EPLI 2.0: Employment practices liability coverage comes of age

Every day it seems as though another high-profile case of“managers behaving badly” comes to light. In the most widelypublicized situations, that behavior is taking the form of sexualabuse by powerful male executives against female employees, such asin the cases of film producer Harvey Weinstein, Fox News Host BillO'Reilly and MSNBC political analyst Mark Halperin.

Yet these are only the high-profile cases, and symptomatic of alarger issue of abuses by those in positions of power in theworkplace.

Although some managers have always behaved poorly, the attentionbeing brought to these cases will likely empower those who havebeen victimized by their bosses to speak up and press chargesagainst employers who knew — or should have known — that theabusive workplace behavior was taking place. In some cases thepayouts can be enormous, to say nothing of the reputational damagethat can result.

“Bad actors are not at all new to any industry,” says CarrieKurzon, national EPLI product manager at The Hartford. “What is newis the increased visibility to those bad actors, particularly inthe entertainment space.” In turn, the conversation is certainlychanging in the employment practices liability insurance (EPLI)space.

Shifting market

EPLI remains a competitive market, says Kurzon, “but we expectto see a shift given the high visibility of these bad actors thathave made it into the mainstream news lately.” A lot of insurersthat have more recently entered the market, she explains, may notunderstand how comprehensive the coverage can be — and once theirunderstanding of that develops, “we may see some carriers exit thespace. On the other hand, the ones that have been around fordecades have a greater understanding of the risks in this changingclimate.”

“We've all heard what has been happening in the entertainmentindustry; this appears to be a systemic problem, and the industryis doing what it can to clean up the mess,” says Pete Campbell,vice president of wholesale broker/MGA Worldwide Facilities. “I dobelieve this is the tip of the iceberg, and there will be moreallegations. The heightened awareness may also trickle out ofHollywood and into other industries and government.” He cites theNov. 1 resignation of U.K. Defense Minister Michael Fallon amidclaims of harassment as one example.

“I had a claim a few years back where a manager of a company hadinappropriate images on his screensaver,” Campbell recalls. “Anemployee of the company saw the images; this individual wasterminated for cause at a later date and filed suit allegingharassment, specifically citing the pictures. The matter wassettled out of court for a significant amount of money. The pointis, the law frowns upon employers that do not provide harassment-and discrimination-free work environments.”

Leading causes of claims

Of course, sexual harassment is not the only type of badmanagement behavior that can result in claims.

“Today's landscape, with its decreasing enforcement of politicalcorrectness, is allowing some managers to do or say what they will,with the feeling that they cannot be held accountable for theirwords or actions,” states Michele Epstein, vicepresident–professional and management liability for Santa Rosa,Calif.-based RIC Insurance General Agency Inc. “In one recent case,a manager was accused of being racially insensitive by complainingto an employee about an item spilled in the kitchen that was an'ethnic' food.” This type of behavior, she explains, is leading toan increase in discrimination claims.

Currently, the biggest source of claims in the EPLI space isretaliation. “Retaliation claims are clearly the front-runner asfar as claims filed,” says Campbell.

The Equal Employment Opportunity Commission (EEOC)'s 2016 reportnoted more than 39,000 reported claims for all statutes and morethan 31,000 claims for Title VII retaliation claims. Texas andFlorida are the leading states in EEOC claims filed in 2016,followed by California, Illinois and Georgia.

“Holistically speaking, the marketplace mirrors EEOCstatistics,” Kurzon says. “Retaliation is the most frequentlybrought cause of action, alleged in just under 50% of claims. Dueto the nature of a retaliation claim, it typically raises questionsof fact and, therefore, is not likely to be summarily dismissed.Retaliation cases can be tenuous but, typically, the timing of anyadverse employment action can be problematic for the defense.Employees can complain about any protected right. They could have adisability and have no real claim but just feel they've beenwronged. If they feel they are treated worse than before theycomplained, they may allege retaliation.”

