors must have instruction in managing these types of employees and in understanding the problems of the welfare recipient."

"Increased privatization has resulted in government remedies disappearing, so employees look to the courts," added Paul C. Cunningham, J.D., employment practices liability/franchiser-E&O division manager, Lexington Insurance Company, Boston, MA.

Bourke noted that often employee perceptions of their relationships with an employer could have an impact on EPL exposure. She asked panelists what effect that perception had on EPL.

"You don't have to do anything wrong to be in a lawsuit," said Michael J. Lotito, J.D., west coast managing partner, Jackson, Lewis, Schnitzler & Krupman, San Francisco, CA.

"Exposure begins as soon as you open your door for business," noted Vickie L. Cortese, vice president of personnel and risk management, Federal Compress & Warehouse Co., Inc., Memphis, TN. "It used to be that if you treated everyone the same, you'd be okay. Then ADA [The American's with Disabilities Act] came along and required that people be treated differently. Consequently, people who are not treated differently get the perception that they're being discriminated against."

Pamela J. Ritz, ARM, president, Specialty Risk Management Inc., Lago Vista, TX, emphasized that "agents and brokers have to train themselves" about the exposure and that the topic is not currently showing up on exams. Cortese recommended that agents and brokers cut out articles of local companies hit with lawsuits and discuss the issues with clients. Ritz agreed, noting that the "truest believer is a first-time loser."

Finding Exposures is Important

Laurdan's Adler led the second panel, "Finding EPL Exposures," which examined practical solutions to controlling, managing and financing this exposure.

"Loss control has to be a partnership," said Charles H. Morgan, J.D., CPCU, independent consultant, Summit, NJ. "Yet employers can't conceive of it happening," he noted. 'They're very unreceptive to loss control. Really, it's a selling job. It's education and it's sales. You have to get your foot in the door and convince them you 're there to help them."

"The best place to start is in the loss control area, trying to avoid the risk in the first place," noted Eric L. Routman, J.D., CPCU, partner, Rivkin, Radler & Kremer, Chicago, IL. "And one of the ways to do this is to consider what can happen if you are suited." Morgan agreed, but commented that it's hard to get the client's attention because it's such a new exposure.

"It's really, to give a practical example, something as simple as E-mail," said Routman. "E-mail is something that's a relatively new proposition for people. People write things in E-mail that they would never do if they were writing a memo or sending a letter to someone. But somehow the concept of E-mail has opened people up, expanded their creative writing abilities. But all those E-mails are discoverable."

"In terms of the loss control methodology in the E-mail example, it's important that the employer stipulate in the employee handbook and elsewhere that all communications are the property of the employer, so there are no expectations of privacy or counterclaims of invasion of privacy," added Morgan.

Another element in the exposure is litigation costs, explained Adler. "What do you advise your clients in controlling the costs of litigation as it relates to employment practices?" he asked.

"The first thing I tell them is, number one, don't take it personally even though it's very personal," replied Routman. "The last thing you want to do is become indignant, because that indignity is going to cause you to spend a lot more money." He recommended that it be viewed as a cost and risk of doing business. "If you keep that attitude, you can look at things a lot more objectively and allow yourself to make rational decisions."

Routman added that evaluating the claim objectively may necessitate bringing in attorneys and insurance professionals. "You want it to be a complete package to assess how you're going to manage this claim now that it's become a claim. You have to decide is litigation the way to go? Is this something we should try to settle right away? Maybe you made a mistake and this is a claim you ought to pay. And by paying it now, you're going to minimize the chance of that claim growing in terms of a class action suit."

In discussing risk financing, Richard V. Rupp, CPCU, managing director, AmTech E&S Insurance Services, San Mateo, CA, said that there is "a whole spectrum of risk management concepts as to which way you're going to finance the loss." He explained that, given the way this exposure has evolved, "most employers are bare," or uninsured.

The employers who have recognized the risks and tried to put them into their budgets are generally the larger ones, Rupp added. It was his observation that the most popular policies for these larger companies are high retention/high deductible policies, $250,000 to a million dollars. He said they purchased such policies because they're worried about class action or judgment suits. Smaller employers, he said, favor finite or blended finite risk funding programs. The only solution for small to mid-size employers, he noted, is the EPL insurance available.

Domenick J. Yezzi, Jr., CPCU, vice president-special commercial lines, Insurance Services Office, New York, NY, said that ISO came up with a basic policy of standardized coverage to give a "benchmark for insureds and insurers to look at and say, 'okay, this is the base level of coverage that I want to be getting'." He also explained that "it gives us the opportunity to have a basis for collecting statistics." "Once ISO gets into maintaining policies, that should bring economies to bear." He noted several factors should make the policies "more affordable for insurers to offer the coverage to more insureds."

Additionally, Yezzi gave the major points of the ISO policy, such as damages and defense. He noted that they are looking at injury from discrimination from a number of defenses, such as, refusing to employ, failure to promote, termination, demotion, defamation, sexual harassment, and psychological and emotional abuse. He said the policy is a claims-made policy and that it required incidents to be reported. "The policy also responds to actions, not just suits," Yezzi added.

Lisa C. DeSimone, assistant vice president, Reliance National Risk Services, New York, NY, said that when Reliance started writing the product line in 1990, it was first for wrongful termination. "Then we added sexual harassment, and soon it became full-grown EPLI. As a mature product, it covered discrimination, sexual harassment, and wrongful termination, among others," she explained.

"The basic insurance clause is really four-fold now, covering public policy, wrongful termination, including failure to hire and promote, wrongful demotion, or any other tort arising out of a workplace incident. In some cases it includes defamation, libel, and slander also," DeSimone said. "In addition, it includes sexual harassment, which is another form of discrimination. Something to look for there is that the EEOC definition is mirrored." She added that the definition of discrimination should include, "pursuant to any state, federal, or local laws" because each state can assign additional protected class groups, such as smokers or vegetarians in California.

With respect to class action exposures, DeSimone stressed the need to look at how the deductible applies. She recommended that it be a one-shot deductible. A new issue in the last couple of years, according to DeSimone, is family medical leave, with one or two carriers covering it. Typically, she said, family medical leave is "covered by sexual discrimination claims, but it does have its own set of damages and recoverables."

Videotapes of "Workplace Solutions: Managing EPL Exposures," in its entirety, are available from the CPCU Society. The cost is $85 for CPCU Society members, plus $3 shipping and handling, or $99 for non-members, plus $3 shipping and handling. The cost includes the tape and program guide, which contains articles that focus on the EPL exposure by each of the panelists. For more information or to order a tape, call the CPCU Society at (800) 932-2728.