Employment Practices Liability:An Overview

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Did you know …

An employer is more likely to have an EPL Claim than a General Liability or Property loss.

Fewer than 25% of employers currently carry EPL.

• There are over 25 million small businesses in the US with under 500 employees and not publicly traded (Source: www.sba.gov )

Three out of five employers are sued by former employees every year (Source: Society of Human Resource Managers)

General Liability policies do not cover EPL or can be endorsed with watered-down coverage at low limits.

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MYTHS OF EPL

MYTH #1 MYTH #1 • EPL was created by the Insurance Companies to create

new premium sources.

MYTH #2MYTH #2• The exposure is no higher today than it was in the past.

MYTH #3MYTH #3• Employees are already protected under other insurance

policies.

MYTH #4MYTH #4• Internal Risk Management is adequate to protect my

business.

MYTH #5MYTH #5• EPL premiums are too high and the underwriting process

too time consuming.

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EEOC INVESTIGATIONSWhat An Employer Should Know

The average time it takes to process an EEOC investigation is …

• 229 days

(longer if there is a delay in responding to information requests) to get a determination.

Think of the defense costs as well as the cost of the time of

the people involved!!

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EPL CLAIM TRENDS

• Over 40% of EPL claims are brought against private employers with under 100 employees (Source: SHRM)

• Most litigious states: CA, NJ, IL, TX, FL and NY. (Source: Insurance Journal)

• Employment practices liability claims represent 30% of all civil litigation in the United States today. (Source: Bickmore Risk Services)

• 550 EPL lawsuits are filed every day (Source: Insurance Journal)

• 67% of discrimination cases settled by jury verdict are in the plaintiff’s favor

• The average cost to defend an EPL claim is $150,000. (Source: Insurance Journal)

• The median jury award is $250,000 plus 19% of all cases had punitive damages assessed.

• Median punitive award = $259,000 (www.juryverdictresearch.com)

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EXPOSURES - FEDERAL LAWS

Fair Labor Standards Act of 1938 (FLSA)• Administered by the Department of Labor’s Wage and Hour Division

Equal Pay Act of 1963 (EPA)

Title VII to the Civil Rights Act of 1964

Executive Order 11246 of 1965

Age Discrimination in Employment Act of 1967 (ADEA)

Americans with Disabilities Act of 1990 (ADA)

Americans with Disabilities Act Amendments Act of 2008 (ADAAA)

Family and Medical Leave Act of 1993

Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA)

Employment Non-Discrimination Act (proposed) – 2007 (ENDA)

Genetic Information Non-Discrimination Act of 2008 (GINA)

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EXPOSURES - FEDERAL LAWS

The BIG ONE for Employment Practices insurers …

Civil Rights Act of 1991

• Amended Title VII • Allows for …

• a jury trial• punitive damages• damages for mental anguish and emotional distress

In 1992, the first stand-alone EPL policies hit the marketplace.

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Discrimination

Harassment

Wrongful Termination

Retaliation

Expanded Definitions of “Wrongful Employment Act” generally all revolve around these four perils

Violations of FLSA, FMLA and USERRA and similar federal, state and local statutes

EPL COVERAGE FEATURES Covered Perils

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EPL COVERAGE FEATURESDefinition of “Insured”

• The Organization

• Its subsidiaries “any entity which, on or before the date of the inception

of this Policy, is more than 50% owned by the Parent Organization, either directly or indirectly through one or more of its Subsidiaries”

Automatic coverage for acquisitions –up to 25% of employee count at policy inception

Affiliates? Joint ventures?

• Employees – full time, part time, temporary, seasonal Leased employees Independent contractors/1099 employees

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EPL COVERAGE FEATURESDefinition of “Claim”

Written demand• An oral threat leads to a “notice of circumstance”

Demand for monetary damages or non-monetary relief

Civil proceedings

Arbitration proceedings but not any labor or grievance arbitration under a collective bargaining agreement

Administrative or regulatory proceedings with the EEOC or similar federal, state or local agency

Office of Federal Contract Compliance Programs (OFCCP) – audit, Notice of Violation, Order to Show Cause

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EPL COVERAGE FEATURES

• Fair Labor Standards Act (FLSA) $100,000 sub-limit for defense costs and loss

• Defense Costs Outside the Limit of Liability $500,000 limit or more; under 200 employees

• Duty to Defend Panel counsel requirement 100% allocation of defense costs

• Consent to Settlement Provision – “75/25 Hammer Clause”

• Third Party Discrimination and Harassment – 10% additional premium

• Full Prior Acts

• Punitive Damages where insurable – “most favorable venue”

• Extended Reporting Period (ERP): 1-2-3 year options built in Notice of Claim or Circumstance as soon as practicable but no later than 60 days after

expiration of the policy

• Non-cancelable by the insurer, except for non-payment of premium

• Three year installment option available on most accounts

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EPL COVERAGE FEATURESCommon Exclusions

Bodily injury/property damage• Coverage “carve back” for mental anguish, emotional distress, libel, slander,

defamation, humiliation and invasion of privacy resulting from a “Wrongful Employment Act”

Fraud or dishonesty – except for vicarious liability of the entity

ERISA-related claims – except for Retaliation

Statutory obligations – except for Retaliation• (e.g. workers compensation, disability benefits, unemployment)

Strikes/lockouts/unionization – except for Retaliation

Prior and pending litigation

Claims noticed to prior carrier

Modification of real property (ADA accessibility) – Defense Costs coverage only

Breach of Express Employment Contract – Defense Costs coverage only

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IS EPL INSURANCE ALONE ENOUGH?PeopleSystems

FREE risk management tools are a part of the policy.

Human Resource consulting services available via toll free numbers (8:00am to 7:30pm, Eastern) and online.

Sample HR Policies• Anti-Discrimination/Anti-Harassment• Electronic Communications• Employment-At-Will

HR News Center and recent employment law changes

HR Resource Manual and Employment Forms

EPL is just one part of a total risk management plan for

every employer.

Thank you for your business!