REGARDLESS of whether a company is publicly owned, privately held or nonprofit, the employment practices liability exposure seems to be its greatest concern among the various management liability risks it faces. Certainly, awareness of the issue is high, given the attention that the media have given to some of the more spectacular cases.

At last fall's annual conference of the Professional Liability Underwriting Society, a panel of speakers surveyed today's legal landscape as it pertains to employment practices and offered some suggestions for preventing claims. Jack McCalmon, Esq., a partner in the law firm Titus, Hillis, Reynolds, Love, Dickman & McCalmon, was the moderator. Panelists included Lucy Ann Galioto, vice president, National Union Fire Insurance Co., part of American International Group; David Keenan, vice president and EPL claim manager for Chubb Group of Insurance Cos.; and Philip R. Voluck, Esq., a partner with the law firm Kaufman, Schneider & Bianco. Following are edited excerpts from the discussion.

Lucy Ann Galioto: I'm going to go over some statistics with you. In 2004, there were 79,000 charges filed with the U.S. Equal Employment Opportunity Commission. That was a decrease over the past two years. However, the decrease doesn't mean that there are fewer people filing charges. It means more people are filing with state administrative agencies and in state courts. Why? Because employees are smart. They understand there are no caps on punitive damages in the state courts. Also, while the number of EEOC charges was down, the recovery was up. The EEOC was able to recover $419 million in compensatory damages for the employees who filed.

Race discrimination led the way, with nearly 27,700 charges filed with the EEOC and $61 million recovered in damages. In regard to gender discrimination, there were 24,000 charges and $100 million recovered in damages. I think we will continue to see an increase in the number of such filings because female employees are no longer afraid to file, as we've seen from recent class-action filings against Wal-Mart, Morgan Stanley and other employers.

The next area is age discrimination, where there were more than 17,800 charges filed and $69 million recovered in damages. The first baby boomers turned 60 last year. As our workforce gets older, you're going to have more age discrimination claims. These claims also are producing the largest settlements and jury awards. The average plaintiff is a 55-year-old male who has been downsized or let go. He is usually a member of management and makes more money than younger associates. These plaintiffs are very sympathetic figures with juries. They often conclude that employers let them go primarily to reduce expenses. Whether the plaintiffs are male or female, jurists think, “That person could be my mother or father. That person could be me someday.”

Next, let's consider those who allege discrimination on the basis of disability. In 2004, there were 15,000 EEOC filings, resulting in $47 million in recoveries. Groups that represent the disabled are becoming very aggressive. Especially in California, where we have seen an increase in the number of third-party disability discrimination charges filed–usually against hotels. The allegation is not that they do not provide access to the disabled, but rather that they are not in total compliance with all city, state and federal ordinances and laws.

Let's look at sexual harassment. In 2004, the EEOC recovered $37 million on 13,000 sexual harassment charges–15% of which were male-on-male sexual harassment. That's a trend we've been seeing. These cases generally are not based on managers pressuring employees to have sex, but rather on teasing and ostracizing male employees who may look effeminate or not otherwise fit into the macho stereotype. Another trend is an increase in sexual harassment charges filed by teenage employees. I see this as something of a cause du jour with the EEOC. Under their “Youth at Work” initiative, the EEOC has been going around the country, informing teenagers (and their parents) who work in the fast-food industry, that if a manger or employee hits on them, that behavior is illegal. “Come to us, and we will file on your behalf.”

After 9/11, we saw an uptick in the number of charges alleging discrimination in regard to national origin. In 2004, there were 8,000 charges filed with the EEOC, and $22 million recovered in damages. We also saw more charges alleging religious discrimination (2,500 charges resulting in $6 million in damages).

Finally, there's pregnancy discrimination. There were 4,500 charges filed in 2004, and $11 million in recoveries. I hope your insureds know they must not fire anyone who is on pregnancy leave or ask women, as they are interviewing them for a position, “Gee, do you think you're going to have a family?” If they do such things, they are going to face discrimination charges.

Nor should employers retaliate against employees who have filed an employment action against them. Of retaliation claims brought in federal court, 57% are won by the plaintiffs. This should be no surprise. While a jury might not understand the underlying allegations of discrimination, the jurors understand that after the employee filed a complaint internally with the company–or externally with the EEOC or a state administrative agency–the employer fired that person or took some other negative employment action. That's a smoking gun, and that's why the plaintiffs have been so successful in these cases.

