Agents Protect Clients, And Themselves, With EPLIOffers With insurance premiums continuing to spiralupward, the last thing clients may want to hear is that they needto add another kind of insurance to cover their businesses. But therising frequency of employment litigation and the need for agentsto protect themselves from errors and omissions claims make itmandatory for even the smallest business to have, according toagents who deal with employment practices liability insurance.

Most commercial clients have at least two lines ofinsurance–workers compensation and general liability–and believethat is all the coverage they need, explained Scott Hauge,president of CAL Insurance & Associates, an agency in SanFrancisco, Calif., talking about middle market clients.

“A lot of companies operate as family businesses and theirattitude is that their employees would never do that to them. Weare family,” said Mr. Hauge.

But the truth is that it does happencomplaints are filed forwrongful termination, sexual harassment or discrimination, andneither a workers comp nor GL policy cover the legal or settlementcosts that could result from the action, he said.

“The main reason a [business] should get the coverage is becauseno matter how well the employer treats his employees, it seemsthere is always one [employee] who feels he or she has not beentreated right,” noted Tom Caputo, program manager for RockwoodPrograms, a managing general agency based in Wilmington, Del.

“There tends to be a feeling, with a fired employee, that theyhave been loyal to the company, so why did they do that to me,” hesaid. “They say, Why me and not the other person? They feel theyhave to get back at the employer because they were wrongfullyterminated.”

There are other “horror stories” the agents tell, and Rockwoodhas posted a few on its Web site for agents to use in theirmarketing of EPLI.

Among them, said Mr. Caputo, is the situation for a businessthat feels it needs to bring younger blood into its practice. Theyounger person is paid more and promoted. The long-term 50-year-oldemployee who has not kept up with the times sees this. When theolder person discovers there is a pay disparity, he or she sues forage discrimination.

Or there is the case of the worker who performs poorly and goesout on a disability claim, he continued. After his or her return,the employee is fired a few weeks later for poor performance. Theemployee can claim the he or she was fired in retaliation for theworkers comp claim.

In another situation, he said, a male employee might receive adirty joke by e-mail, and while reading it, a female employee walkspast the desk and reads the joke that the male employee is laughingover. The female employee then goes into her boss and claims whatshe read has created a hostile work environment. That touches off asexual harassment complaint, said Mr. Caputo.

“There may be no liability, but the employer has to defend thecase and that is the problem,” said Mr. Hauge. “Clients dont seethemselves as doing something that would result in a judgmentagainst them, but they can all identify with defense costs.”

And defense costs, said Mr. Caputo, can run into thousands ofdollars without the case ever seeing trial. EPLI provides theinsured coverage for defense costs, which can get expensive when anattorney walks into the case and begins charging $200 an hour, hesaid.

“The exposure is particularly severe for a smaller company wherethe cost to defend the case alone can put them under,” said Mr.Caputo.

He added that to keep the costs of a settlement down, manyinsurers settle quickly when they find out an attorney has steppedinto the picture.

“Smart trial lawyers know that insurance companies would rathersettle smaller claim demands than defend them at a greater cost tothe [carrier],” he said.

As for the agent, not offering EPLI can result in an E&Oclaim against him or her. Clients wrongly believe that theirworkers comp and GL cover is all the insurance they need for theirbusiness, these experts noted. The agent needs to inform the clientthat its not, they said.

At his agency, Mr. Hauge said that, routinely, every GL orworkers comp policy is accompanied with an offer for EPLI and anexplanation of what it covers.

And when it comes to offering the policies in the face ofescalating costs, what clients respond to most are the liabilityhorror stories that abound about the employee claims that employersnever thought could occur in their offices, said Mr. Hauge.

He noted that EPLI claims, in his practice, are as common as GLclaims.

“There are a lot of claims out there,” observed Mr. Caputo. “Thepublic is more knowledgeable about sexual harassment than it was 10or 15 years ago. It has become very widespread.”

He added that more often, higher-salaried professionals file thehigher-dollar claims, noting that there is more demand forcompensation for their value to the company.

Agents know what their clients need in the form of EPLIcoverage, Mr. Caputo said. With that knowledge, he advised thatproducers must look carefully at their clients policies to makesure there are no exclusions in them that would adversely affectthe coverage.

An example would be a manufacturer who gets a policy with astrike and lockout clause, which would not cover claims stemmingfrom a labor action

Where Cal Insurance helps its clients is in reviewing theclients employee handbook. Mr. Hauge said many middle marketcompanies do not have human resource departments to review andupdate their handbooks. Not having proper procedures in place, suchas for hiring and firing, opens a company to potential liabilitysuits.

“Our most valuable asset is the human resource information weoffer clients,” Mr. Hauge observed. “It has saved a lot of peoplefrom being sued.”

Reproduced from National Underwriter Edition, June 16, 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.