Insuring Employment Exposures Through RRGs
By Karen Cutts
With employment-related liability lawsuits on the rise, corporate insurance buyers may want to explore use of risk retention groups to cover these exposures.
While no RRGs have been formed for the sole purpose of providing employment practices liability insurance, more than half a dozen RRGs do provide EPLI, typically as an ancillary coverage.
The question of whether employment practices liability falls within the definition of liability contained in the Liability Risk Retention Act was raised two years ago in a court action.
Under the LRRA, RRGs can offer all types of liability insurance except for "personal risk liability and an employer's liability with respect to its employees other that legal liability under the Federal Employers' Liability Act."
While legislative history makes clear that Congress meant to exclude workers' compensation insurance from the LRRA definition of liability, the actual language used in the LRRA does not actually spell out "workers' compensation" and thus has created some ambiguity.
In a lawsuit brought against Michigan's insurance commissioner by two RRGs on an entirely different matter (Attorneys' Liability Assurance Society Inc. A RRG (ALAS) and Housing Authority Risk Retention Group Inc. (HARRG) vs. Frank M. Fitzgerald, Commissioner of the OFIS for the state of Michigan), the Michigan commissioner raised as an affirmative defense that the RRGs were not valid under the federal law because they provided employment practices liability insurance to their members, which Michigan argued was not permitted under the LRRA.
ALAS and HARRG asserted that a review of legislative intent made clear that Congress only intended to exclude workers' comp insurance and that, in fact, separate policies covering employment practices liability were not even available at the time the LRRA was enacted in 1986.
Michigan's challenge provided an ideal opportunity for RRGs to confront the ambiguous language in the LRRA, establishing that, while the LRRA excludes workers' comp coverage, employment practices liability insurance falls well within the LRRA definition of liability and is a permissible coverage insurable by RRGs.
Karen Cutts is managing editor and publisher of the "Risk Retention Reporter," a monthly newsletter based in Pasadena, Calif., that she founded shortly after passage of the 1986 Liability Risk Retention Act.
Reproduced from National Underwriter Edition, June 16, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.
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