Since 2002, the EEOC has been very aggressive in pursuing small companies–those with up to 200 employees. They've been going after these companies with the same fervor they formerly reserved for large corporations. Many of these defendants have faced awards or settlements in excess of $1 million. That's catastrophic for a small company.

Today, one-fifth of the employment practices cases that go to trial result in a plaintiff's award of $1 million or more–and this does not include defense costs. These could amount to $150,000 for a single-plaintiff matter that does not take a long time to resolve– and that figure does not include a reasonable amount for plaintiff's fees. If you're in New Jersey, the court might add a multiplier to that plaintiff-fee award. These are the hidden costs. Even if you win an employment practices case, you lose.

Here is what I find to be the most amazing statistic. According to USA Today, 550 employment lawsuits are filed in this country every day. That tells you that EPL is no longer a new insurance product or a new area of the law. Filing employment practices claims used to be a cottage industry for slip-and-fall lawyers, who would take these cases just to make their fees. Now these cases are litigated by the best and brightest of employment plaintiffs attorneys, who sometimes band together to bring class actions.

In 2001, the median jury award in an employment practices case was $168,000. By 2003, it had risen to $250,000. The number of cases apparently has been rising too. According to the 2004 Jackson Lewis Workplace Survey, 58% of the respondents defended gender discrimination complaints, up from 48% in 2003; and 63% defended sexual harassment claims, an increase from 57% the year before.

Jack McCalmon: As an underwriter, what is your biggest concern?

Galioto: That we are asking the wrong questions. In every application, I see the question, “Do you have an employee handbook?” An affirmative answer to that question is hardly enough. Underwriters also should ask, Do you have policies and procedures for implementing that handbook? Another issue is incident management. Do you have a swift, res- ponsive, equitable way of handling internal complaints? If you don't, those complaints are going to escalate into charges. Is there someone in your organization monitoring complaint trends?

Also, underwriters should be interested in restructuring and downsizing. If an employer doesn't carry out such projects correctly, they may adversely affect a protected group of employees. That could lead to age, race or gender discrimination claims. If a company wants third-party EPL coverage, we look at how disability complaints are handled too.

Philip Voluck: In discussing steps companies can take to prevent employment-practices claims, I want to start by picking up on something Lucy Ann mentioned. In the trenches, where I've been working for 25 years, many insureds just don't get it. When it comes to handbooks, for instance, I can't tell you how many insureds we run across are assigned to represent who not only don't have handbooks but who think they don't need them.

Handbooks set forth rules, regulations and expectations. In those states where a handbook constitutes a binding contract, it must have the appropriate disclaimer language, so employees know that upfront.
The handbook and the policies therein–your complaint policy, your policy on harassment, etc.–is the first thing an agency like the EEOC asks for. It's the first thing you see addressed in interrogatories and other types of discovery. It can be quite frustrating when you don't have a handbook or policy to turn over in an employment discrimination case at any level.

Employers can take a variety of affirmative steps to prevent EPL claims, including the following:

• Implement training. One thing we have been doing is broadening our clients' training programs. In a certain sense, focusing only on sexual harassment training is pass?. While only a handful of states have passed laws requiring it, I think we all can agree that it has become an integral component of any loss-prevention program. But when I say sexual harassment training is pass?, I mean training needs to be broadened to include other employer EEOC obligations, so employers' managers and supervisors are aware of some of the other “landmines” out there. For instance, in our opinion, harassment on the basis of national origin is going to increase. Such “EEOC training,” as we call it, is going to serve your insureds' managers and supervisors a lot better than focusing solely on sexual harassment.

In regard to sexual harassment training, I see too much concentration on the “quid pro quo” element–i.e., claims involving a supervisor's abuse of power over a subordinate to extract sexual favors as a condition of employment. But Most claims we are seeing today are coming directly from lower-level employees the workplace–co-worker against co-worker, with the supervisor or manager not knowing what do to when a complaint arises. Certainly, it makes sense to train your supervisors and managers what not to do; but since most claims are coming from the actions of subordinates, they need to be trained about what constitutes acceptable behavior as well. This failure to act on the supervisor's part exposes the insured to liability, even if “upper management” was unaware of the problem.

What does the future hold? One thing to be concerned about is the partnering of agencies. We're seeing the EEOC partner with the Department of Labor and with the Occupational Safety and Health Administration to really reach out. As Lucy Anne mentioned, the EEOC is becoming increasingly active.