Increase in retaliation claims

For example, Kurzon says, if an employee broke her ankle andsaid she needed to work from home, and then came back to work andher manager took some of her responsibility away, the employee mayhave a retaliation claim.

“There has been a significant increase in the number ofretaliation claims filed over the last 20 years,” says ChrisWilliams, employment practices liability product manager atTravelers. “In fact, the percentage of charges alleging retaliationhas increased every year over the last 20 years except for one. Onereason is that anybody can bring a retaliation claim. You don'tnecessarily need to be a member of a protected class in terms ofyour race, disability, age or gender. Anybody in the workingpopulation can potentially bring a retaliation claim. If someonebrings a claim for discrimination, which may have no merit, theretaliation claim still could have merit.

“One of the things that makes these cases particularly difficultto defend is they involve factual disputes as to what happened, andit's often difficult to have a court dismiss those cases on amotion for summary judgment — which means a lot of times anemployer is facing a jury trial if they are sued,” Williamscontinues. “Somebody who's been terminated after lodging acomplaint about an issue, or somebody who complains about somethingin the workplace and then is given less-desirable work assignments,can bring a retaliation claim.”

RIC's Epstein and others also predict increases indiscrimination claims due to the aging workforce population.

Sales and competition heat up

Experts agree that EPLI remains a competitive market. “Morecompanies are purchasing EPLI now than in the last 10 years,”Campbell says. “Because employees are becoming more aware of theirrights, I believe the need for coverage will continue to expand.The market is very competitive; to my knowledge there are more than30 carriers offering a stand-alone EPLI product.”

That competition helps to keep rates “lower than they probablyshould be, and carriers are still offering broad coverage,” hecontinues. “With as many carriers offering coverage as there are,it's hard for insurance companies to get the rates they wouldlike.

“Identifying and keeping up with emerging trends is one of thegreatest challenges” in serving EPLI clients, Campbell adds. “Inthis space, things appear to be evolving, and it's important forbrokers to keep up with all the changes in the marketplace.”

How can carriers and brokerages differentiate themselves toclients in this market? “Find the best terms, conditions, andpricing possible for your clients that are available in themarketplace. Do policy comparisons for your partners. Stayknowledgeable about the changes in this space. Know who is offeringwhat and who is not,” Campbell advises. “Be a resource, not apaper-pusher. Know your products and be articulate when explainingyour message. You are the expert, and your insureds need you to beable to explain the reasons they need insurance.”

“There is a lot of capacity available in the marketplace;however, not all capacity is created equal,” notes Beth Goldberg,chief underwriting officer, financial lines at Starr Companies.“Insureds need to assess both coverage and carrier when choosingwhere to place coverage.

“Carriers typically do not use standardized forms nor do theyhave in-house claims teams, so it's important for the broker andinsured to understand the differences,” adds Goldberg. “Carriersand brokers can differentiate themselves from others by identifyingand providing risk management services to insureds to help mitigaterisk.”

“Given that EPLI coverage has the highest claims frequency ofany management liability insurance product, insurance carriers cansuccessfully differentiate themselves in the marketplace based uponquality of claims service, loss-prevention offerings, and access tobroad, cost-effective, and top-quality legal defense firms,” saysMike Schraer, senior vice president/Employment Practices Liabilityand Not-for-Profit Product Manager at Chubb.

Worldwide Facilities Broker Jeremy Huang advises insurers toseriously reconsider how to evaluate EPLI risk/exposure: “Considernew factors that present a better or more refined approach toevaluating risk/exposure for EPLI,” he says. “Don't just look atadjusting your underwriting guidelines using existing underwritingcriteria — look to innovate and create better evaluators of EPLIrisk/exposures.”

“The No. 1 thing I feel most strongly about is service: stellarservice and commitment to the market,” says Kurzon. “Brokers andcarriers need to understand their clients' risks and advise them onhow to best protect themselves given this challenging legallandscape.”

Want fewer claims?

