Small business market underserved in EPLI

Hartford Steam Boiler product meets need

By Phil Zinkewicz

Employment practices liability claims filed with the U.S. Equal Employment Opportunity Commission (EEOC) are on the rise, according to recently released statistics. The EEOC reports that it received a total of 82,792 private sector discrimination charge filings for fiscal year 2007, the highest volume of incoming charges since 2002 and the largest annual increase (9%) since the early 1990s. The agency also reported that it recovered $345 million in monetary relief for job bias victims.

“Corporate America needs to do a better job of proactively preventing discrimination and addressing complaints promptly and effectively,” says Commission Chair Naomi C. Earp. “To ensure that equality of opportunity becomes a reality in the 21st century workplace, employers need to place a premium on fostering inclusive and discrimination-free work environments for all individuals.”

According to the EEOC’s 2007 data, allegations of discrimination based on race, retaliation and sex were the most frequently filed charges, continuing a long-term trend. Moreover, nearly all major charge categories showed double-digit percentage increases from the prior year, a rare occurrence. The jump in charge filings may be due to a combination of factors, including greater awareness of the law, changing economic conditions, and increased diversity and demographic shifts in the labor force, according to the EEOC.

Last year, for the first time, retaliation was the second highest charge category (behind race), surpassing sex-based charges in total filings nationwide, according to the EEOC. Historically, race has been the most frequently filed charge since the EEOC became operational in 1965. In addition, pregnancy charges surged to a record high level of 5,587, up 14% from the prior fiscal year’s record of 4,901. Sexual harassment filings increased for the first time since 2000, numbering 12,510, up 4% from the prior year. Additionally, a record 16% of sexual harassment charges were filed by men, up from 9% in the early 1990s.

In a recent employment practices liability insurance (EPLI) report, the Insurance Information Institute (I.I.I.) said that the numbers of lawsuits filed by employees against their employers are on the rise as well and that, while most lawsuits are filed against large corporations, “no company is immune to such lawsuits.” Recognizing that smaller companies now need EPLI protection, says the I.I.I., some insurers provide this coverage as an endorsement to their businessowners policy (BOP). Other companies offer EPLI as a stand-alone coverage, according to the I.I.I.

Underserved market

“The small business market has been underserved in terms of EPLI,” says Jeff O’Shaughnessy, assistant vice president of Hartford Steam Boiler, a specialty reinsurer that has crafted its own EPLI endorsement to the commercial general liability policy. O’Shaughnessy works with new strategic products and directs the company’s Portfolio EPLI program for primary insurance firms that partner with HSB. HSB reinsures and offers this endorsement to 32 primary companies.

“The basic coverage, including the EPLI coverage, is written by the primary carrier, but the EPLI endorsement is reinsured by HSB,” says O’Shaughnessy. “We are the outsourcing venue for the carriers. We call what we do ‘portfolio’ underwriting. By examining a carrier’s geographic markets and the classes of business they write, we can establish a program they can offer to insureds.”

O’Shaughnessy says that too many small businesses are going bare in terms of EPLI protection. “They either believe EPLI is too expensive or they are not aware of the exposures they face,” he says. “But EPLI has become a must-have coverage for small businesses, and they are just beginning to realize that. We all read about the large organizations that have employment-related claims that generate huge payouts. We don’t hear, however, about the small businesses where claims average $20,000 to $40,000 because that’s not front page material. However, those amounts can cause major problems for those small firms or even cause them to fail.”

The HSB executive says that roughly half of employment-related claims are brought against firms with fewer than 100 employees. “These firms generally don’t have in-house counsel or human resource experts to turn to or to show them how to avoid claims in the first place,” he comments. “It should be remembered that many employment practices laws favor the employee. All the more reason why small firms need EPLI.”

Responding to recent trends, O’Shaughnessy says that HSB has expanded its EPL program to cover discrimination and sexual harassment charges made by non-employees, such as customers, clients, vendors and others. In addition to core coverages for employment claims and lawsuits brought by employees, the new third-party option can be added by insurers that include HSB’s EPL program in their small business policies. The coverage is designed and priced for smaller businesses that employ up to 50 people.

“In the current EPLI market, coverage that responds to claims brought by non-employees is a growing necessity for many business owners,” O’Shaughnessy explains. “We felt it was a critical coverage for our insureds to have available. Let’s say that a woman is making a delivery to a certain business and, while she is there, is sexually harassed by an employee. If she filed a claim or a lawsuit, traditionally the business would not be covered under its EPL policy because she is not an employee.

“Or, in another situation, let’s say that a restaurant refuses to serve a member of a particular minority group and that person sues,” O’Shaughnessy continues. “Under the traditional EPL policy, the restaurant would not be covered. However, we now make this coverage available on an optional basis.”

Turning to general EPLI market conditions, O’Shaughnessy says that the market, like so many other lines of insurance these days, is soft. “There are a good many primary carriers looking at specialty markets, and there are a lot of customers that will chase prices rather than stick with a quality EPLI product. There’s a danger here for the small business customer. EPL is a complex business, and working with an insurer that is new to the business can cause coverage problems down the line.” *