SEMA Member News - May/June 2009
Insurance for Employment Downturn
By Franco L. Ganino
|In the midst of the worst financial crisis in more than 60 years, many companies are being forced to make major decisions on how to survive. This could lead to the largest job loss since the Great Depression.
Despite their best efforts, some companies are faced with the possibility of having to make reductions in workforce. That kind of economic reality is sometimes an unavoidable last resort. If worse comes to worst, businesses must also take stock of other related conditions, and The Specialty Equipment Insurance Alliance (SEIA) can help.
The reality is that many companies faced with the urgency of reducing staff quickly do so at some risk. Since 2004, employment-related lawsuits have been on the rise, with almost 80,000 new charges being filed with the U.S. Equal Employment Opportunity Commission each year. In addition, hundreds of thousands of unemployment claims are being filed with state and local agencies.
“As businesses look to lay off staff as a way to reduce their overall operational expenditures, an Employment Practices Liability Insurance (EPLI) policy may be a wise investment for even the smallest companies to place in their survival toolbox,” said SEMA Senior Director of Member Outreach Monica Terlouw.
What is EPLI? In simple terms, it’s an insurance policy that provides legal assistance, defense and payment for claims for wrongful termination, discrimination and/or harassment. Coverage is afforded to the organizational entity, including its subsidiaries, directors and officers, spouses, trustees, board of regents and governors, natural person partners, LLC managers, functional equivalents, employees, volunteers, leased workers and independent contractors. Coverage has even been broadened to the point of extending to third parties within a chain of commerce, so policy comparisons should be read carefully.
SEIA is a specialty program of Alliant Insurance and is a member-service provider to SEMA.
Every SEIA customer receives a bundle of human resource services through Strategic HR (a wholly owned division of Alliant). Exclusive EPLI products are available at SEMA-member discounts.
The current legal climate has given a stronger legal argument to victims of layoffs. When people are placed into a desperate scenario with finding new employment, they tend to turn to legal action for remedy. Two laws provide the road map for a strong argument: The Workers Adjustment and Retraining Notification Act for claims brought by displaced workers who did not receive ample legal notice or get pay for time worked; and the Ledbetter Act, which amended Title VII to provide that an actionable unlawful employment practice occurs with respect to pay discrimination. The issue is compounded with the potential loss of any health insurance coverage or subsidy. Also, the new Congress can be expected to further tighten the laws already on the books.
| An Employment Practices Liability Insurance (EPLI) policy provides legal assistance, defense and payment for claims for wrongful termination, discrimination and/or harassment.
It has been proven that a main element of a successful defense in an employment-practices case is proper human resources documentation. But even those organizations with the best human resource policies and procedures can find themselves in the middle of a lawsuit. The reality is that those companies which purchase EPLI have the greatest chance of weathering the storm, as defense costs alone tend to exceed $250,000.
The average verdict per case now approaches a staggering $388,128 per judgment, and EPLI claims now comprise 30% of all civil litigation in the U.S. courts. For instance, a female salesperson for an auto parts store sued for sexual harassment, alleging that two employees of the company made inappropriate comments about her physical appearance, and she was awarded $110,000. In another case, an auto parts manufacturer was sued by an employee for national-origin discrimination in violation of Title VII, which prohibits employment discrimination based on race, color, religion, sex and national origin. The employee alleged that he was harassed by coworkers who made disparaging remarks relating to his ethnic background and was wrongfully terminated when he complained to his supervisors. He was awarded $250,000.
Reviewing the pitfalls of employment practice liability through a rearview mirror is helpful, although past claim activity may not prove the best predictor of future occurrences. A company can best begin to strengthen its core procedures as they relate to the process of hiring, promoting, managing or firing of employees with the assistance of an insurance advisor and a human resource team.
The good news is that the member-services team through the SEIA offers EPLI policies at preferred member rates. Policy limits start from $250,000, with the average company purchasing $1,000,000. Limits include defense and carry deductible options ranging from $2,500–$25,000 per loss. The annual premium for EPLI coverage can start at $2,500 and is based on the number of employees, past loss history and human resource controls.
To complete an application for an immediate pricing indication and expanded coverage, click here.
Franco L. Ganino, AAI, is vice president of Alliant Insurance Service Inc.