No longer business as usual: managing EPLI exposure

As seen in Independent Agent

Widespread accounts of sexual misconduct swept headlines in 2017. In 2018, accounts of inappropriate workplace behavior continue to be shared on a national scale — and as a result, more employers are beginning to recognize their employment practices exposure.

As many as 72% of small business owners recognize that they are exposed to employment-related risks, according to the 2018 Small Business Risk Report by Forbes Insights and The Hanover. Of these business owners, only 20% are confident they’re adequately insured, while 59% have plans to expand or obtain employment practices liability coverage.

With a better understanding of the risks they face, employers are seeking information about implementing best practices and guidance on managing potential risks. All of this makes EPLI an area where independent insurance agents can provide important counsel to their customers.

A changing legal environment

In the wake of the #MeToo movement, newly proposed legislation would transform sexual harassment law by creating a path for victims to come forward.

On a national level, the “Ending Forced Arbitration of Sexual Harassment Act,” introduced in both the U.S. House of Representatives and Senate, aims to eliminate the practice of settling sexual harassment claims through mandatory private arbitration.

There is considerable activity at the state level as well. For the 2018 session, California legislators have introduced more than two dozen bills to combat and address sexual assault and harassment in the workplace. The bills cover a variety of topics, from confidentiality and settlement agreements to mandatory arbitration and unlawful retaliation.

While the sheer number of bills introduced in California exceeds that of other states, New York, New Jersey, Pennsylvania, South Carolina and Washington state legislatures have also introduced legislation that addresses nondisclosure agreements and arbitration provisions.

Thoughtful risk management

Employers should not wait to see what new requirements these bills will impose if they are ultimately signed into law. But with such a wide range of exposures associated with employment practices, it can be hard to know where to start.

Independent agents play an important role as risk advisers by helping their clients think critically about their risks and develop and implement risk management and prevention plans. Exploring, reviewing and updating these four practices with your clients is a good place to start:

  1. Corporate policies. Create or update policies that define expectations of acceptable employee behavior and help reinforce a company’s corporate culture.
  2. Implementation and response procedures. Establish procedures that explain how corporate policies are implemented and enforced.
  3. Reporting processes. Employees must feel they can report harassment without fear of retribution and know their accounts will be taken seriously and properly investigated. Effective reporting channels are a critical element of fair investigations and thoughtful risk management.
  4. Processes to create effective documentation. Employees who report issues may choose to file suits against their employers if they feel they were mistreated or were not pleased with the outcome of an investigation. Maintain complete and accurate documentation of conversations regarding reports of wrongful acts. Expectations about documentation are particularly important to share with managers.

Critical coverage elements

Despite thoughtful risk management and prevention efforts, employers can still find their reputations and assets on the line. That’s where the right EPLI insurance policy with adequate limits and broad coverage comes into play.

There is no one-size-fits-all EPLI insurance solution, so a foundation of solid coverage starts with understanding the unique risks facing an employer. As employers contemplate coverage, they should consider these important factors:

  • Definitions. As agents know, not all definitions are created equal. Carefully assess definitions of wrongful acts to ensure a business’s unique risks are covered.
  • Who to cover. For example, does the business use contractors? Ensure coverage applies to the acts of those individuals.
  • Key coverage provisions. These should include punitive damages where insurable, and coverage for Equal Employment Opportunity Commission or state equivalent proceedings.

With so few business owners confident they are adequately insured, the counsel of independent agents can prove invaluable in EPLI risk management.

Helen Ryan Saviano

About the author
Helen Ryan Saviano currently serves as The Hanover’s president of management liability. With more than 25 years of industry experience, she is a proven leader with expertise in organic, ground-up business development, resulting in profitable returns on investment and revenue growth.