Campbell, Epstein, and other experts predict that companies willbe seeing further examples of harassment, discrimination andretaliation claims related to poor management behavior if they donot take steps to create an appropriate environment.

“Prevention is still the best tool to minimize these claims.Companies must develop a culture, emphasized and acted upon by allexecutives, of zero tolerance toward acts of harassment,discrimination and retaliation,” says Williams. “Companies mustprovide training to all employees within the organization, as wellas implement a policy and review it periodically to ensure it is upto date. And finally, a company may want to consider purchasing anemployment practices liability policy to address theseexposures.”

Epstein adds, “Brokerages need to impress upon their insuredsthe need for good, solid EPLI coverage. Too many small firms feelthat they have little or no risk, when in fact they may be the onesthat are more likely for a claim to be filed. Carriers andbrokerages that succeed will assist the policy holders in riskmanagement techniques, pre-claim assistance and employeetraining.”

“Employers should have appropriate policies and procedures thatcomply and keep pace with evolving federal and state legislationand are properly disseminated to all employees,” stresses Schraer.“They should diligently and consistently follow and adhere to thosepolicies and procedures and should effectively document anymaterial decision-making and actions regarding employmentrelationships to successfully survive future challenges.

“One EPL challenge is that it's an ever-evolving landscape froma legislative environment,” Williams adds. “Primarily, it's makingsure that clients have an appropriate culture that haszero-tolerance toward discrimination, retaliation, harassment, andthat type of conduct in the workplace.”

Related: 6 do's and don'ts for yourcompany's holiday party

Age becomes an EPLI landmine

According to the U.S. Bureau of Labor Statistics (BLS), about40% of people ages 55 and older were working or actively lookingfor work in 2014. That number, known as a labor force participationrate, is expected to increase fastest for the oldest segments ofthe population — most notably, people ages 65 to 74 and 75 andolder — through 2024.

RIC's Epstein and others predict continued increases indiscrimination claims due to this aging workforce population. In2016, 20,857 age discrimination complaints were filed with the EEOC(up from 20,144 in 2015), representing nearly one-quarter (22.8%)of total discrimination complaints filed with the agency. Thepenalties can be substantial: In March, the EEOC announced thatTexas Roadhouse, a national, Kentucky-based restaurant chain, wouldpay $12 million and furnish other relief to settle an EEOC agediscrimination lawsuit seeking relief for applicants aged 40 yearsand older who had been denied front-of-house positions (servers,hosts, server assistants, and bartenders) due to their age.

In October the EEOC filed suit against Professional Endodontics,P.C., a Michigan dental surgery practice, on the basis that thepractice violated federal law by firing an employee four days afterher 65th birthday. She had worked as a receptionist there for morethan 37 years. “Terminating an employee because he or she turns 65is illegal,” Miles Uhlar, trial attorney for the EEOC's Detroitfield office, said in a statement. “Federal law provides specificprotection to members of our workforce … who are age 40 orabove.”

In one recent situation, a 55-year-old male who interviewed fora position with an IT company was advised by the interviewer thathe was not going to be considered for the position as “we can hiresomeone straight out of school, pay them a lower salary, andbecause they're younger they won't need to use their medicalinsurance,” Epstein says. “In another situation, an employee whohad been in his job for more than 35 years was 'downsized' becausehe was approaching retirement and would soon have been receivingpension and retirement benefits.”

“There's the potential for many more [age discrimination claims]given our aging workforce and employers' effort to control costs,”warns Steve Gladstone, who oversees Professional Claims globallyfor XL Catlin. “In an effort to save money, organizations ofteneliminate higher-paid positions and, of course, these actionsgenerally affect older employees. With the potential for moreaffected workers in a protected age group, such actions ofcompanies trying to attract young talent and looking to save onhigher salaries, by eliminating positions with more tenure, couldbe problematic.”

Outdated assumptions about age and work deprive people ofeconomic opportunity and stifle job growth and productivity — andleave your clients exposed without EPLI.

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