An agent's primary selling point for hammering away at reluctantemployment practices liability insurance prospects is succinctlysummarized by Kristina Mason, management liability broker andmarketing and corporate communications manager for wholesalerWorldwide Facilities in Los Angeles: “As a business owner, youdon't have to do anything wrong,” she said. “Someone just has tosay you did.”

It would be hard to improve upon Mason's maxim. For the past 15years or so, there has been no shortage of employees, formeremployees and non-employees willing to “say you did.” Recently,however, employment practices claims have been really coming intotheir own: Instead of griping about the boss around the watercooler, more folks now do their complaining at the local EEOCoffice.
Why? Because they can. “Word has gotten around that you canprobably get a settlement for very little effort,” Masonsaid.
“Business is keeping us busy, let's put it that way,” agreed CarrieBrodzinski, management liability products manager for Beazley Groupplc in Farmington, Conn.
That being the case, now is definitely the time for independentagents and brokers to actively promote EPLI to clients large andsmall. Failure to do so in the current environment is poorlyserving not only your client but yourself, and in more ways thanone. EPLI is a growth industry. Are you missing the boat?
A going concern
EEOC claims today are at their highest volume since 2002, and eachcharge category–discrimination, harassment, retaliation, etc.–hasgone up by double digits since 2006, “which is really rare,” saidCathy Padalino, EPL product manager and vice president for ChubbSpecialty Insurance in Warren, N.J. The monetary relief figure for2007 was $345 milllion, up 26 percent over 2006. “We talk about EPLas having the frequency of workers' comp but the severity ofD&O, all in one coverage,” Padalino said.
Win or lose, each of those claims maturing past the initial filingcosts someone money. The cost of defense alone now averages$125,000, according to Pamela Ritz, president of Specialty RiskManagement in Austin, Texas. The average jury award is $200,000,and employees win two of every three cases that make it to trial.And that's just the federal EEOC–plenty of claims are brought atthe state and local levels, which are notoriouslyemployee-friendly.
It's not a question of if you're sued, but when, Padalino said. AChubb survey of private company executives indicated that one inthree firms has experienced an EPL-related event in the past fiveyears. As the size of the company grows, so does the likelihood ofa claim or lawsuit: 80 percent of companies with 500 or moreemployees had an EPL event in the past five years, although onlyone in three bought an EPL policy. Of those surveyed with claims,34 percent reported costs of between $11,000 and $300,000, with anaverage cost of $74,400.
Even if the employer is completely without fault, “it'll cost you alot to prove it,” said Elena Ryzhkina, an underwriter for ProWestInsurance Services Inc. in Folsom, Calif. Guy Knapp, ProWestpresident, recalled a recent case where “we spent over $100,000defending the insured, proving that everything we did was right. Wewon, but it cost us $100,000 for the privilege of winning.”
It'll never happen to me
With the stakes so high, selling EPL–a fairly affordable coverage,given the exposure–should be a laydown, right? Well, yes and no.There are certainly more people, including very small businesses,buying it now than before. “Business is booming, and it's beengrowing ever since the product was first introduced,” said LanaMiller, managing director of the Financial Risk Group Practice forAmWINS in Los Angeles. But given Americans' neverending love affairwith suing the pants off anyone within reach, “more” really needsto be “everyone.”
There are problems at both ends of the sales spectrum. The largestemployers grasp the growing need for EPLI, but have more optionsfor managing the risks that don't necessarily include acomprehensive insurance program. In dealing with smaller clientsranging from companies with two to 2,000 employees, agentssometimes face a double obstacle: getting them to truly comprehendthe exposure and then convincing them to purchase insurance whenthey do. “Our true competition in EPL is the nonbuyer,” CathyPadalino said.

Guy Knapp

In California at least, where 90 percent of EPL business headsto the E&S market, it is a laydown. Guy Knapp, whose companystarted a program of providing retailers with continuing educationclasses on EPL, said that if a broker is well versed in the topicand can explain it to prospects, “they buy it.” ProWest writes alot of accounts of less than 10 employees, “and our renewalretention on those accounts is almost 100 percent. Once theyunderstand it, they have to have it,” he said.
Apples and watermelons
An agent can't educate the client until he educates himself, ofcourse. Those experienced in specialty lines have a good handle onEPL products, but agents more accustomed to churning out workadaypolicies on a conveyor belt will need to step back and have anotherlook when it comes to employment practices. Whereas an agent cancollect a dozen quotes on typical P&C risks and rest assuredhe's comparing apples to apples, with EPLI it's more like “applesand oranges and bananas,” said Ritz (“apples and watermelons,”added Mason). Each policy and its endorsements are different, andthe differences matter.

Cathy Padalino

Analysis is definitely required, said Chubb's Padalino. “There'sa lot of difference with respect to claims made versus claims madeand reported, whether breach of employment contracts are covered,or whether there are intentional act exclusions when EPL coverageis endorsed onto a GL policy,” she said. “There are a lot ofnuances, and one of the challenges we face is making it easy enoughto sell the product.” The nuances are why allowing a client tochoose EPL solely on price can be a tragic error–for the client interms of coverage, and for you in terms of E&O.
As for limits, too much is never enough–although anything over $5million is rare. Worldwide's Mason said as a rule to go $1 million,or go home. “Clients will say that they'll look at a quote, butthey only want $100,000. Well, that's nothing. You'll blow throughthat in one claim.”
Not quite so fast, says HSB's O'Shaughnessy. The reinsurer has goneafter EPL business the past two years, with “overlooked” MainStreet companies as its “power alley.” HSB is different fromcapacity insurers, he said, in that it owns and manages the producton the insurer's behalf. The goal was to create a program thatwould overcome the “too expensive” objection by offering limits aslow as $25,000 and as high as $250,000. Mason is correct that acatastrophic claim could wipe that out in a week, but it is someprotection against those claims that will never see fullbloom.
“The small guys, whose entire insurance program might be $1,500,are not about to buy a stand-alone EPL policy for $3,000,”O'Shaughnessy said. “Our premium could be less than $250.”
The buzz phrase in ELP right now is wage and hour. Wage and hourclaims–overtime, rest breaks, and so on–are not insurable, butdefense costs are. “There's just been an explosion of litigation inthat area, both on federal and state levels,” Beazley's Brodzinskisaid. “It's being brought on a class basis much more frequentlythan it's ever been.”
Mason said that carriers are now starting to include a sublimit ofwage and hour coverage ranging from $100,000 to one market with amaximum of $3 million, and more will soon follow. “When marketsvisit us, we tell them we like your product, but you don't havewage and hour, so you'd better get on the bandwagon,” shesaid.
Third-party coverage has long been available with EPL, but interestin it seems to be peaking. Several sources reported seeing bigspikes in third-party claims, while some employers are learning thehard way that third parties can be roughly defined as anyone witheven a peripheral connection to their companies. Mason wonders ifemployers really understand their third-party exposures, which areincreased because “a lot of companies simply don't hire and firepeople very well.” For example, discrimination claims can be madeby job applicants who weren't offered a position. “Imagine that,”she said. “Owners need to swallow the pill and learn about alltheir exposures.”

Jeff Beckner is managing editor of American Agent &Broker.