Critical Issue Report
EPL business battles retaliation claims boom
Clients must be educated to avoid discrimination
By Art Seifert
Plaintiff attorneys like to win, and winning is easier against weak opponents. So it should come as no surprise that since 2006, when a Supreme Court decision eased the burden of proof on claimants in retaliation cases, retaliation claims have become the fastest growing type of employment practices discrimination claim. That court decision created a feeding frenzy among plaintiff attorneys, which has a significant impact on the insurance industry.
Retaliation is defined as any adverse action that a business owner or manager takes against an employee because he or she complained about harassment or discrimination. The complaint could have been made to the business owner, to a government agency or to someone within the business. According to Title VII of the Civil Rights Act of 1964, the company's actions qualify as retaliation if they would deter a reasonable employee in the same situation from making a complaint
In the 2006 case of Burlington Northern v. White, 126 S. Ct. 2405, the supreme court significantly eased the standard of proof for claimants in a discrimination case. It also broadened the standard by ruling that retaliation also included actions taken by an employer against the employee's family and close friends. The new standard was supported by a remarkable degree of agreement among justices. It appears that even conservative judges take umbrage at employers that retaliate against workers who have asserted workplace claims.
Couple the court's ruling with the reality that juries are more receptive to retaliation claims than they are to other causes of discrimination, and you have a perfect storm for the increase in the frequency and severity of discrimination/retaliation claims. The statistics paint a clear picture:
• According to data from the U.S. Equal Employment Opportunity Commission (EEOC), retaliation claims have increased 100% from 1992 to 2006.
• In 2008, claims involving retaliation rose 23% to 32,690 claims, while non-retaliation claims rose 12% in the same period.
• A record number of retaliation claims were filed with the EEOC in 2010, about 50% more than in 2000.
• Retaliation claims represent over 30% of all discrimination claims filed with the EEOC.
In fact, Vincent Cino, national director of litigation for the EPL powerhouse law firm of Jackson Lewis LLP, reports that roughly 70% of discrimination suits handled by his firm include a retaliation claim. Joseph Beachboard of the law firm Ogletree, Deakins, Nash, Smoak & Stewart asserts, "Retaliation is really the No. 1 risk for employers today." And in case the point is not clear, Carolyn Wheeler, an assistant general counsel of the EEOC, states, "Stamping out retaliation is the commission's top priority."
Impact on the insurance industry
The insurance industry is facing a class of business in which both frequency and severity are on the rise. According to The Betterley Report's "Employment Practices Liability Insurance Market Survey 2011," insureds have more covered claims than expected, along with increasing defense costs. The two problem areas are multiple plaintiff claims and Wage and Hour claims.
The first type of claim involves multiple plaintiffs threatening big brand companies with coercive action unless they settle quickly. These claims, which often are settled because the insured fears damage to its reputation, are a big problem for carriers writing large companies. These claims have made it more difficult for these big companies to buy EPLI coverage, with some reporting mandatory deductibles of $1 million or more, and coinsurance of 10% - 25%.
Carriers serving smaller to mid-sized employers have encountered an increase in Wage and Hour claims. These types of claims involve employees alleging that they were not paid for all of the hours they worked or were not paid the correct wage.
As claims increased over the last decade, coverage for retaliation expanded, with about 50-55 carriers active in the market, compared with just five carriers in the 1990s, according to The Betterley Report. Also, the report notes that beginning in 2004, the market began moving from a focus on profitability to rate reductions. Despite promises of rate stabilization, the trend toward lower rates continued in 2010.
This is not a formula for underwriting profits. In fact, in 2010, there were 36,250 retaliation claims and more than $600 million in defense costs, with the average defense cost for these claims exceeding $150,000. It's also important to note that in retaliation claims, punitive damages are asserted and costly. For example, a woman in Texas lost a sexual harassment suit, but the jury awarded $3.5 million in punitive damages associated with the claim of retaliation.
Some of the larger carriers are now reporting rate increases of 10%-15%, according to the Betterley Report:". . . rate adequacy and expense control continues to be the story [in 2011-12]."
Given the competition and the changing nature of this exposure, it is unlikely in the short run that the industry can attain rate adequacy that facilitates underwriting profit. The best effort may result in treating this exposure as a loss leader that does not inflict too much pain.
For insurers looking for solutions to the growing number and increasing cost of retaliation claims, the place to start is awareness and education. Awareness of the problem needs to reach the business owner, manager, director and others responsible for their organization's employment practices.
Many insurance companies and program managers contract with employment practices liability (EPL) experts in an effort to impose risk control on EPL exposures. The industry needs to improve its effectiveness at marketing these services so insureds know they can make a telephone call or visit a Web site for more information before confronting an employee with termination, demotion or other disciplinary actions.
Of course, the best way to avoid a retaliation claim is to avoid discrimination in the first place. And the best way to avoid claims of discrimination is awareness of the behaviors and actions that lead to allegations of discrimination. If behavior can be modified, and it is an "if," it is through education and increased awareness of the consequences attached to the behavior.
Plaintiff attorneys like to win. But as an insurance professional, I find a winning defense to be a more palatable outcome. The organizations and businesses we insure need help educating their people to assure awareness of the issues inherent in discrimination. It is a role the insurance industry needs to embrace if EPL underwriting profit is ever to be realized.
Art Seifert is president of Glatfelter Program Managers, a strategic business unit of Glatfelter Insurance Group (www.glatfelters.com).