Social Change Progresses, EPLI Markets Harden

The last several years have been marked by increased social awareness and change. Large-scale social and political movements, such as Black Lives Matter, the #MeToo movement, and action surrounding COVID-19, have led to changes across business sectors. These changes have directly affected Employment Practices Liability Insurance (EPLI) within Management Liability policies. It is important now, more than ever, for businesses to be conscious of the social and legal factors driving shifts in the EPLI market.

A Hardening EPLI Market

The pandemic that has pushed many businesses of all sizes into general financial stress and even bankruptcies, has both private and public sector organizations seeking EPLI facing a hard market with large increases in insurance rates, limit and coverage reductions, and stringent underwriting. Claims tied to COVID-19 have skyrocketed, reaching nearly 4,000 nationally since March 2020. Vaccine mandates have driven many of these claims, with suits referencing religious or disability discrimination. Mandates have also led to wrongful termination and retaliation claims, particularly in the health care sector where few exemptions are granted. While retaliation has been seen as a tag-along claim for discrimination cases, it can lead to increased litigation and larger payouts if there isn’t significant documentation of the mandate-related communication and firing processes. Other claims have also alleged discrimination if businesses fail to grant accommodations for employee concerns regarding workplace hazards and the potential to be exposed to COVID-19. Increased layoffs and furloughs have boosted wage-related/Fair Labor Standards Act claims from disgruntled employees.

EPL-related litigation in California has notably risen in frequency and severity. Twelve percent of the American population lives in California, representing 14.6% of the total US economy. The state is especially challenging due to its employment regulatory landscape, with considerable protections in place for employees. Insurers hesitate to write standalone EPL policies in California due to potential high-cost wage and hour litigation exposure. Claim data gathered by insurers indicates that the average cost of an EPL claim in California is double that in other parts of the country driven by California's higher salaried employees. Even with lower-wage earners, the significant time it takes for EPL claims to work through the court system allows backpay to factor into damages. Additionally, even during modest trial verdicts, statutes allow for substantial attorneys’ fee awards.

Additionally, the #MeToo movement has spotlighted sexual harassment claims. Black Lives Matter and related social movements increased focus of race discrimination claims; all leading to increased severity and settlement sizes.

Keeping Fingers on the Pulse of Society

Often, businesses are rather inattentive in the months leading up to an insurance policy renewal. Companies interested in maintaining EPLI coverage, however, need to begin diligently preparing for the renewal at least 120 days in advance. This allows a policies and procedures review from an EPLI perspective, taking into consideration any new rules and regulations that may have developed since the last renewal and ensuring alignment with industry standards and underwriter requirements. Something as simple as making sure the employee handbook speaks to current concerns can be a significant step in ensuring a safety net against potential litigation.

Well prior to renewal, larger companies should poll senior staff members to learn of any pending or potential litigation. A renewal process will crumble once a class action lawsuit begins to unfold, opening the door for unwanted questions from underwriters.

Preventing EPLI claims requires, above all, common sense, and adaptation to an ever-changing world. The movements we have seen in the last few years have re-shaped how businesses operate. Being aware of legal, social, and political perspectives driving EPLI changes is paramount for all business leaders.

Management Liability in the Knowledge Center

This blog marks the official kick-off to the Management Liability blog series for 2022. Throughout the year, our team of specialists will be doing deep dives into key Management Liability topics, including healthcare, real estate, family office, law firms, and many more. We are excited to share our expertise on industry-specific issues and the ever-broadening scope of Management Liability.

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