EPLI 'Hot Buttons' Pushed at Symposium NewYork

When it comes to employment practicesliability insurance, specialty underwriters and brokers havevarying views on problem states and problem classesand theres noteven a general consensus on the degree of hard pricing currentlyout in the marketplace.

Indeed, at a recent Professional Liability Underwriting Societysymposium on key developments in the employment liability arenaheld in late April, experts gave price hike estimates ranginganywhere from 0 to 40 percent and highlighted problem classes asdifferent as fast food restaurants and investment banks to explainEPLI claims potential.

According to Lucy Ann Galioto, vice president of AmericanInternational Group's National Union Insurance Company in New York,price increases of “20 to 40 percent” are the norm, and this ispartly due to rising reinsurance costs.

She noted that the toughest classes to write are manufacturersand restaurants. “With manufacturers, you often have an informalatmosphere and the supervisors may lack training on employmentmatters. Restaurants are problems because you many times have20-year-olds supervising teenagers.”

Panel moderator Michael Maloney, underwriting manager forSimsbury, Conn.-based Chubb Specialty Insurance, saw this year'sEPLI premium increases as being caused by insurers not gettingenough increases last year, especially for employers in the 1,000-to 10,000-employee range.

Although the panel noted that class actions are for the mostpart difficult for plaintiffs' attorneys to pursue due to obstaclesin getting the class certified by a judge, Mr. Maloney sees “massactions”–a series of individual or small group suits based onsimilar allegations–as a serious concern, especially for smalleremployers.

“Increasing claim frequency, higher settlement costs andgenerally rising 'disposal costs' of claims” have been hallmarks ofthe EPLI line during the past 12 months, Mr. Maloney said.

Two other panelists saw mixed signals in pricing.

Gretchen Steichen, vice president of GeneralCologne Re in St.Paul, Minn., said that smaller employers are getting “nominalincreases” of zero to 25 percent. For the larger employers, shesaid she is seeing increases “all over the board,” and theincreases are focused more on individual risk characteristics thanon class or location. Ms. Steichen pointed to public entities as aclass having high claim frequency for EPLI.

The lone broker on the panel, Thomas Hams, a director ofChicago-based Aon Financial Services Group, said he sees the EPLImarket as “flattening out,” with “increases of maybe 20 percentsince April of last year.” Prices for EPLI in the stand-alonemarket are much higher than if the coverage is written as part ofanother policy (such as in a D&O or package policy). “But everyrisk can be placed,” Mr. Hams pointed out.

Agreeing with Ms. Steichen, Sal Pollaro, senior vice presidentof Zurich North America in New York, said that EPLI price increaseshave been “surgical,” which he explained as “more germane toaccount experience” than location or class. Problem classes in hisview include investment banks, law firms, technology companies andretailers.

Discrimination allegations based on age and race are the mostcommon EPLI claims for companies with over 300 employees, Mr.Pollaro said. In contrast, he said, “sexual harassment is the mostcommon claim for companies with fewer than 300 employees,” going onto indicate that “smaller employers often do not have the requiredpolicies in place to deal with this problem.”

Ms. Galioto pointed out that under the U.S. Supreme Court'sFarragher and Ellerth cases, “employers canescape liability for sexual harassment if they have reportingsystems in place and employees unreasonably fail to report theharassment.”

Ms. Galioto went on to note that it has become considerablyeasier for employees to bring sexual harassment suits in what shecalls “the country of California,” as that state has deviated fromthe federal standard. “A recent California case makes employersstrictly liable for sexual harassment committed by supervisors,regardless of the reporting procedures in place,” she lamented.

In addition to California, she mentioned Texas as a problem EPLIstate due to high awards there, while Mr. Pollaro said that NewJersey and Georgia are difficult states. Mr. Maloney highlightedMichigan and West Virginia as problems, noting that higher juryawards come out of these two states.

With the insurance company people on the panel frequentlycomplaining about the EPLI climate in California, there was aquestion from the audience as to why they didn't just stop writingthere.

National Union's Ms. Galioto replied that the problem inCalifornia is the small employers, not the large employers basedthere or with operations in the state. Also, she noted that certainregions in the state, including the San Francisco and Los Angelesareas, pose the majority of the problems.

Mr. Pollaro of Zurich added that the self-insured retentions ofCalifornia employers are generally three times what is requiredelsewhere.

The panel seemed to agree that EPLI in California is viable, itjust has to be underwritten more carefully than in otherstates.

In a separate session, sexual harassment became the focus of afrank discussion by employment law defense attorney Hunter Hughesof Rogers & Hardin LLP in Atlanta, Ga.

Mr. Hughes likened sexual harassers to bank robbers, noting thatneither of these types of wrongdoers think they will ever getcaught. “But they almost always are caught,” he added.

In one case, Mr. Hughes related how a chief executive officerwas found liable for a “breach of trust” to the corporation, eventhough his affair with a female subordinate was consensual. “Thecorporation had a policy that a dating relationship between amanager and subordinate must be reported to higher management,” Mr.Hughes explained. “The CEO was actually the one who signed thepolicy, but he failed to follow it.”

“There will always be harassment claims because men are stupid,”said Mr. Hughes, drawing applause from many of the femaleattendees. “Sometimes the problem is with the woman, but in myexperience it's been mostly with the man.” He noted that manyclaims can be traced to a consensual workplace romance that “goesbad.”

During another session, workplace issues related to Severe AcuteRespiratory Syndrome were discussed. Panelist Ray Cusick, directorof risk transfer for The Hartford Financial Services Group inHartford, Conn., hammered home the pitfalls of a common employerpractice requiring employees who were possibly exposed to SARS toremain home during the 10-day incubation period for the virus.

These employers are in effect saying “don't come in and infectmanagement and co-workers, but it's okay if you stay home andinfect your family,” Mr. Cusick noted. He added that a wife of oneemployee ordered to stay home went to a hotel for 10 days andconvinced her husband's employer to pick up the tab.

In that same session, an anomaly concerning a popular losscontrol practice was analyzed. Jack McCalmon, president of The AgosGroup, a Tulsa, Okla.-based employment practices loss control firm,found that when insurers provide telephone numbers for employers tocall for advice on employment-related problems, if the advice isfree then they generally have lower usage rates than insurers thatcharge a fee. “The difference is that the companies that charge afee promote the service better,” he said.

Mr. McCalmon also had opinions about why insurer loss controlaudits provided in connection with EPLI policies were often not agreat success. “The insured's finance department purchased theinsurance and then informed the human resources department thattheir practices were about to be audited,” he said. Human resourceswanted to do their own audits or have law firms that they were usedto dealing with do the audits, Mr. McCalmon noted.

Reproduced from National Underwriter Edition, May 19, 2003.Copyright 2003 by The National Underwriter Company in the serialpublication. All rights reserved. Copyright in this article as anindependent work may be held by the author.