Why Firms Need Employment Practices Liability Insurance
- Why have lawyers,
particularly those representing plaintiffs, become so interested in
employment practices cases?
- Which agencies handle these types of claims and when can a plaintiff go to state and federal court for resolution?
- What are some examples of claims against this class of firms?
- Doesn't professional liability insurance cover employment-related claims?
- What about suits for failure to make partner?
- Why should a professional services firm consider buying an EPLI policy?
Question: Why have lawyers, particularly those representing plaintiffs, become so interested in employment practices cases?
Answer: Since the 1980s, there have been numerous federal and state statutes which have created a favorable climate for plaintiffs to bring claims against their employers for employment-related issues. The five major pieces of federal legislation that directly affect employment practices are: the Civil Rights Acts of 1964, especially Title VII, the discrimination section; The Civil Rights Act of 1991 providing for jury trials in federal courts and punitive damages; The Age Discrimination in Employment Act of 1967 and 1985; The Americans with Disability Act of 1992; and the Family and Medical Leave Act of 1993. The Civil Rights Act covers all employers of any size; other employment statutes have thresholds of from 1 to 20 employees. Most states and many local governments have comparable statutes and ordinances. These statutes create a complex web of laws that can be difficult to comply with. Additionally, in most cases, aggrieved persons are entitled to their attorney fees if they win as little as $1 in damages. Accordingly, even cases where there are no real damages can have a substantial settlement value for the defendant.
Question: Which agencies handle these types of claims and when can a plaintiff go to state and federal court for resolution?
Answer: There is a dual system. The Equal Employment Opportunity Commission (EEOC) has jurisdiction in every state for all complaints covered by federal law. In addition, each state has its own administrative agency which oversees initial complaints brought under state law. These commissions are heavily staffed but have caseloads and backlogs that are very large. For example, in 1998 the EEOC saw over 80,000 cases of which 36% involved race, 31% sexual harassment, 22% disability, 10% age, 8% nationality, 2% religion and 1% equal pay.
Each state administrative agency sees a caseload far greater than the EEOC. If the agency handling the charge does not have the resources or time to investigate the charge, usually within a 180-day period, they will automatically issue a "right-to-sue" letter which is a plaintiff's ticket to the courthouse. Moreover, even if the responsible agency completes an investigation and finds no probable cause to believe that a violation has occurred, they are statutorily obligated to issue a right to sue letter. Hence, all employers must seriously consider the high likelihood of defending themselves in court. In addition, when a charge is filed the employer must have legal representation through the administrative process. CPA EmployerGard offers the earliest coverage activation possible, which is a verbal complaint.
Question: Are CPA firms a vulnerable class for claims?
Answer: Professional services firms such as CPA firms are extremely vulnerable. These firms have highly educated staff and rigid apprentice periods, and their product is labor intensive. The intense work and lengthy hours prevalent in these types of firms can create an atmosphere which is ripe for hostile work environment claims. Employment discrimination, wrongful discharge and sexual harassment are significant issues for professional services firms.
Question: What are some examples of claims against this class of firms?
Answer: In a case tried in Chicago this past year, a partner in a small professional services firm was accused of making sexual advances against a young female employee. The partner, who was married with a family, denied any sexual contact whatsoever. The jury, siding with the plaintiff, entered a multi-million dollar judgment, which bankrupted the partnership. In a second case, a partnership failed to promote a black employee to partner. The employee claimed the decision was based on race; the partnership said the decision was based solely on merit. The jury awarded the plaintiff over $3 million. A claim is currently being handled where a female partner was voted out of the partnership for lack of productivity after she had a child. These examples illustrate that the causes of action are wide and varied.
Question: Doesn't professional liability insurance cover employment-related claims?
Answer: Typically not. Most professional liability policies include an Insured vs. Insured exclusion precluding claims by employees against employers and partner/owners against partner/owners. Also, these types of claims are excluded under the definition of professional services because employees are not clients and are not receiving covered "professional services." Finally, there is often a specific Employment Practices exclusion in a professional liability policy.
