When employees sue: covered for employment practices liability?

• Author: McKimmie, Kathy
• Position: INSURANCE

ARE YOU GOING BARE against employee discrimination lawsuits? Better buy that employment practices liability coverage, or increase coverage if you have a minimal amount. Discrimination claims for a raft of reasons are going up in these tough economic times.

"It hardly seems that a day goes by where there isn't an employment claim," says Ron Jordan, executive vice president, Gibson Insurance Group, South Bend. "It's definitely a result of what's going on in the economy." Claims come from the elimination of jobs, including the result of mergers and acquisitions, he says, bur also from the reduction in benefits, such as medical and 401(k). Even though the liability for benefit claims moves into the fiduciary liability area, there are employment claims that arise from elimination of benefits, he says. '%0, it's really a combination of both, workforce reductions and elimination of benefits that are causing problems." He notes that there's also an up-tick in workers' comp claims during a sour economy.

"Anybody can sue," says Vicki Leininger, vice president, Hylant Group, Fort Wayne. "Anybody can claim damages." But win or lose, in every case you're going to incur defense costs, she says. "So when we are selling this to someone who perhaps has not had this type of coverage in the past, we talk a lot about defense costs."

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A Chubb survey released in July 2008 revealed that companies were less concerned about the potential financial damage from lawsuits filed for wrongful termination, discrimination or sexual harassment than they were in a survey two years prior. But it also reported that claims filed with the EEOC were the highest since 2002, and had increased in every category by double digits. The average total cost of an employment practices liability-related event, including judgments, settlements, tines and legal fees is more than $63,000, according to the survey. Smaller companies are hit hardest by the costs it said, yet only 37 percent of companies with 50 to 249 employees purchase the policies, compared to 51 percent of those with 250 or more employees.

Leininger's clients are mainly middle-market companies, manufacturers and companies with more than 50 employees. About 75 percent of them have EPL policies. "I think people understand the exposure," she says. "The soft market helped in suppressing the pricing so people could afford to buy it." But that may change in the future, she adds, as some insurance companies make...