strima 2007 employment practices liability john ergastolo senior vice president gallagher strategic...
TRANSCRIPT
STRIMA 2007
Employment Practices Liability
John ErgastoloSenior Vice President
Gallagher Strategic Risk Solutions
Dorothy Gjerdrum, ARM-PExecutive Director
Gallagher’s Public Entity & Scholastic Division
John Ergastolo – Arthur J. Gallagher & Co.John Ergastolo – Arthur J. Gallagher & Co.
Agenda
• EPL: The Exposure & Its Trends
• Insurance Coverage Issues
• EPL: Root Causes & Problems
• Best Practices
• Best Practice Examples
John Ergastolo – Arthur J. Gallagher & Co.John Ergastolo – Arthur J. Gallagher & Co.
Employment Practices Liability:
The Exposure and its Trends
• Legal and Legislative Developments
• Class Action EPL Claims
• Trends toward Greater Catastrophic Loss
• EPL Insurance Coverage Trends
John Ergastolo – Arthur J. Gallagher & Co.John Ergastolo – Arthur J. Gallagher & Co.
Factors Influencing EPL Losses
1. The Older Workers Benefit Protection Act of 1990 and The Age of Discrimination in Employment Act of 1967
2. The Civil Rights Act of 19913. The American with Disabilities Act of 1990 (effective
1992)4. The Family and Medical Leave Act (1993)5. Class Action EPL Claims6. Typical Claims Costs are Significant7. Catastrophic Claims are Becoming More Likely
John Ergastolo – Arthur J. Gallagher & Co.John Ergastolo – Arthur J. Gallagher & Co.
EPL Perils to consider• Wrongful Termination (actual and constructive)• Breach of Employment Contract• Discrimination• Harassment (sexual and workplace)• Failure to Employ/Promote• Wrongful Discipline or Wrongful Demotion• Failure to Grant Tenure• Negligent Evaluation• Invasion of Privacy and False Imprisonment• Employment Related Misrepresentation• Defamation or Employment Related Libel/Slander• Wrongful Infliction of Emotional Distress• Retaliation (including whistleblower)
John Ergastolo – Arthur J. Gallagher & Co.John Ergastolo – Arthur J. Gallagher & Co.
Tracking EEOC Charge Filings
0100002000030000
40000500006000070000
8000090000
100000
1993 1995 1998 2000 2002 2004
EEOC ChargesRaceGender
John Ergastolo – Arthur J. Gallagher & Co.John Ergastolo – Arthur J. Gallagher & Co.
Large EPL Claims By Industry
General Services14%
Retail17%
Manufacturing21%
Financial12%
Professional12%
Public Sector10%
Energy & Utilities14%
John Ergastolo – Arthur J. Gallagher & Co.John Ergastolo – Arthur J. Gallagher & Co.
Large EPL Claims by Type of Claim
7%
20%
7%
18%
14%
7%
15%
12%
0% 4% 8% 12% 16% 20% 24%
Retaliation
Wrongful Termination
Whistle Blowers & Other Claims
Age Discrimination
Gender Discrimination
Disability & Other Discrimination
Race Discrimination
Sexual Harassment
John Ergastolo – Arthur J. Gallagher & Co.John Ergastolo – Arthur J. Gallagher & Co.
Top 10 States for Large EPL Claims30
10
6 6
4 4 4 43 3
CA TX NY FL IL NJ MI OH DC MA
Note: numbers are Note: numbers are percentagespercentages
John Ergastolo – Arthur J. Gallagher & Co.John Ergastolo – Arthur J. Gallagher & Co.
Punitive Damages & EPL Claims
• About one-third of top $2.5 BL in large losses are due to punitive damages
• Of largest 150 claims, about half have punitive damages assigned
• Average percentage of full award that is punitive is about 35% for all large losses, but closer to 70%, if a punitive award is present!
John Ergastolo – Arthur J. Gallagher & Co.John Ergastolo – Arthur J. Gallagher & Co.
