A sound claims handling process is key to minimizing risks in the Employment Practices Liability (EPL) insurance market, according to a panel of experts at the recent 2003 PLUS Employers Professional Liability Symposium.
The panel, which featured insurer, attorney and consulting representatives, spoke of the challenges facing EPL insurers amid the increasing numbers of claims involving discrimination, sexual harassment or wrongful termination.
In her opening remarks, Julianna Ryan, a partner of Kaufman, Borgeest & Ryan said, “The single most important thing to the insured who has had a claim is claims handling.” Given the high cost of resolving EPL claims and the unpredictability of the type of claims themselves, the process of getting rid of them is a science, she added.
Janet Bashen, CEO of Bashen Consulting, which specializes in investigating EEO complaints for Fortune 500 corporations, gave an update on activities at the Equal Employment Opportunity Commission (EEOC). Total employment discrimination charges filed with the EEOC increased by 4.5 percent in 2002. Alleged race discrimination and alleged sex/gender discrimination accounted for the largest segments of claims. But the largest increases were in allegations of religion discrimination (up 21 percent), age bias (up 14.5 percent), and national origin discrimination (up 13 percent), Bashen noted.
She highlighted the importance of employers having a sound methodology in place by which they respond to, investigate and handle discrimination claims in the workplace. How an insured handles these claims is a key indicator that the EEOC looks at when investigating a discrimination charge, she said.
Bruce Liebman, an attorney with Akerman, Senterfitt & Edison, said mediation could play an important role in the EPL claims process. “I recommend my clients and their insureds or corporate clients to participate in mediation discussions. I don’t think a case can be fully evaluated until you see what the claimant looks like and how they react to a stressful situation.
“Mediation is sometimes the right business decision because cases can drag out for years and cost thousands of dollars,” Liebman explained.
Eric Ross, vice president of professional liability claims for insurer Travelers Bond, agreed that there could be advantages to taking an EPL claim to mediation. “The EEOC mediation program affords a claimant the chance to exercise some sour grapes against the employer. Hearing how a supervisor reacts can sometimes take the wind out of the sales of the claim.”
Ross went on to discuss the role taken by the insurer in the EPL claims process. “No matter what carrier you are dealing with you can expect some investigation into the facts. This can give a good early indication of liability and the potential damages facing the insured,” he said.
While the single most common battle between insurers and insureds is the issue of who is going to defend the claim, he believed early intervention by the insurer in the claims investigation would lead to less heartache for the brokers and a quicker resolution of the claim.
From the insurer’s perspective, a duty to defend arrangement in an EPL policy really is a duty to resolve the case. “The earlier you can get on the highway, the sooner you are going to get up to the exit ramp. Most of these cases get settled on the way. Most insurers look to these cases with an eye to settlement early on,” he said.
Concluding the session, Ryan offered a list of tips to EPL insurers looking to control their claims expenses. She said insurers should consider covering arbitration costs in an EPL policy, because arbitration takes the threat of litigation out of the equation at the time of settlement.
Insurers should also look more specifically at a prospective insured’s loss history as well as the types of employees and construct of the organization. For example, companies that use a lot of outside contractors and companies where the majority of employees are higher educated and well-paid could pose problematic risks.
“The first question in a mediation is how much were your people paid and for how long were they employed? That can be the difference between paying $40,000 for a claim and $4 million,” Ryan said.
Merger and acquisition activity at a company was also an indicator that EPL claims might be more likely, she added.
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