Magazine article Risk Management

Looking at EPLI Underwriting Requirements

Magazine article Risk Management

Looking at EPLI Underwriting Requirements

Article excerpt

EMPLOYMENT PRACTICES liability insurance (EPLI) is intended to cover a broad range of wrongful employment practices related to hiring, firing, promotion, discipline, failure to reasonably accommodate disabilities, sexual harassment, gender equity, age discrimination, breach of employment contract and retaliation. Given its scope and the fact that it is a relatively new product, many EPLI underwriters admit they still harbor doubts of how to accurately price this emerging coverage, according to panel speakers at The Risk Manager's Forum on Employment Practices Liability held recently in New York and sponsored by the Strategic Research Institute.

Because EPLI coverage is still evolving, the panel members emphasized that all policies should be read extremely carefully, and that risk managers be aware of any exclusions, which most of these policies contain. As Maurice Sidy, president of NAS Insurance Services Inc. in Los Angeles, stated, "there is no such thing as a standard [EPLI] form ... not yet." Moreover, EPLI "is a product where there has been tremendous interest but not a lot of buying at this point. We think that the buying will happen -- the environment is such that the purchase of this product will become a standard product within the risk management arsenal," added Rob Fishman, vice president for Lexington Insurance Co. in Boston.

Arthur G. Broadhurst, senior vice president of United Educators Insurance Risk Retention Group Inc. (whose insureds are mostly colleges and universities), finds that EPLI is a big money loser. "This is an area escalating almost out of control. We now have more than 2000 claims or incidents involving employment liability that have arisen from an originally pretty small group of insureds that now totals up to 800." In addition, he notes that his company pays $2 in defense costs for every $1 in indemnity.

What are the insurer's criteria for underwriting EPLI? For David Charlton, an underwriting manager in the professional liability division for Philadelphia Insurance Cos. in Wynnewood, Pennsylvania, the following apply: is there a human resources department (if more than 150 employees); does the entity have written sexual harassment and anti-discrimination policies; is there an employee handbook (which includes a clear statement that the handbook is not "an employee contract"); and does the entity's employment application form have an equal opportunity employer statement on it, and no questions regarding race, age, religion, marital status, handicap or health problems. Furthermore, the insurer, Mr. Charlton said, will do an analysis of the entity's claims (being more wary of frequency than severity, and looking at what remedial measures, if any, were taken). The rate will then be set based upon, first, the number of employees, and then on additional factors such as claims history, strong written procedures, level of salaries, human resources department and location of the risk. (Due to the adverse legal climate and relatively high jury awards in Texas and California, a number of insurers will not write EPLI in those states.)

Another piece of underwriting criteria that insurers may emphasize is a company's strong financial results. For example, Christine G. Cahill, assistant vice president, Chubb & Son Inc., will look for financially strong companies that can afford "the more sophisticated human resource practices, [for they tend to] have competitive benefits and compensation practices, and they'll hold internal seminars designed to broaden the employees' awareness of human resource issues. …

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