Only one year ago, employment practices liability insurance (EPLI) was still being described as a developing market. Insurers found themselves having to persuade clients of the importance of this coverage. Today, however, in the light of record high settlement costs and intense media coverage of big-time suits against big-name players, EPLI has found its spot as part of routine risk management protection against the most significant trend in liability issues for corporations today.
In 1999, according to the 2000 RIMS Benchmark Survey, produced by the Risk and Insurance Management Society, Inc. and Ernst & Young, LLP, most companies surveyed purchased EPL coverage. That is up from only 29 percent of respondents in 1998. And although the smaller companies--most out of the range of such studies--are not as likely to purchase the coverage, they are beginning to see the light. Why all the EPLI converts?
After a decade of out-of-the-corner-of-your-eye looks, risk managers have realized the EPL numbers are adding up. Although the total number of EPL-related claims filed has leveled off (80,680 in 1997 to 77,444 in 1999), total claims settlements added up to $210.5 million in 1999, a new high. And last year, after settlements by Grace Culinary Systems, Inc. and Townsend Culinary, Inc. ($1 million), Commonwealth Edison Company ($2.5 million) and CBS Broadcasting, Inc. ($8 million), the slate was rewritten by Coca-Cola Company's record $156 million racial discrimination settlement. (See "The Bomb Went Off.") The costs are no longer pure hits to the bottom line. Looming regulatory oversight and susceptible brand image worldwide make any EPL event a potential risk management crisis.
The Value-Added Solution
Not all court decisions spell certain doom for companies sued by employees for misconduct. For example, Creamer v. Laidlaw Transit (1996) involved a female bus driver who was kissed on the cheek and inappropriately touched by a male coworker. The court found that the employer was not liable, however, because of Laidlaw's rapid response. And the court responded similarly in the 1996 Van Zant v. KLM Royal Dutch Airlines case, after a female employee reported a male coworker made a vulgar pass at her.
But the only reason these cases went the way of the companies was their stalwart employment practices systems. In recognition of this fact, the EPLI marketplace has turned its attention not only to more creative policies, but added services that can help eliminate the risk of an employee-related liability claim.
Most of the core thirty-three carriers in the EPLI market offer some form of so-called value-added services. What started off as more of a marketing scheme in an increasingly crowded competitive landscape a few years ago, however, has turned into an essential part of the insurance product these carriers sell.
"The explosive growth of EPL insurance, combined with new competitors entering the marketplace, has set off a mad dash by carriers and their reinsurers to add loss control bells and whistles to their coverage in order to compete," writes James McSherry, president and CEO of the Workplace HELPLINE, based in Boston. "If the experts are correct, effective value-added services should reduce total claims costs. Unfortunately, most value-added services are passive; insureds must reach out and make use of them," McSherry continues in his August 2000 Betterley Report article.
By not being aware of the potential of these services (and thus not using them), risk managers lose the opportunity to improve employee relations, reduce the potential liability of employee-related claims and curb premium increases. Beyond financial backing, insurers are offering audits, toll-free consultations, toll-free reporting lines, statistical analysis services, defense counsel, sample documents and training.
Smorgasbord of Services: