Services Help RMs Face EPL Challenges

Mr. Flannery, whose company has some 10,000 insureds that have EPL in their coverage, noted that one contributing factor in the increasing number of age-discrimination lawsuits is the changing U.S. demographics and the general aging of the workforce.

"The aging baby-boomer generation still wants to work, but many employers want to move on to younger workers. There are still layoffs in the current economic cycle and many are senior employees," he observed.

Robert Hartwig, senior vice president at the Insurance Information Institute in New York, also added that during an economic downturn, "when employers are laying off people and cutting costs, very often they will lay off some of the workers with higher income. Employers reduce layers of management and consolidate them," he said.

Mr. Hartwig also noted that such downsizing has a tendency to affect older and more senior workers–those who are at least 40 years old, but mostly workers in their 50s.

"Although the decision may have been made based on cutting costs and consolidating certain operations, there may at least be an appearance of a disparate impact on older workers," he said. "And this can form the basis for a lawsuit against the employer."

To manage the risk of such litigation, many employers now consult with outside experts to try to ensure that their layoffs cannot be construed as age-based, Mr. Hartwig noted.

"These outside firms, human resources consultants, will help design a headcount reduction program that lowers the probability of being sued, or at least being sued successfully, by developing documentation that demonstrates that layoffs are not based on age but on other, business-related considerations," he said.

Shand Morahan & Company in Deerfield, Ill., one of the first insurers to begin writing EPL insurance in the early 1990s, has been taking the perceived link between the frequency of employment practice-related complaints and the overall economic cycle very seriously. Letha Heaton, senior vice president of sales and marketing at Shand Morahan, noted that their EPLI premium rates are even tied to the unemployment rate.

"What happens is that the frequency of complaints increases when there is a high unemployment rate. If I am an older employee and I happen to get laid off, then I have every incentive to file a suit."

"In our case, we focus on the middle market segment, and most of these cases end up in settlements or get dismissed out of court," Ms. Heaton said.

Data from the U.S. Equal Employment Opportunity Commission bears out this correlation between the economy and the frequency of employment practice-related complaints.

In 2002, the overall number of individual charge filings at EEOC was 84,442. But in 1999, during the height of the technology boom when jobs were more plentiful, that figure was lower, at 77,444.

Further, statistics show that back in the early 1990s, when the economy was mired in a downturn, the number of EPL-related charges were high–with 87,942 charges in 1993 and 91,189 during 1994.

Mr. Hartwig added that another major risk management concern among employers and insurers is racial discrimination as well as discrimination based on national origin.

"Here we have events where some employees antagonize others based on race. In the past, it has very frequently been African-Americans who were the antagonized group. This has produced enormous settlements on the part of companies," Mr. Hartwig said, adding that in the post-9/11 world, there is now a "great concern" about employees with Middle Eastern background being discriminated.

And sexual harassment and other gender-related complaints continue to be a big issue because of the increasing number of females in the workplace as well as the heightened awareness surrounding such topics, he observed.

But Peter Taffae, managing director at e-perils.com Insurance Services in Santa Monica, Calif., noted that despite such challenges, most insurers didn't pay much attention to EPL loss control or risk management until relatively recently.

"It wasn't until about five year ago that the EPL market got very competitive, not only in price, deductibles and limits, but also in introducing risk management and loss control measures," Mr. Taffae said.

What's significant to know, Mr. Taffae added, is that when EPLI first got started, it was the directors and officers liability underwriters who wrote it. And historically, D&O underwriters did not emphasize risk management measures, he noted.

"Historically, D&O and EPLI marketplaces were not proactive in mitigating losses. In D&O, they didn't really talk about loss control or risk management until recently, when corporate governance problems began to emerge," Mr. Taffae said.

In the EPLI marketplace, underwriters started to introduce loss control options only about five years ago, he recalled. "First came a toll-free number that insureds could call before they took any action, to minimize any litigation or damages. Shortly after that, for competitive reasons, all the EPLI underwriters came out with similar services. And they started to expand them," Mr. Taffae explained.

Then a number of underwriters began to introduce risk management audits. "Now, risk management audits have expanded. They now include reviews of employment handbooks, which are now pretty much a requirement for EPLI. Then they introduced in-house seminars. A few markets even have interactive Web sites now," he said.

At e-perils.com, Mr. Taffae noted, other additional measures being offered include mandatory arbitration clauses in insureds' employment handbooks and employment practices news alerts.

"And one of the newest risk management measures is setting up toll-free numbers for employees to call anonymously to report employment-related complaints," he said. "Normally, people are reluctant to complain because of retaliation. This allows employers to be aware of the situations at early stages."

Another, more recent risk management measure is the use of employee surveys, said Dick Clarke, senior vice president of Palmer & Cay, an insurance and risk management consulting firm in Savannah, Ga. "In the past year, more employers have begun to utilize employee surveys," Mr. Clarke said. "Many of these are online, so that employers can gather employee opinions and suggestions about the workplace more rapidly."

Additionally, there is also more attention being paid to sensitivity training, either in the form of instructor-led classes or Web-based training modules. "Even within our own company, our senior management was just required to complete a short online course with test questions relating to sensitivity issues in the workplace," Mr. Clarke said.

In most cases, adopting EPL risk management measures is requested by EPL insurers, he noted, while others would be suggested by concerned employees. Sometimes, even major business partners can request the implementation of such measures.

"The U.S. government, for example, might say to a company, 'If you want our business, your employees have to undergo a certain amount of sensitivity training,'" he said.

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.