BROKERS' PROGRAMS GOING TO WORK ON EPL EXPOSURES

A growing threat of employment practices liability lawsuits and a proliferation of coverage options is prompting two large brokers to develop comprehensive EPL risk management programs.

The Supreme Court, ruling late last month on two sexual harassment cases, further highlights employers' need to take steps to minimize liability or avoid it altogether (BI, June 29).

Sedgwick Inc. is putting the finishing touches on a new comprehensive employment practices liability program that will provide risk management services and coverage for employers with as few as 250 employees.

Under the new program, called FIRSTChoice and set to be launched by September, employers will be able to choose from a variety of EPL coverages and loss control services offered from several providers.

Royal Insurance, Chubb Corp., Executive Risk and National Union Fire Insurance Co. of Pittsburgh, Pa., will be offering EPLI products under FIRSTChoice. Attorneys from the law firm of Jackson, Lewis, Schnitzler & Krupman of White Plains, N.Y., attorneys from Sedgwick Risk Consulting Services or other approved local counsel will offer various risk management, loss control and loss prevention services, explained Phillip N. Norton, managing director of Sedgwick Financial Risk Specialists in Chicago. He spearheaded the new program.

FIRSTChoice, as its name suggests, is designed to offer employers more choice and flexibility in buying comprehensive EPL insurance, something Mr. Norton said has "become critical" in today's litigious environment as more employers are hit with liability for the actions of their employees.

Many employers still think "they don't have any exposure because their loss history is good." He said any company that has employees has exposure to employment practices liability.

"With the trend in frequency and severity increasing exponentially, we see this insurance as something that is an essential part" of a corporation's risk portfolio, Mr. Norton said. However, "we also don't see insurance as the comprehensive solution. As many as one-half of the employment practice claims are preventable," he said.

With prevention, and in some cases mitigation, in mind, insurers taking part in FIRSTChoice will offer a variety of loss prevention and loss control services as part of the program.

Jack Kuhn, vp and executive protection products manager for Chubb, for example, said the Warren, N.J.-based insurer's FIRSTChoice product, which still is being developed, will provide such loss prevention services as human resource audits, economic studies and human resource training.

"I think it is important in today's environment to provide the flexibility to choose" what loss prevention services employers need based on their individual exposures, Mr. Kuhn said.

To participate in FIRSTChoice, employers must retain at least $25,000, Mr. Norton said. The minimum premium is $15,000, and the minimum limit offered by the participating insurers is $25 million, but the program can construct up to $100 million in limits.

While the EPLI coverage offered by participating insurers will differ, all will provide broad coverage for workplace discrimination, wrongful termination, sexual harassment and other employment-related claims, Mr. Norton said.

In addition, such commonly overlooked perils as breach of employment contract, defamation, workplace harassment and constructive discharge also will be covered in the program, Mr. Norton said.

The Sedgwick program comes on the heels of a similar program offered by J&H Marsh & McLennan Inc.

First introduced in late 1997, the Leaders Preferred program also combines insurance with risk management audits by a leading employment law firm, said Peter Foster, a vp and co-developer of the program in J&H Marsh & McLennan's Boston office.

Initially designed for mid-sized employers, Mr. Foster said the broker now also is targeting large employers. To date, the program has attracted 112 accounts.

The J&H Marsh & McLennan program offers EPLI coverage up to $50 million through National Union, or $25 million through Executive Risk or Zurich-American Insurance Group.

Equally as important as the insurance coverage is the audit conducted by Littler, Mendelsohn, a San Francisco-based law firm. The audit looks at the employer's procedures for hiring, firing, performance evaluation and investigating claims of discrimination. A report is prepared and recommendations for improvement made by the law firm.

"They know there is insurance to protect them financially, but they want to know how to avoid the claim, how to avoid the allegation," Mr. Foster said.

Besides reducing the number of claims, an audit can limit the amount of a jury verdict, he said. An employer found deficient in its procedures for investigating discrimination claims will be instructed by the auditor how to improve them.

With the improved procedures, and 95% of all employers follow the recommendations, he said, the employer is insulated against allegations that it didn't follow up on an employee's claims of harassment.

"That's the area where a lot of companies get hit with punitive damages," Mr. Foster said.