Statutes & Law Supporting EPL Claims
• Title VII• Age Discrimination in Employment
Act• Americans with Disabilities Act
• Pregnancy Discrimination Act• Equal Pay Act• Family and Medical Leave Act• Title IX
• State Fair Employment Practice Statutes
• Whistleblower Laws• Municipal Statutes and Regulations
• Breach of Contract• Wrongful Termination• Negligent and Intentional
Infliction of Emotional Distress
• Defamation• Invasion of Privacy• Tortious Interference with
Contract• Harassment
• Assault and Battery• Negligent Hiring/Supervision• Fraud and Misrepresentation
Statutory Common Law
John Ergastolo – Arthur J. Gallagher & Co.John Ergastolo – Arthur J. Gallagher & Co.
Trends in EPL Insurance• The EPL exposure, including potential for catastrophic loss, has
increased significantly since 1991
• Pricing started high (1992/1993) then declined (1997), rose again (2001-2003) and is now declining again
• Meanwhile, EPL coverage has been greatly improved:
– sometimes packaged with Loss Control consulting
– punitive damages covered
– no downsizing exclusion
– bilateral discovery offered
– no “intentional acts” exclusion
– simpler reporting requirements often available
– flexible selection of defense firms may be possible
– third-party claim coverage
John Ergastolo – Arthur J. Gallagher & Co.John Ergastolo – Arthur J. Gallagher & Co.
The EPL Marketplace Today
• Cycle of Capacity starting to turn up– 1992 to 1997, 1998 to 2003, 2004 - 2009…
• Until recently, Loss Ratios historically > 100%• Carriers took action in 2003 with:
– Increased deductibles!– Premium adjustments– Coverage fine-tuning
Risk Management, Insurance and Loss Control are more important than ever!
John Ergastolo – Arthur J. Gallagher & Co.John Ergastolo – Arthur J. Gallagher & Co.
Responsibility for EP Compliance
82.0%
18.0%
5.0%
25.0%
2.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
Human Resources Legal Risk Management Other No One
John Ergastolo – Arthur J. Gallagher & Co.John Ergastolo – Arthur J. Gallagher & Co.
Risk Evaluation and Loss Control – Comprehensive auditing systems may be available– Prevention versus Reduction: Insurance is still key!
To prevent EPL claims, you should review your:
* Hiring Processes
* Employee Procedures
* Training Programs
* Performance Evaluations
* Termination Policies
* HR Operations
To reduce claims costs, you should review your:
* Insurance and Risk Transfers
* Claims Investigation
* Claim File Management
* Defense Controls
* Timely Notification
* Return to Work Programs
John Ergastolo – Arthur J. Gallagher & Co.John Ergastolo – Arthur J. Gallagher & Co.
The EPL Insurance Policy
• Who is covered?– Directors, Officers and Trustees– All Full-time Employees– Temporary Employees– Independent Contractors (?)– The Named Entity and Subsidiaries– Volunteers
John Ergastolo – Arthur J. Gallagher & Co.John Ergastolo – Arthur J. Gallagher & Co.
Who Can Bring Covered Claims?
• Employees• Students• Applicants for hire• EEOC• State Agencies• Directors• Other individuals/entities acting on behalf of 3rd
parties or employees
John Ergastolo – Arthur J. Gallagher & Co.John Ergastolo – Arthur J. Gallagher & Co.
Potential Exclusions
• Strikes, Lockouts• Willful or Malicious Intent• Willful failure to comply
with law• M/A activity• Bankruptcy• Class Actions
• Deliberate Fraud• W. A. R. N.• Benefits Due• Written or Express
Employment Contract• Workers Comp. Claims• OSHA• Securities Violations
John Ergastolo – Arthur J. Gallagher & Co.John Ergastolo – Arthur J. Gallagher & Co.
Coverages to Request
• Punitive Damages
• Back Pay
• Front Pay
• Pre/Post Judgment Interest
• Nonmonetary or Injunctive Relief
John Ergastolo – Arthur J. Gallagher & Co.John Ergastolo – Arthur J. Gallagher & Co.
