Are Medical Marijuana, Social Media The Next Big EPL Issues?

Other laws are far less clear–and also unclear is the extent to which employers have to accommodate medical marijuana use "outside of work," he said, referring to a case where an employee cleared to use medical marijuana was fired for a positive drug test result even though he used it outside of work.

Joni Mason, EPLI product manager for Chartis in New York, sees the use of social media and social networking sites to screen job applicants as another looming exposure for employers in future years.

"I think that is going to become a big issue. We're just starting to see a couple of lawsuits," she said, explaining that when employers screen employees by viewing such sites, "they need to be really careful because all of the same [employee] protections apply."

For example, "there are a lot of things you wouldn't ask during [a job] interview, like somebody's religion or marital status," she said. But "if an employer goes onto someone's Facebook page that's not protected, they can see the person's race. It might [even] say the person's religion or marital status," she noted.

To be sure, Ms. Mason, Mr. Brickman and other EPLI market participants who spoke to National Underwriter about emerging EPL claims trends this month didn't rank either of these topics anywhere near the ongoing explosion of wage-and-hour actions. That trend began even before the economic downturn fueled jumps in other types of employment claims (wrongful termination, discrimination and retaliation).

"Wage and hour is a wildfire," said Peter Taffae, managing director of wholesaler Executive Perils in Los Angeles, referring to an escalating level of government actions and private lawsuits in which workers allege violations in federal and state laws governing how they are paid.

"At one time early on, we felt–and the defense bar would have supported–that if you were a smaller firm, less than 10 employees, then you didn't have to worry about it. That's not true anymore," he said, echoing eight other experts interviewed by NU.

The experts also reported an increasing number of wage-and-hour mass actions against the largest employers.

Wage-and-hour suits were pouring in even as this article went to press, with the U.S. Department of Labor and plaintiffs' lawyers representing employees ranging from poultry workers to bank tellers.

On June 3, the DOL announced that Tyson Foods agreed to pay almost 3,000 poultry processing workers at its Blountsville, Ala. facility $500,000 in overtime back wages under the Federal Labor Standards Act for time they spent at the plant putting on and taking off protective and sanitary gear.

A day later, a dozen cases against Bank of America Corp. in five states were consolidated in a Kansas federal court, with tellers alleging they were told not to record overtime and given time off to compensate for excess hours worked instead–also a violation of the FLSA.

Since insurers specifically exclude FLSA violations under EPLI policies–and those offering to put back any coverage at all provide only small sublimits to cover defense costs–wage-and-hour actions are a bigger headache for employers than insurers at this point, experts said.

Insurers are also responding with only limited coverage to another issue looming on the horizon, Mr. Taffae said, noting that he has recently started fielding calls from EPL buyers in Arizona worried about immigration issues.

While he and other experts noted that EPL carriers are slowly starting to offer sublimits for defense costs incurred in responding to government investigations, David Bradford, executive vice president of New York-based Advisen, speculated that additional immigration-related employment issues could fuel covered discrimination claims.

"Particularly as companies fall under the spotlight for their hiring practices and how they are screening for illegal immigrants within the workforce," some may decide that it's "easier to not hire Hispanic workers than to have to investigate them for their status," Mr. Bradford said. "That could definitely generate some claims of discrimination."

He added, "I'm not sure that's actually happened, but it's certainly sitting out there as a possibility."

Insurers are also carefully watching the first lawsuit filed under the Genetic Information Nondiscrimination Act, Ms. Mason noted, referring to a suit filed in April by a Connecticut woman, who was terminated by her employer after undergoing mastectomy surgery–surgery she decided to have after genetic tests revealed she had a predisposition for breast cancer.

GINA became effective in November 2009, prohibiting employers and health insurers from requiring genetic testing, asking for genetic information or using it against employees.

"What we've seen in the past is that once you've had the first lawsuit, it tends to spawn additional suits," Ms. Mason said, predicting more genetic discrimination suits will come down the pike.

EXISTING PROBLEMS GROW

Ms. Mason said Chartis is continuing to see increases in age discrimination claims, and most recently–within the last six months–an uptick in disability claims.

"That may be as a result of legislation expanding the Americans with Disabilities Act to broaden the scope of people now part of that protected class," she said.

Amendments to the ADA, which went into effect on Jan. 1, 2009, broadened the definition of disability–"a physical or mental impairment that limits major life activities"–by expanding the list of major life activities claims trends tend to follow trends in charges reported by the Equal Employment Opportunity Commission, noting that Chartis, like the EEOC, sees disability and retaliation claims rising.

Thomas Hams, managing director and EPLI national practice leader for Aon Risk Services in Chicago, noted that retaliation surpassed race as the leading EEOC charge for the first time in fiscal year 2009.

