Except for those who might be living in a glass bubble, most people today are more than just a little aware of the sometimes disastrous impact of lawsuits arising from workplace conditions. If nothing else, President Clinton's trials and tribulations which have been reported ad infinitum, ad nauseam in the tabloid press as well as the dailies and television regarding allegations of sexual harassment have shown us that no one--not even the president of the United States--is immune to charges of executive wrong-doing.
Insurance companies have come to realize that the entire social community--every sector from the small commercial business establishment to the Fortune 500 company, from the charitable nonprofit institution to the religious sect, from Little Orphan Annie to Li'l Abner--is concerned about how it can avoid charges of discrimination, wrongful termination, defamation, breach of contract and harassment claims, to name just a few of the social litigation phenomena that rain on us daily.
Insurers have recognized that there is a demand for more than just insurance coverage. There is also a demand for information about the cost and settlement value of work-related claims. Moreover, it appears as if the insurance industry is doing something about it. In addition to providing employment practices liability (EPL) insurance protection to those institutions that fear work-related lawsuits, insurers are also outsourcing the expertise of human resources firms and legal advisors to keep insureds abreast of legal and regulatory developments. In short, insurers have come to recognize that insureds want available to them risk management and loss control techniques to minimize the risk of being taken to court over disputes that can arise in the workplace.
Just keeping abreast of these exposures is no easy matter. Claims may be brought before federal and state agencies, such as the EEOC and/or human rights commissions; the claims may be litigated in both state and federal courts; many settlements are not discussed because of confidentiality; employment cases are not always categorized as such; and appeals are very common in employment cases.
An extensive summary of employment practices liability settlements and verdicts, put together by the insurance brokerage firm of Sedgwick First and the law firm of Kaufman Borgeest & Ryan, only scratches the surface, but it does give a picture of the magnitude of the problem. Here are some examples:
* In a race discrimination lawsuit, it was alleged that Texaco denied promotions and raises to over 1,000 past and present African-American employees. Texaco agreed to settle after the release of transcripts of secretly taped conversations that appeared to show Caucasian executives belittling African-American employees. Texaco also allegedly destroyed documents being sought by the plaintiffs in the litigation. The settlement was for $176 million--$115 million to go to those in the class action suit with the balance to go to a task force on diversity and other programs that Texaco agreed to fund.
* In a gender discrimination suit against State Farm Insurance Co., three former employees initiated a class action alleging that they were denied sales agent jobs between 1974 and 1987 because of their female gender. Nearly 1,000 California women claimed they were not given sales agent positions because of gender. The trial court found systematic discrimination and disparate impact upon women. The settlement was for $157 million.
* In a wrongful termination action against Triton Energy Corp., a male plaintiff suffered emotional distress and lost earnings when his position was terminated by defendant corporation after he refused to participate in preparing a fraudulent 10-K document for the defendant. The original verdict was for $124.4 million, but the case was finally settled for $9.5 million.
* In a breach of contract lawsuit against General Dynamics, two employees alleged that they were promised ownership interest in a newly-formed subsidiary in consideration for changing their positions of employment. General Dynamics then sold the subsidiary and plaintiffs sued for breach of contract, fraud and breach of fiduciary duty. An original verdict of $107.4 million was finally settled for $37 million.
At first glance, it might appear as if the "giants" of the country are more subject to these types of lawsuits, and there is no question that deep pockets are always more attractive to lawyers when considering class action suits. But these are the top four cases in terms of awards reported by Sedgwick and Kaufman. Other cases, perhaps less visible, include a doctor, an M.D. who faced a lawsuit by three female plaintiffs who alleged that the doctor sexually harassed and assaulted each one on different occasions. The verdict handed down in this case was for more than $20 million. Another gender discrimination suit involved several men who initiated a class action against Hooters, a chain of restaurants known for scantily-clad waitresses. The suit alleged that the restaurants discriminated against men in its hiring practices. The settlement was for $3.7 million.
Insurance companies, usually via their human resources departments, are providing information to insureds on cases such as these to make them aware of the exposures they themselves face. Companies such as the Zurich Group, CNA and Executive Risk, have gone beyond the stage of only providing insurance protection to emphasizing the educational and loss prevention aspects of dealing with these exposures.
"Nothing remains static in the employers' liability market today," says Lisa Reynolds, assistant vice president for Zurich. "We provide our insureds with a self-audit program from a human resources standpoint either in manual form, software or CD-ROM to enable them to understand the vagaries of the Employment Labor Law. We also provide training programs for insureds to enable them to understand the exposures that exist in work-related disputes involving sexual harassment, termination of employees, and other such areas of potential lawsuit. We also have a fax hotline. If one of our insureds has a question about terminating an employee, for example, the insured can call the hotline number and receive advice. Legal questions are referred to a law firm with which we contract, Vedder Price Kaufman Kammholz & Day, based in New York."
Reynolds says that Zurich also publishes an online newsletter related to employment practices developments which insureds can log onto. "We also have a separate chat room dedicated to this subject where insureds can talk with each other and compare experiences. All these things are included in the price of coverage," she says.
Ron Adler heads the human resource management consulting firm, Laurdan Associates, Inc., based in Potomac, Maryland, that constructed the self-audit program provided to insureds by Zurich. The program is called "ELLA" (Employment-Labor Law Audit). Adler describes it as a management tool that helps employers detect hidden problems, develop positive employment relations, implement risk reduction strategies, benchmark best practices, and prioritize tasks.
"ELLA first provides employers with the right questions, then gives them the ability to self-audit their responses," says Adler. The program, he adds, has been endorsed by such employer associations as the Software Publishers Association, the U.S. Chamber of Commerce, the Delaware Chamber of Commerce, and the Pennsylvania Travel Council.
"ELLA is being used by hospitals and other health care providers to audit their employment practices," says Adler. "It is also being used by a number of insurance companies as a risk management, loss prevention and loss control tool for their Employment Practices Liability Insurance and D&O products," he says. "Employers receive a premium credit for completing ELLA."
Shelly Liapes, vice president in charge of employment practices liability for CNA, says that her company has also been active in addressing the market. "Right now, we target firms with 250 employers and fewer," she says, "a large chunk consisting of firms having between 30 and 70 employees. But we plan to expand our reach to larger companies as well."
Jeffrey Klenk, product manager for employment practices liability at Executive Risk, says that the insurance market for this type of coverage is soft. "Employers can buy the protection at affordable prices," he says. However, like other insurers in the marketplace, Executive Risk places emphasis on assisting the insured in practicing sound risk management and loss control techniques to avoid the lawsuit. Executive Risk also offers a newsletter to keep insureds abreast of developments in the employment practices area and a hotline where insureds can call for answers to the questions they need, he says.
For employers and for agents who represent the commercial marketplace, there are ample opportunities for those who want to reduce the risk of a work-related lawsuit. There appears to be plenty of space to shop around. *
The author
Phil Zinkewicz is an insurance journalist with some 25 years' experience covering the international insurance and reinsurance arenas. He was the insurance editor of the Journal of Commerce for a number of years, handling all their domestic and international supplements. In addition, he writes for a number of London publications on a regular basis.
©COPYRIGHT: The Rough Notes Magazine, 1998