Legal Intermediaries: How Insurance Companies Construct the Meaning of Compliance with Antidiscrimination Laws

• Published date: 01 July 2015
• Date: 01 July 2015
• DOI: http://doi.org/10.1111/lapo.12037

Legal Intermediaries: How Insurance

Companies Construct the Meaning of

Compliance with Antidiscrimination Laws

SHAUHIN TALESH

Existing empirical research suggests that human resource officials, managers,

and in-house counsel influence the meaning of antidiscrimination law by

communicating an altered ideology of what civil rights laws mean that is

colored with managerial values. This article explores how insurance companies

play a critical and, as yet, unrecognized role in mediating the meaning

of antidiscrimination law through Employment Practice Liability Insurance

(EPLI). My analysis draws from, links, and contributes to two literatures

that examine organizational behavior in different ways: new institutional

organizational sociology studies of how organizations respond to legal regula-

tion and sociolegal insurance scholars’ research on how institutions govern

through risk. Through participant observation at EPLI conferences, interviews,

and content analysis of insurance loss prevention manuals, my study bridges

these two literatures and highlights how the insurance field uses a risk-based

logic to construct the threat of employment law and influence the form

of compliance from employers. Faced with uncertain legal risk concerning

potential discrimination violations, insurance institutions elevate the risk

and threat in the legal environment and offer EPLI and a series of risk-

management services that build discretion into legal rules and mediate the

nature of civil rights compliance. My data suggest that insurance risk-

management services may sometimes be compatible with civil rights goals of

improving equality, due process, and fair governance in workplace settings, but

at other times may simply make discrimination claims against employers more

defensible.

Thanks to Catherine Albiston, Mario Barnes, Lauren Edelman, Catherine Fisk, Bryant Garth,

Valerie Hans, Allison Hoffman, David Kaye, Doug NeJaime, and the anonymous reviewers for

helpful feedback on earlier drafts. I thank the UC Irvine School of Law for providing funding

for data collection and analysis. An earlier version of this article was presented at the Law and

Society Association Annual Meeting (2014), UC Irvine Insurance and Legal Regulation Con-

ference (2014), the Rutgers Risk and Responsibility Workshop (2014), the New Legal Realism

Conference (2014), the American Association of Law Schools Annual Meeting (2015), and the

UC Irvine Socio-Legal Workshop (2015).

Address correspondence to Shauhin Talesh, University of California, Irvine—School of Law,

401 E. Peltason Drive, Ste. 4800L, Irvine, CA 92697, USA. Telephone (949) 824-9214; E-mail:

stalesh@law.uci.edu.

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LAW & POLICY, Vol. 37, No. 3, July 2015 ISSN 0265–8240

© 2015 The Author

Law & Policy © 2015 The University of Denver/Colorado Seminary

doi: 10.1111/lapo.12037

INTRODUCTION

Civil rights and employment laws impose liability on employers for wrong-

ful employment practices and seek to protect an employee’s right to a

workplace free of discrimination and harassment. These laws recognize

that employees deserve recourse for acts of discrimination committed

against them and that monetary penalties are effective tools in deterring

such discrimination. Existing empirical research of employer responses to

antidiscrimination laws by new institutional organizational sociologists,

however, reveals that employers mediate what employment law means in

action. These studies show that ideas about law and compliance that

originate with the professions (managers, human resource officials, and

in-house lawyers) become institutionalized among employers and, over

time, generate a diffusion of new organizational practices that are influ-

enced by managerial values (Marshall 2005; Edelman, Fuller, and

Mara-Drita 2001). While new institutional scholars highlight how manag-

ers and human resource professionals mediate and managerialize law

through conferences, networking, and professional personnel literature,

they have yet to explore the role that insurance and, in particular, insur-

ance institutions, play in constructing the meaning of compliance with anti-

discrimination law.

This omission is significant because the vast majority of employers seek

ways to shift risk and responsibility away from themselves by purchasing

insurance. While most forms of business insurance explicitly exclude cover-

age for liability arising out of employment practices, the insurance industry in

the early 1990s introduced a product called Employment Practices Liability

Insurance (EPLI). EPLI filled this gap in coverage by providing employers

with the means to manage the perceived litigation risk associated with dis-

crimination, sexual harassment, and other breaches of employment law.

While there is some variation in policies, EPLI provides insurance defense

and indemnification coverage to employers for claims of discrimination (age,

race, sex, disability), wrongful termination, sexual harassment, and other

employment-related allegations made by employees, former employees, or

potential employees.1Whereas previously employers exclusively bore these

damages payable to injured employees, EPLI now allows employers to pass

these costs on to insurance companies, who charge a premium to offset their

liability.

EPLI almost immediately enjoyed astonishing success (Gabel et al. 2001).

Since EPLI policies were first sold in 1991, the number of insurance compa-

nies offering EPLI policies has grown from five to over fifty-five (Betterley

Report 2012; Chaney 2001; Gibson 2000). The volume of business (measured

by the gross written premiums) for insurers offering EPLI is approximately

$1.6 billion in the United States, and $500 million outside the United States

(Betterley 2012). The majority of large employers have EPLI, and many

midsize business owners also purchase some form of EPLI (Betterley 2012).

210 LAW & POLICY July 2015

© 2015 The Author

Law & Policy © 2015 The University of Denver/Colorado Seminary