Coverage Triggers
• Written Demand for Monetary Damages
• Civil Proceeding
• Arbitration Proceeding
• Administrative Proceeding
John Ergastolo – Arthur J. Gallagher & Co.John Ergastolo – Arthur J. Gallagher & Co.
Defense and Settlement Considerations
• Duty to Defend?
• Panel Counsel?
• Claims reporting threshold
• Right to Settle (esp. Hammer Clause)
• Reporting – When and How
John Ergastolo – Arthur J. Gallagher & Co.John Ergastolo – Arthur J. Gallagher & Co.
Rating EPL - The Exposure Base
• Number of Employees– U.S. versus Foreign– Full-time versus Part-time– Leased Employees– By state (especially CA, TX, and MI)
John Ergastolo – Arthur J. Gallagher & Co.John Ergastolo – Arthur J. Gallagher & Co.
Other EPL Underwriting Factors• The nature of the operations
• EEO-1 report
• Turnover
• Percentage of highly paid employees
• The quality of employment manuals and handbooks; the stated positions on the key practices and procedures
• Financial Condition
• M&A Activity
• Policy Wording Considerations
• Approach to Risk Management
• Litigation/Loss History - Claims experience is essential!
EPL – Root Causes & EPL – Root Causes & ProblemsProblems What are the deficiencies in state What are the deficiencies in state
government that lead to problems government that lead to problems with employment practices?with employment practices?
What are the common root What are the common root causes of employment practice causes of employment practice claims?claims?
EPL – a Few Root CausesEPL – a Few Root Causes
No orientation for new employeesNo orientation for new employees No supervisory or mgmt trainingNo supervisory or mgmt training Unclear performance expectationsUnclear performance expectations Short probation periods Short probation periods Asking people to perform beyond Asking people to perform beyond
their abilities or authority their abilities or authority Providing no incentives to perform Providing no incentives to perform
wellwell Lack of succession planningLack of succession planning
EPL – a Few Root CausesEPL – a Few Root Causes
Not focusing on customer serviceNot focusing on customer service A workplace dominated by fear, A workplace dominated by fear,
silence, isolationsilence, isolation No diversity trainingNo diversity training Inconsistent application of policies Inconsistent application of policies
or rulesor rules The The perceptionperception of injustice of injustice Not addressing problems, Not addressing problems,
harassment, poor performersharassment, poor performers
Best Practices – Ideal & Best Practices – Ideal & RealReal Best practices to strive for – 10 Best practices to strive for – 10
examples of “ideal” practices examples of “ideal” practices pre-loss and post-losspre-loss and post-loss
Real life best practice examples Real life best practice examples – from state government– from state government
Best Practices – Ideal Best Practices – Ideal
Written job descriptions that detail Written job descriptions that detail essential functions & skills requiredessential functions & skills required
Skills tests appropriate to job functionsSkills tests appropriate to job functions
Interview questions that tie to essential Interview questions that tie to essential skills, attitudes and experienceskills, attitudes and experience
Background & reference checks Background & reference checks
Appropriate documentation & retentionAppropriate documentation & retention
Excellence in Hiring Practices
Best Practices – Ideal Best Practices – Ideal
Review written job description and Review written job description and performance expectationsperformance expectations
The performance review processThe performance review process
Train on state-wide policies & proceduresTrain on state-wide policies & procedures
Department-specific policies & proceduresDepartment-specific policies & procedures
Employer resources, employee handbookEmployer resources, employee handbook
Employee Training
Best Practices – Ideal Best Practices – Ideal
Make it mandatory – once a yearMake it mandatory – once a year
Train on policies & procedures; include Train on policies & procedures; include legal updates & case law reviewlegal updates & case law review
Ideally, includes interactive practice, Ideally, includes interactive practice, especially re disciplineespecially re discipline
Develops leadership & high Develops leadership & high standards, strengthens standards, strengthens communication and consistencycommunication and consistency
Supervisory Training
Best Practices – Ideal Best Practices – Ideal
