CHICAGO—Increasing awareness of the potential for discrimination and harassment litigation has persuaded more privately held, middle-market companies to purchase employment practices liability insurance.

But they still are largely unprotected when it comes to directors and officers and fiduciary liability exposures, experts said during the Crittenden Middle Market Insurance Accounts Conference.

When middle-market companies buy specialty insurance that combines EPL, D&O and fiduciary liability, they usually are subject to a single limit, which could leave these companies shortchanged if they have one large claim in any of these areas, coverage experts said during the Chicago conference.

Unlike large, publicly traded companies that routinely buy separate EPL, D&O and fiduciary liability policies, “in the mid-market a lot of companies go without these specialty coverages,” said Joseph Monteleone, a partner at Tressler L.L.P. in New York.

When they do buy such coverage, it generally is a package policy that covers all three exposures under a combined single limit, he said.

“We're seeing a lot more middle-market companies blend limits between D&O and EPL coverage,” said Keith Lavigne, senior vp, professional risk, at ACE USA in New York.

The problem is, “such broad coverage could be stressed,” Mr. Lavigne said. “The assets of a director may be at risk if the limits are eroded by paying for the defense of a single EPL claim.”

Patrick Moran, special counsel at Gordon & Rees L.L.P. in Chicago, said defense costs in employment-related litigation oftentimes “can go through the roof. The amount (of defense costs) that we're seeing is terrifying for the middle-market company.”

For example, under Title VII of the Civil Rights Act of 1964, which prohibits employment discrimination on the basis of race, color, religion, sex or national origin, plaintiffs need win only a partial verdict to recoup their attorney fees, said Matthew Pullman, a claims attorney at Monitor Liability Managers L.L.C. in Rolling Meadows, Ill.

“A person may only be entitled to $50,000 in damages, but the plaintiff's litigation costs may be $400,000, and then there's defense costs on top of that,” he said.

“EPL has always been a big, sexy coverage, but a lot of middle-market clients forget they have D&O exposures as well,” said Debbie Schaffel, managing director in the financial services group of Aon Risk Solutions in Chicago. “A lot tend to buy the cheapest option, and that's not always the best option. They need to make sure they have sufficient limits, and that they do not have limits that are shared between EPL & D&O.”