EPL Marketplace Update: Auxiliary Lines of Management Responsibility, Part 1 | woodruff sawyer
In this three-part series, Woodruff Sawyer management liability expert Jon Janes sheds light on three types of management liability coverage that are often overlooked: Employment Practices Liability, Fiduciary Liability and Crime Insurance. Although called “auxiliary lines” or “auxiliary lines,” this trio of insurance policies is essential to most organizations. They are also affected by the pandemic, changes in the workforce and fluctuating market conditions, just like many other lines of insurance. In this “Management Liability Auxiliary Lines” series, Jon examines how pricing, retention, capacity and terms are impacted – and what it means for you. First: Employment Practices Liability Insurance.
— Priya Huskins
Perhaps surprisingly, given all that is happening in the employment landscape, the market for employment practices liability (EPL) is relatively stable. This is not to say that insurance underwriters are indifferent. They will certainly insist on significant changes in EPL programs when there are significant changes in the buyer’s risk profile, including claims. Underwriters are also focusing on pandemic-related issues, like getting workers back to the office and changing vaccination mandates, as well as non-pandemic issues like employee privacy and social justice.
Current trends for EPL renewal in 2022
As we enter the second half of 2022, we are closely tracking four trends that are dominating renewals in the EPL market. These trends include price, retention, terms and conditions, and capacity.
- Price: The extent of premium increases on EPL renewals will primarily be determined by industry, including the impact of COVID-19 on the industry, loss history and employee location. Renewals with no change in risk profile or losses can expect minor premium increases. Retail and healthcare remain difficult sectors. California continues to be the most problematic jurisdiction, with New Jersey, New York and Florida not far behind.
- Retention: Expect continued pressure on primary retentions. Expect separate and higher retentions for California claims and claims involving highly paid employees (particularly in healthcare facilities and financial institutions).
- Terms and conditions: Few COVID-specific retentions are required, and coverage also remains consistent. Underwriters continue to limit their exposure to privacy and biometrics-related claims by excluding or significantly limiting the amount of coverage available to defend these claims.
- Ability: Capacity in the EPL market is stable and new excess EPL capacity has recently entered the market. Primary and low excess capacity can be difficult to find for businesses and industries (healthcare, retail, hospitality and leisure) that have been hardest hit by COVID-19. The absence of competition for these risks contributes to the increase in prices.
Hot Topics in 2022
News headlines, especially those relating to the pandemic, social justice issues and data privacy, continue to impact the EPL market.
COVID-19[FEMININE:[FEMININE: Labor and employment law firm Little Mendelson tracked more than 5,432 lawsuits (including 625 class action lawsuits) filed between March 12, 2020 and March 11, 2022. Return to work and vaccination requirements are a priority not only for employers but also for policyholders. They both predict an increase in claims alleging that employers have failed to make reasonable accommodations for employees reluctant to return to the workplace or to be vaccinated for health or religious reasons, or that these policies have had a negative impact on their employment status. See my post, Preparing to return to work includes your EPL policyfor more details.
Social justice: Social movements like #Me too and pay equity continues to affect employment disputes. Congress passed the Ending Sexual Assault and Sexual Harassment Forced Arbitration Act of 2021, which was signed into law by President Biden on March 3, 2022. The law prohibits the enforcement of previously agreed-upon arbitration clauses for resolve sexual harassment and sexual assault disputes, even if all parties had an arbitration agreement in place before the alleged assault or harassment began. See End forced adjudication of sexual assault and sexual harassment for more details.
The Biden administration has also expressed support for pay equity, including passing the Paycheck Fairness Act. If passed, this law will add procedural protection to the Equal Pay Act and the Fair Labor Standards Act to address the gender pay gap.
Privacy protection: Biometric data privacy laws are strict, and the plaintiffs’ companies have taken note. Illinois passed the Biometric Information Privacy Act (BIPA) in 2008, but there were very few complaints until recently. Now, insurers are excluding coverage or capping their exposure at a fraction of the purchased limit as more states pass BIPA-like laws and BIPA-related lawsuits skyrocket.
The changing landscape of EPL claims
I recently spoke with Joseph Kelly, Senior Vice President and National Practice Leader of Employment and ERISA Accountability for Sompo International, to get his thoughts on the current state of the EPL insurance market.
Back to the office
The EPL landscape is proving challenging as office workers return to the workplace. The main hurdle for employers is the web of overlapping and contradicting regulations on vaccination mandates, masking requirements, and other COVID-19 mitigation requirements.
For example, an employer might have an office in one state where they are not allowed to implement a vaccination mandate and in another where they are required to mandate vaccinations. This complexity creates an environment conducive to litigation brought by employees who feel that their rights have been restricted or that they are not sufficiently protected in the workplace.
There has been a rapid increase in litigation related to accommodation requests related to COVID-19 over the past 12 months. Employers who deny a specific request for religious or disability accommodations for vaccination mandate policies will be most vulnerable to this type of litigation. Likewise, there is an increase in claims alleging retaliation or wrongful dismissal filed by employees who filed complaints about COVID-19-related safety breaches, such as mask-wearing or social distancing.
Other frequent claims relate to denied leave requests to care for sick family members or to care for children who could not attend school or daycare due to COVID-19 closures. . As COVID-19 cases decline and safety protocols are relaxed, the frequency of these claims will dissipate.
The big resignation
“The Great Quit” – the term for the large number of workers who have chosen to quit their jobs or change careers during the pandemic – is causing concern in the EPL market. Sharp increases in employee turnover have long been an underwriting barometer of future claims activity.
What is most troubling about this trend is that many employees leave their jobs on bad terms with their employer. They may be frustrated with long hours, low wages, COVID-19 concerns, or dealing with angry customers. This friction coupled with rolling can lead to an increase in the frequency of disputes.
Additionally, employers facing labor shortages may be forced to relax hiring standards, which could negatively impact work product, employee morale, and corporate culture. . These factors can lead to a ticking time bomb of potential litigation.
Social inflation, a term that refers to the upward trend in insurance costs due to increased litigation, favorable judgments for plaintiffs and higher jury awards, is also on the rise. In recent years, many cases of injustice have come to light, often pointing to long-standing wrongdoings or inaction by companies and their leaders to remedy those wrongdoings.
Social justice movements like #MeToo and Black Lives Matter have raised awareness of these issues, which can lead judges and juries to be more sympathetic to plaintiffs who bring claims of harassment and discrimination.
The impact of social inflation has contributed to some important judgments against employers. Data from Lex Machina shows a 97% increase in average awards in federal discrimination cases decided in 2021 compared to 2020. The average award increased from $280,000 to $552,000. One year is not a trend, but this issue is something that is likely to continue to influence litigation outcomes.
Employment issues should be a key item on the council agenda.
The #MeToo movement has ushered in a new era of accountability for corporate boards, as shareholders have brought securities and derivatives litigation based on the actions of executives and the alleged incapacity of boards. administration to properly mitigate these actions. Beyond reputational damage, some of these cases have resulted in significant monetary damages.
This trend has continued as social justice issues continue to impact corporations with shareholder activism and litigation. In most cases, companies have responded positively to concerns raised in #MeToo and social justice initiatives by responding quickly and thoroughly to allegations of wrongdoing by company executives in the following ways:
- Conducting pay equity audits and initiatives
- Implement diversity and inclusion programs for the benefit of all key stakeholders.
These measures will continue to have a positive impact on employee relations, business results and the mitigation of potential litigation.