Workplace discrimination claims are at an all-time high, andsmall-business owners feel vulnerable. With a difficult economy andnew employment laws making charges and lawsuits more likely,employment practices liability insurance is evolving from ahigh-priced option to an affordable necessity for smallercompanies.

A recent survey of small-business owners conducted for HartfordSteam Boiler found that 66 percent were concerned their employeeswould file an employment-related charge against them.

At the same time, a recent industry study by MarketStance inMiddletown, Conn., indicates that only 1.1 percent of smallbusinesses have purchased EPL insurance. (See related sidebar“MarketStanceStatistics.”)

This exposure presents an opportunity for agents and brokers tohelp fill the coverage gap with new packaged EPLI programs that aredesigned and priced for small businesses.

The risk of an employment claim is real and growing. The U.S.Equal Employment Opportunity Commission reported thatdiscrimination claims reached the second highest level ever in2009, with more than $376 million awarded to employees. (Seerelated article, “DiscriminationCharges Fell Slightly In 2009, But Remain Near RecordLevels.“)

Continuing a decade-long trend, racial discrimination andretaliation claims were the most frequently filed, followed bygender discrimination claims. The EEOC warned employers it wouldcontinue to protect employees with enforcement and litigation.

The sluggish economy and more worker-friendly laws haveemployers on the defensive. When the survey asked why they wereworried about an employment claim, 40 percent of thosesmall-business owners blamed the recession and 60 percent cited newlaws that could make it easier for employees to file a charge. TheEEOC also noted economic conditions, a more diverse workforce and agreater awareness of employee rights.

Changes in procedures have also cut the number of steps for anemployee to file a claim, the agency said.

Employees know their rights under employment laws. Agents,brokers and other insurance professionals should be educating theirsmall-business customers about the increased risks and the newavailability of insurance protection. A growing number of generalliability carriers are packaging EPLI with their small-businesspolicies to make the coverage easier and more affordable.

It's a trend that recognizes the fact that small businesses facebig risks from employment-related claims.

One business owner who was sued for age discrimination spent twoyears defending himself. Another was forced to abandon a 25-yearcareer and start over in a new field when he was sued for wrongfultermination and sexual harassment. Neither small-business owner hadpurchased EPL insurance.

A business owner should not be so exposed. But many smallbusinesses don't have internal resources, such as in-house counseland human resources professionals, to establish risk-managementpolicies and procedures, or rigorously document poor employee jobperformance.

“We don't keep good records about our employees' performance,”said the owner of a telecommunications business, responding to theHSB survey. “My human resources friends say we really need to domore, but it isn't easy in a small company.”

The more intimate working environment can also lead toheightened risks. Large companies may lay off hundreds or thousandsof people at a time. At a small firm, firings are much morepersonal and closely scrutinized. Anger about a layoff and theinability to find a new job can make employees more litigious.

That climate has some owners looking for other options, even iflayoffs make sense financially. For example, one survey participantsaid, “Instead of laying people off, we have been reducing hoursinstead.”

However, almost half of the small-business owners questioneddidn't know that more affordable employment practices liabilitycoverage was available to them.

The survey also found that 60 percent of small-business ownersbelieved it would cost less than $20,000 to defend against anemployment charge. EEOC statistics show that 81 percent of claimssettle for an average of $22,400 to $40,500.

With nearly half of the owners unaware that affordable coverageis available and so many underestimating the true cost of defendingthemselves, it's clear that many are exposed to the threat of anemployment-related charge.

When they learned that coverage was available, more than 90percent of small-business owners said they would be interested inan affordable EPLI policy. Increasingly, package insurers areoffering coverage that is designed and priced specifically forsmall businesses. EPLI for small-business owners has more flexiblelimits and risk management services that are important to smalleremployers.

EPLI policies for small businesses can offer coverage previouslyonly available to large corporations. In addition to claims broughtby employees, programs may respond to claims brought by independentcontractors and volunteers.

Other advanced coverage may include prior acts, punitive damagesand third-party claims by customers.

A loss prevention Web site can provide employment proceduresready to download and use. Sexual harassment training is availableonline. Some EPLI coverage even offers a legal telephone help linewith local attorneys who provide general employment guidance tobusiness owners.

In today's workplace, employers and employees alike are feelinguncertain and anxious. EPL helps fill a coverage gap forsmall-business owners. It offers financial protection againstemployment-related claims and valuable risk managementservices.

EPLI also presents agents and brokers with a source of newpremium, helps protect against errors and omissions claims, andprovides real value for small-business customers.

Jeffrey O'Shaughnessy is vice president foremployment practices liability for The Hartford Steam BoilerInspection and Insurance Company in Hartford, Conn., which partnerswith other insurance companies to reinsure and administer EPLIprograms that are packaged with the companies' small-businesspolicies. He may be reached at [email protected]

This article was originally published by American Agent& Broker (www.agentandbroker.com), amember of Summit Business Media's P&C Magazine Group, whichincludes National Underwriter.