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Employment Practices Liability Insurance-Why You Need It
By John M. Daley, Esq.
You've seen
it, heard it or read about it--a partner at a prominent San Francisco
law firm is accused of sexually harassing a secretary, who ultimately
wins a multimillion dollar judgment against the partner and his law
firm. A man who works on an oil drilling platform is
relentlessly harassed by his male co-workers, and his claim for sexual
harassment is upheld by the U.S. Supreme Court.
What's going on, and what should employers do about
it?
Actually, there are two things happening.
First,
the law is changing, giving employees more grounds for suing their
employer.
On the legislative side, both the federal and
State governments have passed laws which confer greater rights on
employees. In the 1990's, for example, Congress passed
the Americans With Disabilities Act and the Family Leave Act. In
California, the State amended its Labor Code to prohibit discrimination based upon
sexual orientation.
On the judicial side, the Courts have interpreted
existing laws expansively. For example, Title VII of the Civil Rights Act of 1964, 42
U.S.C. §
2000 literally prohibits only sexual "discrimination."
However, the Courts have construed this provision to prohibit sexual
harassment as well. In March of 1998, the U.S.
Supreme Court (in Oncale v. Sundowner Offshore Services, Inc.)
upheld the right of an individual to sue for same
sex harassment.
Second, there has been enormous publicity about
unlawful and unsavory practices by employers, particularly in the
sexual harassment area. The sexual harassment suit by Paula Jones
against President Clinton received enormous publicity in the national
media for several years. The trial of the lawsuit against the
prominent San Francisco law firm was aired on Court TV.
These two factors combined have resulted in an explosion of claims by
employees against employers. According to the U.S. Equal Employment
Opportunity Commission, the number of lawsuits alleging
illegal discrimination increased from 8,300 in 1990 to 23,000 in 1997.
From October 1, 1993 through September 30, 1994, the Equal Employment
Opportunity Commission and related state and local agencies received
156,156 discrimination complaints. As of May 1, 1995, the
Equal Employment Opportunity Commission had a backlog of over 100,000
complaints.
So what can you do to protect yourself against an employee practices lawsuit?
For starters, you can buy insurance. The type of insurance which protects against these
sort of claims is known as "Employee Practices Liability
Insurance," or EPL insurance for short.
Depending upon the policy, EPL insurance can cover a whole host of claims
brought by a current or former employee (or applicant) against an
employer, including:
· Sexual Harassment
· Wrongful Termination
· Discrimination
· Statue Violation
· Negligent Hiring
· Negligent Supervision
· Negligent Promotion
· Negligent Retention
· Breach of Contract
· Invasion of Privacy
· Drug Testing
· Libel
· Slander
EPL insurance is a relatively new phenomenon.
EPL
insurance was first offered in the early 1980's. Since its
debut, the quality of the coverage offered under an EPL policy has increased,
and the numbers of offering a stand-alone EPL policy has expaned
from 5 to approximately 70. Some companies also coverage.
Other companies offer
EPL coverage as an add-on to their Directors and Officers (D&O)
coverage. Moreover, EPL insurance, which was once enormously
expensive, has recently become affordable.
Of course, EPL insurance is not a panacea. You can
still be sued, which will cost you your deductible and an enormous
amount of your time and emotional resources. If the lawsuit receives
enough publicity, it could even harm future business prospects. If
a judgment is entered which exceeds your limit if liability, the balance
comes out of your own pocket. Thus, as always, the best defense
to an employment practices lawsuit to prevent such a lawsuit from
being filed in the first place.
The good news is that some EPL insurers offer
"risk management services," i.e., employment practices advice,
as part of their package. Although it would be unwise to
establish your employee policies and practices based exclusively on advice
you get from your insurance company, an insurer which offers "risk
management services" can help you identify areas in
which your current employment practices and policies are deficient.
However, even before you start shopping for
an EPL insurance policy, you should have your attorney review your recruiting, hiring, complaint and review policies to ensure
that they are consistent with current law and revise them if they are
not. Letting a prospective EPL carrier know that
you have competent counsel could increase the likelihood that an
carrier will offer you EPL insurance, and might even reduce
the premiums charged.
When you are ready to start shopping for EPL
insurance, you should ask your broker to provide quotes, a description of
coverages (and exclusions), and a description of each carrier's EPL
insurance experience from as many carriers as possible. Since EPL policies
vary widely in coverage, options and price, this is the only way you
can be assured that you will bet the lowest price and best coverage
available.
If a carrier in which you are interested has only
entered the market recently, be sure to review the coverages (and
exclusions) carefully. Some recent entrants are offering EPL policies only because their
agents and brokers insist that they offer such a product, and such
carriers' reluctance to enter the market might well be reflected in the
stinginess of the coverages they include in their policies.
Hopefully, going through the process of reviewing and revising your
employee practices policies and procedures will help you avoid
an employee practices lawsuit altogether. If it turns out that you are
unable to avoid an employee
practices lawsuit, an EPL policy can prevent an employee practices
lawsuit from becoming an unmitigated disaster.
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