According to Nick Conca, vice president and claims counsel for Reliance National, an insurance company based in New York City, EPL was created out of need. "The traditional forms of business insurance didn't adequately cover the risks associated with employment practices," he says. "Clients started coming to us demanding this kind of coverage." With the number of costly employee lawsuits increasing every year, it's no wonder.
For a typical mid-sized company, the cost of defending an employee lawsuit through trial, including attorney's fees and expenses, ranges from $100,000 to $250,000, Conca says. With EPL coverage, these costs are taken care of by the insurance company.
As you might expect, EPL isn't cheap. Costs are based on a variety of factors including employment practices, location, number of employees, loss history and financial condition. Furthermore, some policies exclude intentional acts, punitive damages and coverage of costs associated with allegations of emotional distress. "The premiums are so extraordinarily high and the protection so limited that we decided to take the risk without insurance," says Donna M. Dell, vice president and director of HR for ABM Industries Inc., in San Francisco.
For organizations that have purchased EPL, however, claims experience indicates the coverage may have been worth it. "We've seen an explosion in the number of EPL claims being filed," says Mike Furgueson, assistant vice president and EPL product manager at Chubb & Son, Inc., in Warren, New Jersey. The same is true at Reliance National. "The number and severity of claims is growing exponentially," Conca says.
As valuable as EPL coverage can be, awareness of it is still pretty low. In California, which is a hotbed of employment litigation, a recent survey of 110 major employers revealed only 12 companies were aware of the existence of EPL and only three had purchased coverage. "Employers ask themselves why they should purchase EPL when they're doing everything right," says Furgueson. If that's the case, why have the number of EEOC complaints increased 45 percent since 1991, and why do discrimination lawsuits now account for one fifth of all civil suits filed in U.S. courts?
In the final analysis, even well-managed companies might want to consider EPL coverage because no matter how good your management practices are, they can't always protect you from laid-off employees who are seeking a way to get even.
Personnel Journal, December 1996, Vol. 75, No. 12, p. 36.