Corrinne Hess
Milwaukee Business Journal
April 2, 2010
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Health insurance has been the focus for many businesses the past year, but the economic downturn and the changes employers have had to make to their work force as a result have made another type of insurance nearly as important.
A growing number of employers are opting to purchase employment practices liability insurance, which covers lawsuits brought by current, past or prospective employees against an employer alleging wrongful termination, discrimination or certain types of harassment.
“The economy certainly has had an impact,” said Shawna Bertalot, executive director of specialization and practices for Johnson Insurance, Racine. “As companies are downsizing or implementing hiring freezes, it creates an environment for people to sue.”
Communications Cabling & Networking Inc., Pewaukee, has had employment practices liability insurance coverage for about four years.
While the company has been fortunate never to have to utilize the coverage, Keri Wolter, vice president of human resources, said having the insurance gives her peace of mind, given the present economy and the recent changes to federal and state employment law that make it easier for employees to sue their employers.
“Employment-related decisions are not always black-and-white,” Wolter said. “I think it’s comforting that businesses know should a need arise this is something they can take advantage of.”
Employment practices liability insurance was first offered to employers in the early 1990s, a result of the allegations against then-Supreme Court Justice nominee Clarence Thomas by University of Oklahoma law school professor Anita Hill.
Over the last 20 years, the policies have grown to further accommodate the needs of business owners, Bertalot said.
Within the last year, new plan designs have included crisis management coverage, workplace violence coverage and network security, so if an employee’s private information is violated via the Internet an employer cannot be held responsible.
“It’s a product that continues to evolve as our economy changes and as our risks as employers change,” Bertalot said.
The insurance coverage is pretty easy to obtain and anyone who employs more than 100 people should consider it, Bertalot said. Communications Cabling & Networking has 160 employees. Wolter did not want to discuss the specifics of the company’s policy or the cost.
On average, a small business that wants to purchase a policy with a minimum limit of $50,000 to $100,000 worth of coverage would pay an annual premium of about $200 to $300, Bertalot said.
A stand-alone policy for a larger business that has a minimum coverage limit of $1 million would cost about $2,000 per year, she said.
The biggest variable is the number of employees a company has and the type of business it is. Companies with 100 or more employees and industries with a lot of temporary employment and turnover tend to be the most costly, Bertalot said.
“The biggest benefit for having employment practices liability is defense coverage,” she said. “It’s fair to say two of five employers will have some sort of employment-related complaint or lawsuit filed against them. It’s more likely than a fire.”
Scott Beightol, chairman of Michael Best & Friedrich’s labor employment practice group, Milwaukee, has represented several employers who have been sued and had the insurance.
Beightol said an important but often-overlooked factor employers should consider is how much control the insurance carrier will have if the business does become involved in litigation. Some business owners are surprised to learn they may not have the right to select their own lawyer, or decide if the case can be settled out of court, he said.
Still, Beightol said claims against employers are on the rise and business owners should explore whether or not the coverage is appropriate for them.
Wrongful termination, discrimination and harassment claims filed against employers with the U.S. Equal Employment Opportunity Commission increased 15 percent from 1998 to 2008. From 2007 to 2008, the number of claims increased 23 percent, according to the EEOC.
Retaliation claims, where an employee who has filed a previous complaint at work later alleges he was fired or faced adverse action because of it, are among the fastest growing. Age discrimination complaints are also up about 30 percent.
“There has been an advancement in the ability to bring these claims forward, and the economy has certainly created more incentives for people to file the claims,” Beightol said.
“The danger of those cases are the class action lawsuits or cases with multiple plaintiffs. It doesn’t take much to make the damages in those cases very significant to catastrophic.”
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