New risks, laws continually expand employers’ liability

While insurance agents and brokers probably know employment practices liability should not be taken lightly, they might not be aware of new coverage issues and trends, according to Patricia Carlson of the Insurance Skills Center.

Approximately 550 employment lawsuits are filed each day, Carlson said, quoting figures noted in USA Today. And the national compensatory jury award median, which included discrimination and wrongful termination claims, rose 18 percent in 2003 to $250,000, as noted in Jury Award Trends and Statistics 2004 edition, she said.

Employment liability claims can arise from discrimination in age, race, religion, gender and disability. To understand the magnitude of the potential liability, agents and brokers only need to turn to Equal Employment Opportunity Commission statistics, Carlson said.

“Since 2002, the EEOC has aggressively pursued small- and medium-sized companies that have allegedly engaged in discriminating practices. Many of those settlements have been in excess of $1 million,” she said. The record amount — $419 million in compensatory damages — was recovered in 2004.

There have been some recent court cases and legislation that the industry needs to take note of, Carlson said. Among those include the Supreme Court’s decision in Smith v. City of Jackson, Mississippi, on March 30, 2005.

In Smith v. City of Jackson, Miss., the court ruled that an individual protected by the Age Discrimination in Employment Act can sue an employer if a policy, practice or other employment action has had a disparate impact because of that individual’s age. For example, in that case, the city changed its pay plan to bring younger police officers’ salary in line with the regional average pay. However, that resulted in younger workers getting a proportionally higher raise than those with seniority who were generally older than 40. The court ruled in that case that the city’s stated reason for the pay raise was reasonable and found no basis to support the older workers’ claim of disparate impact. Nevertheless, it set a precedent, allowing age discrimination claims if disparate impact can be proven, Carlson said.

Another potential liability area is sexual harassment, Carlson said. A sexual harassment claim is valid if unwelcome and unwanted sexual advances are made that is sufficiently severe or pervasive to alter the conditions of employment by creating an intimidating, oppressive, hostile, abusive or offensive work environment, or otherwise interferes with a worker’s emotional well-being or ability to perform his or her work. The action will be judged from the perspective of a “reasonable person in the complainant’s position, considering all the circumstances,” she noted.

Insurers’ whose customers are in California should take note that the state requires sexual harassment training not only for a company’s permanent staff, but also for a company’s temporary employees and independent contractors. The staffing company is not responsible for training temporary hires, Carlson emphasized. If a company hires temporary employees or independent contractors, it is responsible for providing those workers with sexual harassment training, too.

Consequently, agents and brokers should ask their clients whether they have developed a strategy to deal with this, Carlson suggested. Companies need to decide whether the training will be live, online or interactive. “What are the multi-language issues?” she asked. “Is there a system to monitor for compliance, review and update the training? And has the company educated executives to budget time and money to allow for training?”

Examining another California law, Carlson said AB 196 expanded the prohibition on sex discrimination and harassment in FEHA to include gender, with gender defined as the employee’s actual sex, as well as the perception of the employer as to the employee’s identity, appearance or behavior — whether or not the identity is traditionally associated with the employee’s birth sex. So, if you have a restaurant where all the women are mermaids and all the men are scuba divers, which would the transgender employee be? Carlson asked.

Another area of increasing concern is with domestics, such as butlers, cooks, gardeners, housekeepers, nannies, personal assistants and security personnel. “They’re changing the world — and they’re not just for the very rich,” Carlson said. Suits regarding domestics have been brought for wrongful termination, sexual harassment and employee discrimination. Coverage may include defense, judgment, and public relations or reputation-related damage. When underwriting, the industry has to consider such things as who is in charge of the staff, whether there have been any terminations in the past, and personal liability limits, she added.

The bottom line, Carlson said, is that coverages and issues dealing with EPL are constantly changing. It’s important for agents, brokers and their customers to recognize the need to build up EPL coverage, review the markets and forms, and then let the client know the price. She advised agents to try to keep abreast of the requirements and legal cases as much as possible so that they can modify the employer’s exposure to loss. And if the client rejects the coverage, be sure to have them sign off, Carlson added.

Carlson presented a session on employment practices liability at the Insurance Brokers and Agents of the West Blue Ribbon Conference in Hawaii. The Insurance Skills Center also provides training on the topic. Visit www.insuranceskillscenter.com for more information.