Can Liability Insurance Cover Employment Discrimination?
Anderson, Eugene R., Berringer, John B., Rodriguez, Giovanni, Risk Management
Sandra D. Lumpen, a veteran sales representative for a computer software firm is interested in the regional vice president's position recently announced in her company newsletter. So, she applies for the job. Several weeks later she receives a short letter from the Human Resources Department stating, "...thank you for your interest. We are impressed with your credentials, but the firm has found someone whose skills, abilities and relevant experience are more suitable for the position." Later that day, she learns that the job went to John B. Gentry, a younger sales representative who just happens to be a member of the same country club as the director of Human Resources. Disgusted, Ms. Lumpen files a charge alleging sex discrimination, seeking damages for "mental anguish, distress and humiliation."
Just how concerned should employers be about discrimination and wrongful termination claims? By all accounts, employers today face enormous potential losses for defending claims made by past, present and future employees. Two reasons for this are the 1991 Civil Rights Act and the Americans with Disabilities Act (ADA). These two federal statutes may increase both the number and size of claims against employers.
Under the 1991 Civil Rights Act, employees will find it much easier to sue their employers-the burden of proof in unintentional discrimination cases has been shifted to the employer. Under the 1991 Act, employees may be able to recover all lost wages and fringe benefits as well as compensatory and punitive damages up to $300,000 for future pecuniary losses, emotional pain, suffering, mental anguish, etc. In addition, the size of damage awards may increase as a result of the 1991 Act's new provisions for jury trials.
The ADA, affecting employers with 25 or more employees, may prove to be an even bigger concern for employers. The ADA defines disability as a "physical or mental impairment which substantially limits one or more major life activities; or a record of such impairment; or being regarded as having such an impairment." The very broad nature of that definition should greatly increase the number of individuals considered "disabled." As a result, employers must prepare themselves for the wave of claims that will be filed by individuals alleging discrimination on the basis of a medical disability, emotional disability or physical disfigurement (as well as rumor, conjecture or misapprehension regarding those conditions).
Neither the 1991 Act nor the ADA are limited to discrimination at the time of employment. Under the two acts, employees are protected from discrimination with respect to all "terms, conditions and privileges of employment," including hiring, promotion, assignments, benefits and termination.
Are You Covered?
In light of Ms. Lumpen's aforementioned charge of discrimination, what should the risk manager for the software firm do: (a) think about hiring a good lawyer; (b) inquire as to whether the firm's workers' compensation insurance program can contribute toward the costs of defending the lawsuit; (c) file claims with the firm's liability insurance companies; or (d) all of the above?
The correct answer is (d) "all of the above." However, risk managers often forget about their liability insurance policies, assuming that discrimination claims are not insured. Some will even advise their organizations to lean on their workers' compensation insurer. But if an organization is "self-insured" for workers' compensation - as many organizations are today - the risk manager's advice could wind up costing his or her organization huge sums of money in both defense costs and indemnity (if the aggrieved employee wins in court). That, to say the least, would be a most unfortunate result-one that may have been avoided had the employer simply filed notice with its liability insurers.
The truth is, insurance companies have long provided coverage for claims of employment discrimination. …