Question: Most business owners carry a Business Office Policy (BOP) with Comprehensive General Liability (CGL) Coverage. Doesn't that cover employment-related cases?
Answer: It should not be considered automatic that BOP and CGL policies will cover employment-related issues. Even with these policies in place, several obstacles should be considered when a firm evaluates its potential exposure.
First, these policies are written on an occurrence basis with the intention to insure a particular event. This "occurrence" requirement raises the issue of whether an employment-related case is a sudden event which would be covered, or a continuous exposure to conditions, which would probably not be covered.
Secondly, BOP and CGL policies require losses to result from an unintended, unpredictable or fortuitous event. Employment-related incidents often do not occur accidentally but rather happen intentionally.
While BOP and CGL policies cover bodily injury, humiliation and mental anguish typically are not included in the definition of bodily injury. Since most EPL claims involve injuries that are not physical, these types of claims are usually excluded. Most importantly, many BOPs and CGLs now have a specific Employment Related Practices Exclusion "for claims arising out of or in the course of employment."
Workers Compensation policies generally treat
work-related claims as Bodily Injury and do not address intangible
emotional distress claims from employment practices claims. The bottom
line is that insurers will often raise "coverage" issues when presented
with employment-related claims on non-Employment Practices Liability
Insurance (EPLI) policies. At best, an insured may have to first seek a
coverage decision before addressing the merits of the employment-related
claim. This is the best reason for the practice to consider separate
EPLI coverage for the specific employment-related exposures.
Question: What types of claims are specifically covered under EPL insurance?
Answer: Generally three areas of employment practices are covered. Sexual harassment and hostile work environment claims represent the highest number of claims. A large group of claims involves all classes of discrimination (sex, race, age, religion, nationality, family, disability and pay, etc.) Third are the wrongful discharge cases due to reengineering, downsizing, mergers and acquisitions.
Question: Is the number, size, and complexity of these claims expected to increase?
Answer: Yes, there are a number of reasons for this. First, we live in a very litigious environment and have an active Bar pursing employment practices cases. Employment practices statutes are vague and the court cases often represent conflicting rulings. Also, the coverage under these statutes is broadening and interpretations are often quite liberal. Cases like those involving Clarence Thomas/Anita Hill and President Clinton/Paula Jones have increased public awareness and perception about the breadth of employment-related incidents. Finally, labor demographics and labor shortages are shifting the balance in employment. Older workers, labor from diverse nationalities and cultures and part-time/flexible employment in the work environment are placing stress on employers and providing an environment for employment practices claims.
Question: In addition to suits from employees, some firms experience claims of discrimination from their clients. Do any policies cover this type of complaint?
Answer: Some EPLI policies provide third party coverage. This feature specifically covers liability for discrimination and sexual harassment claims by clients, vendors or other non-employees.
Question: What about suits for failure to make partner?
Answer: Failure to make partner allegations can present a very large exposure for CPA partnerships or professional corporations. It is important that coverage not be excluded in the policy. A good policy will affirmatively include this exposure in the grant of coverage.
Question: Why should a professional services firm consider buying an EPLI policy?
Answer: In addition to protecting the assets of the firm, some policy providers offer extensive risk management and educational services for employment practices. Insurers now provide loss prevention guidelines in written material and live seminars. Many attorneys and employment consultants specialize in management-related employment law and practices. They can set the guidelines for good employment practices including hiring, complaint investigations, harassment policies, downsizing rules, discrimination oversight, drafting employment guides and conducting employee and management employment practices seminars.
In recent years, the cost of EPLI coverage has dropped dramatically, with insurers tailoring policies for small-to-mid sized firms. These new pricing structures can be extremely affordable, especially when you consider the average cost of defending an EPL claim is $50,000 plus lost time, damage to reputation and anxiety surrounding a claim. Stand-alone policies can cover defense expenses and judgments or settlements and coverage today is very broad. EPL insurance should be considered important "business risk" insurance to round out every insurance portfolio.
|
|
|