From the December 5-12, 2011 issue of National Underwriter Property & Casualty • Subscribe!

ADA Amendments: Broader Definition Likely to Cause Spike in Claims

Steps taken by federal officials to broaden the definition of “disability” is putting pressure on employers—and insurers are forecasting an increase in employment-practices liability (EPLI) claims.

The Americans with Disabilities Act Amendments Act (ADAAA), which went into effect on Jan. 1, 2009, directed the U.S. Equal Employment Opportunity Commission (EEOC) to revise its regulations “to restore the intent and protections” of the original act, and to address what lawmakers felt was a too-narrow view taken by courts of the original ADA provisions.

The EEOC’s final regulations to implement the ADAAA were made available on the Federal Register Web site in March 2011 and were put into effect just this May.

INSURANCE IMPLICATIONS

As a result of the EEOC rulings, which broaden the definition of disability to include protections for employees with, for example, cancer, diabetes or epilepsy, Salvatore Pollaro, managing director for Markel, is one of many experts who expect to see an increase in the frequency and severity of ADA-related EPLI claims in 2012.

“Right now, there is a lot of interpretation going on” around the “difficult-to-decipher” revised regulations, he says. “And any time there is uncertainty, there is an opportunity for indecision, or the wrong decision—which can be costly.”

Employers and insurers are “uncertain how the courts will interpret the law,” adds Damien Magnuson, senior vice president of Executive Perils, an independent wholesale broker. “After all, there has not been much consistency in the courts, which is why amendments to the act were made in the first place.”

Joni Mason, senior vice president and employment-practices liability product manager at Chartis Insurance, says the definition of disability under the law was “significantly expanded” by the ADAAA, and she also expects claims numbers to grow as a result.

That’s a potentially disturbing statement for both insurers and employers, as disability-related claims already increased 17 percent in 2010 compared to 2009—before the revised final regulations went into effect in May.

In response to the changes, Mason says Chartis is training its underwriters to adjust to the expanded definitions of disability. Pollaro says Markel’s underwriters are taking a similar approach as they would with other emerging issues: a careful watch.

“You need to stay current without reacting for no reason,” he observes.

Melissa Mattioli, vice president of employment-practices liability at Liberty International Underwriters, says she, too, predicts an uptick in claims, although the insurer hasn’t witnessed this just yet.

Numerous blogs from defense-attorney firms point to projected increases in ADA-related claims as well. According to one blog written by the Southeastern law firm Miller Martin, the ADA may now be “so broad that all of us may have disabilities.”

GETTING THE MESSAGE, GRASPING THE RISKS

Companies do seem to be getting the message that the right coverage is key. Submissions and inquiries around EPLI are up, says Magnuson of Executive Perils.

And clients have been asking ADAAA-related questions to get a better sense of its regulations and the accommodations now required by employers, says Tom Hams, managing director and EPLI national practice leader at Aon Risk Solutions.

Every industry expert interviewed by NU stressed that education is key for employers. Ask questions, they say. Do your research. Use EEOC resources. Train managers and HR departments, because one oversight—one seemingly innocent oversight—can lead to a claim.

“A person with diabetes, for instance. You can’t ask how long they’ve had it, or how long they’ve been taking medications—even if it seems to you to be within the regular course of typical conversation,” Mattioli explains.

“Then you must provide reasonable accommodations—a place to test blood sugar, a break to take medications and time to rest,” she adds. “It’s very challenging. There are so many variables.”

Mason says the focus for employers should not be whether a disability exists, but in engaging in the interactive process and deciding what steps, if any, are necessary to provide a reasonable accommodation.

“At Chartis, we are trying to make sure that we educate the market so that companies large and small realize the vulnerabilities and don’t turn a blind eye to their risk,” she adds.

Currently, many insureds may not understand the risks—especially smaller employers without the benefit of risk managers, outside counsel and human-resources departments.

“They may think their general-liability policy offers coverage, but it’s very limited,” says Magnuson. “It’s best to discuss the issue with your broker to limit your damage. [Clients all] have their commercial-property policy—but they’re more likely to face an EPLI claim than one for fire.”

COST-BENEFIT ANALYSIS

EPLI coverage is not necessarily cheap, and risk managers or other professionals charged with presenting cost-benefit analyses could face corporate resistance. But Magnuson argues the cost cons are far outweighed by the policy pluses.

“It’s cheaper to [purchase the proper risk coverage] than to defend yourself against one of these claims,” he says. “It might be best to err on the side of caution, especially with this.”

That opinion was shared by other executives as well. Pollaro says a policy “offers great value” and covers defense and indemnity (but will not cover the cost of physical modifications to accommodate an employee).

Adds Mattioli, “It’s still a very competitive market with a lot of capacity. It’s a good time to buy.”

Pollaro says he has witnessed insureds “doing their best efforts to stay ahead of the law and evolve—not just for the financial result, but because they really want to do the right things for their employees.”

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