No conversation about the Employment Practices Liability Insurance (EPLI) market is complete without the mention of wage-and-hour claims, notes David Derigiotis, director of professional lines for the specialty-risk division at Burns & Wilcox.
Independent hotels, restaurants and auto dealers are particularly susceptible to such claims due to high turnover and the typical lack of a structured human-resources department at these operations, Derigiotis adds.
But while the need for such coverage is enormous, the challenge for buyers and the brokers and agents who represent them is that it is very hard to come by: Most carriers simply won’t offer a policy that covers these types of claims.
According to Richard Betterley, president of Betterley Risk Consultants, insureds regularly request wage-and-hour coverage, but insurers are unwilling to underwrite a risk that many see as a business-practices issue entirely under the control of the employee.
Phil Norton, head of the Professional Liability practice at broker Arthur J. Gallagher, adds that if an insured does manage to secure a wage-and-hour endorsement, it could cost more than an entire typical EPLI premium.
For large, publicly traded companies where the exposure is potentially great, wage-and-hour coverage is almost universally excluded, says Ann Longmore, product leader for EPLI, fiduciary and D&O at Willis.
But for smaller, private companies, it is possible to obtain about $100,000 to $500,000 worth of coverage for defense costs—but good luck getting that policy renewed if those funds have to be paid out, she adds.
Of course, whenever there is a pressing demand for a product, developing a profitable way to address the need presents a compelling business opportunity.
And Derigiotis sees an untapped market—albeit a challenging one for underwriters—geared toward some workable coverage for smaller employers where the demand is great, but the risks are not so enormous.
“I think a [carrier] can figure it out—and the need is definitely out there,” he says. “Smaller companies are likely not trying to violate the law. Their [wage-and-hour miscues] could be unintentional because they don’t have an internal department telling them what to do.”
Until the coverage becomes more available, Joni Mason, senior vice president and Employment Practices Liability product manager at Chartis Insurance, urges employers to be proactive in avoiding these claims through self-audit and ensuring they are in compliance with regulations.