Employment Practices Liability: Improving Insurance Market for Managing Ongoing Risks

March 25, 2022

After making Page 1 headlines throughout the latter half of the past decade, social issues that drove employment practices liability news — especially the Black Lives Matter and #MeToo movements — haven’t gone away. They have simply taken secondary positions in the public consciousness behind the existential matters related to the COVID-19 pandemic and, more recently, the crisis in Ukraine.

Conversely, while the years-long hard market for Employment Practices Liability Insurance (EPLI) hasn’t gone soft, the rate increases and capacity reductions characterizing the market have at least leveled off a bit. Premium increases are more moderate, reduced retentions are at least being considered, and capacity in some instances is actually growing.

So, as we head into the second quarter of 2022, we inhabit a world of work in which employment practices liability remains a pressing concern, Employment Practices Liability Insurance remains a viable solution, and COVID-19 remains a wild card.

EPLI Outlook Entering 2022

In December 2021, Alera Group published the Property and Casualty 2022 Market Outlook. Here’s what we had to say in the whitepaper’s section on EPLI:

“Market demand for Employment Practices Liability Insurance (EPLI) has steadily increased in recent years as the number and severity of claims increased.

  • “Pricing has steadily increased in response to the rise in claims and average defense cost of $160,000 per claim, according to Hiscox. However, as the market begins to moderate its response to the increased claims activity, increases are forecasted to be less severe in 2022, with rate increases from 7% to 15%, averaging 10%.

  • “Availability and capacity are stable. Primary markets remain interested in insuring this exposure, but for relatively low limits of $100,000 to $500,000, and with deductibles between $2,500 and $25,000, depending on the business size, industry sector and region. The excess and surplus lines market is a common “go-to” source for multi-million-dollar limits.

  • “Underwriting scrutiny will remain unfavorable for buyers. Claims data reveals select industry groups generate disproportionately greater numbers of claims than do others. Those in healthcare, hospitality, restaurants, schools, publicly traded companies, unionized sectors and companies mandating vaccinations will receive greater underwriting analysis attention. Applicants, both new and renewal, will be subjected to thorough review of claims activity for the five prior years, along with adherence to formalized risk management protocols.”

In addition to forecasting the leveling off of rate increases and greater stability in EPLI availability and capacity, we also predicted that underwriter scrutiny would remain vigorous and challenging. Nothing since the Market Outlook’s publication has caused us to alter that forecast.

What Has Changed: Increased Sources of Lawsuits

The most significant employment practices liability developments thus far in 2022 have been an increase in lawsuits related to COVID-19 rules and the recent enactment of the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021, which is almost certain to result in more EPL lawsuits.

On the COVID front, Bloomberg reported in a March 10 story: “The Covid-19 pandemic has led thousands of workers to file discrimination claims with the EEOC, with the majority related to disability bias on top of a surge of vaccine-related charges in the wake of workplace mandates, according to data provided to Bloomberg Law ...”

From April 2020 through December 2021, the report continued, the U.S. Equal Employment Opportunity Commission (EEOC) fielded about 6,225 COVID-related charges of discrimination under federal civil rights law.

A University of Pennsylvania law professor who specializes in disability and anti-discrimination law, Jasmine Harris, told Bloomberg the jump in cases is attributable to employers and workers wrestling with “emergent questions about the virus” and predicted further wrestling within the courts. One issue, she said, involves how to treat asymptomatic and symptomatic workers – which could “parallel past bias cases involving employees with HIV or AIDS.” What constitutes reasonable accommodation for people with disabilities is another issue that may be determined in litigation, Harris said.

One week before Bloomberg reported on the rise in COVID-related discrimination suits, President Biden signed the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act, which, as Human Resource Executive explains, “prevents the enforcement of arbitration provisions against an employee alleging sexual harassment, a move that will likely increase the number of sexual harassment claims litigated in federal and state courts across the country. Additionally, successful plaintiffs will likely see larger damage awards than they otherwise would recover in arbitration.”

What You Can Do

In such an increasingly litigious world, every employer must be prepared to defend against an employment practices liability lawsuit, regardless of how thorough an organization’s anti-discrimination and anti-harassment policies and procedures are. If a current, former or prospective employee feels there’s merit in such a suit — or at least sees an opportunity to profit from one — the employer is going to be sued.

EPLI covers the costs of defending an employment practices lawsuit, and pays for judgments and settlements. It’s insurance coverage no employer should be without.

Even with EPLI, however, it’s incumbent on employers to mitigate the risk of a suit. In addition to reducing the likelihood of a suit, a sound anti-discrimination/anti-harassment program can lessen the cost of defense and increase an organization’s prospects for winning the case. With claim frequency and severity being key components in insurance underwriting, an effective risk management program can make a significant difference in the cost and quality of your coverage.

The Insurance Information Institute offers these four basic steps:

  1. Create effective hiring and screening programs to avoid discrimination in hiring.

  2. Post corporate policies throughout the workplace and place them in employee handbooks so policies are clear to everyone.

  3. Show employees what steps to take if they are the object of sexual harassment or discrimination by a supervisor. Make sure supervisors know where the company stands on what behaviors are not permissible.

  4. Document everything that occurs and the steps your company is taking to prevent and solve employee disputes.

On the subject of reasonable accommodations, Travelers offers this advice: “Every request for accommodations must be managed on a case-by-case basis, considering the job duties and the particular disability of the employee. Let those in your organization authorized to engage in the interactive process with the employee determine whether a reasonable accommodation exists. Leave or remote work is often a reasonable accommodation.”

For a deeper dive into strategies for navigating P&C market conditions in general and Employment Practices Liability Insurance in particular, read Alera Group’s Property and Casualty 2022 Market Outlook. In the Outlook, you’ll also find valuable information on factors driving the current P&C market, along with analysis categorized by industry and lines of coverage.

To obtain the whitepaper, click on the link below.


About the Author

Alan Goodrich, CPCU, AAI

Commercial Insurance Consultant

HMK Insurance, an Alera Group Company

A commercial insurance professional since 1985, Alan continues to serve clients by utilizing his extensive risk management experience and knowledge. Over the years, he has developed a significant emphasis on the manufacturing industry, including plastics, metal workers, electronics and foods. Other industries he serves include wholesalers, veterinarians and medical/dental organizations. Alan has earned the insurance industry designations of Chartered Property Casualty Underwriter (CPCU) and Accredited Advisor in Insurance (AAI).

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