Both Mr. Hams and Ms. Mason said plaintiffs' lawyers have been successfully tacking retaliation allegations onto discrimination and harassment lawsuits, especially in the wake of a June 2006 U.S. Supreme Court ruling, Burlington Northern v. White.

That case expanded the circumstances under which workers could recover for retaliation in the workplace to include any actions "sufficient to dissuade a reasonable worker from making or supporting a charge of discrimination."

Retaliation allegations "continue to be a throw-in on almost any type of employment claim, and they can be expensive," Ms. Mason said, noting that such claims aren't dismissed on summary judgment.

"Even when there may be a dismissal of the underlying allegation of an employment violation, the retaliation portion of the claim can stand, and you are going to continue to incur defense costs," she said.

Even a participant in an employment investigation can be protected from retaliation under the law. "They don't even have to be the alleged victim of the adverse employment action," Ms. Mason said.

Employers don't fare well in those types of cases at trial, she added.

Mr. Hams explained there is almost an assumption on the part of jury members that if you make a discrimination claim, you're going to get retaliated against. "They come into it assuming that it happened."

Turning to a seemingly more positive trend, Mr. Hams noted that the total number of EEOC charges actually dropped in 2009 from 2008–"a surprise given reductions-in-force that were so rampant in the economy."

A possible explanation is that many large employers that did the RIFs had been taking similar actions for a number of years "to be lean and mean," he said. "So they really knew how to do them right."

They performed impact studies, obtained employee releases, provided severance, and gave outplacement assistance–"all those things that smooth the exit and protect [employers] legally," he said.

In addition, he speculated that employees understood that a historic economic event prompted layoffs. "They were much more likely to just take their packages and at least have something to go home with–rather than nothing and a lawsuit."

He said "carriers were waiting with baited breath," thinking that a spike in wrongful termination claims arising from the economic downturn might turn the EPL insurance market. "That didn't happen, [and] it almost put them in the position of having to continue to soften [prices] to acknowledge that."

Still, the industry is bracing for mass discrimination actions by the EEOC and other federal agencies, which have been empowered by recent increases in budgets and staffing, he said.

"The EEOC is almost taking the mantle from the plaintiffs' bar" in this area, he said, noting that plaintiffs' lawyers occupied with wage-and-hour suits have not been bringing big class action discrimination lawsuits.

MARKET IMPACT

In spite of worrisome trends, the EPLI market continues to attract new entrants, Mr. Hams said, noting that companies like Argo Group and AXIS U.S. have moved in to provide some needed primary capacity for large employers. In 2009, two primary markets, XL Capital and Zurich, had reduced capacity, he reported.

Mr. Taffae added Aspen, Everest Re and C.V. Starr to the list of new EPL players participating on both a primary and excess basis, and both brokers said that increased capacity has meant continued soft pricing.

Even a recent jury verdict against Novartis–reportedly the largest gender discrimination case ever to yield a jury verdict, which included $250 million in punitive damages–isn't likely to deter such market activity, Mr. Hams said when asked about the possibility of a market turn.

The last severe discrimination case, he noted was back in 2000–a race discrimination class action against Coca-Cola.

"When Coke happened, there really was no severe claim above $100 million in that period. Everybody thought after Coke, there was going to be lots of those claims and it just didn't happen. There wasn't any frequency of severity," Mr. Hams said.

He said the EPL market isn't likely to turn until the directors and officers market does, noting that the groups that provide D&O also provide EPL–"in the same units, often with the same underwriters."

"There is a kind of crossover softness that happens when the D&O premiums are softening and [these units] need to bolster their budgets. They often focus more heavily on the EPL side to try to get more of that or to retain what they have," he said.

Mr. Taffae and Mr. Brickman did report some areas of harder market conditions in California and Texas, noting that the London market, in particular, is raising minimum retentions in these states.

Mr. Brickman also said carriers are requiring employers involved in RIFs to fill out supplemental questionnaires, asking how these activities are handled. In some cases, particularly for small employers without sophisticated HR controls, carriers are tacking RIF exclusions onto their policies, he said.

If they know an employer isn't doing well financially, or anticipates a layoff, then "they might just take the proactive approach in order to keep pricing competitive, excluding [claims arising from] any past or future layoffs," he said.

Damien Magnuson, assistant vice president for Executive Perils, noted that one insurer, invoked a different exclusion–a prior litigation exclusion–to deny coverage for an EPL, with Travelers prevailing in the January case National Waste vs. Travelers.

The carrier argued that the claim was excluded because the employee involved had an unemployment compensation hearing. The Connecticut Supreme court agreed that the hearing constituted an administrative proceeding and upheld Travelers' coverage denial, he said.

Reacting to the decision, Monitor Liability Managers, an underwriting manager for W.R. Berkley Group in Rolling Meadows, Ill., has crafted an endorsement to affirmatively cover this situation.