Transitions from worker -> Transitions from worker -> technician -> supervisor -> technician -> supervisor -> manager -> leader & support manager -> leader & support along the wayalong the way
Professional development trainingProfessional development training
Peer supportPeer support
Succession planningSuccession planning
Management & Leadership Training
Best Practices – Ideal Best Practices – Ideal
Legal review of compliance with law(s), Legal review of compliance with law(s), ability to defend, case law precedence ability to defend, case law precedence
Management review of consistency, Management review of consistency, effects upon workforce, documentationeffects upon workforce, documentation
Risk management input re creative Risk management input re creative solutions, cost mitigation, claim solutions, cost mitigation, claim resolution, insurance coverageresolution, insurance coverage
Consultation Prior to Disciplinary Action
Best Practices – Ideal Best Practices – Ideal
Written job descriptions detail Written job descriptions detail essential functions & skills requiredessential functions & skills required
How have you treated others in How have you treated others in similar situations? Consistency is similar situations? Consistency is keykey
Consult with others before you actConsult with others before you act
Document, document, documentDocument, document, document
Consistency in Firing/Demotions
Best Practices – Ideal Best Practices – Ideal
Medical information is maintained in Medical information is maintained in separate, confidential files with separate, confidential files with restricted accessrestricted access
ADAADA
HIPAAHIPAA
Protection of electronic data!Protection of electronic data!
Maintain Strict Confidentiality of Medical Records
Best Practices – Ideal Best Practices – Ideal
Anonymous reporting of any Anonymous reporting of any suspected wrongdoingsuspected wrongdoing
Tips can lead to early Tips can lead to early interventionintervention
The benefits of “venting”The benefits of “venting” Requires excellent follow-through Requires excellent follow-through
& strong management support& strong management support
Anonymous Reporting Hotline
Best Practices – Ideal Best Practices – Ideal
Check the exclusions! (see John’s Check the exclusions! (see John’s list)list)
Coverage to request (see John’s Coverage to request (see John’s list)list)
Purchase the limits you really need Purchase the limits you really need & don’t rely on state tort limits& don’t rely on state tort limits
What services can the insurer What services can the insurer provide?provide?
Purchase Appropriate Insurance
Best Practices – Post LossBest Practices – Post Loss
Respond immediately; be consistentRespond immediately; be consistent Get legal and risk management Get legal and risk management
advice early and throughout the life advice early and throughout the life of claim – consider alternativesof claim – consider alternatives
Assess the costs (not just $$)Assess the costs (not just $$) What’s the exposure, what’s the What’s the exposure, what’s the
settlement value?settlement value? Fight the good fights – think Fight the good fights – think
“precedent”“precedent”
Best Practices – Post LossBest Practices – Post Loss
Assess defense counsel, plaintiff’s Assess defense counsel, plaintiff’s counsel, court venue & judgecounsel, court venue & judge
Budget & control legal expenses Budget & control legal expenses Work as a team with defense counsel, Work as a team with defense counsel,
the insured, defendant & insurerthe insured, defendant & insurer Use ADR and mediation when you canUse ADR and mediation when you can Manage the media; speak with one Manage the media; speak with one
voicevoice
Best Practices – Post-LossBest Practices – Post-Loss
What have we learned from this? What have we learned from this? What improvements can we make What improvements can we make to prevent future claims or handle to prevent future claims or handle claims more effectively?claims more effectively?
Are there any training issues that Are there any training issues that result from lessons learned?result from lessons learned?
ResourcesResources
EEOC and DOL web sitesEEOC and DOL web sites
Your insurerYour insurer
Local law firmsLocal law firms
Successes in other states…Successes in other states…
Best Practices – Real LifeBest Practices – Real Life
State of New MexicoState of New Mexico State of LouisianaState of Louisiana State of NebraskaState of Nebraska And others… ?And others… ?
John Ergastolo – Arthur J. Gallagher & Co.John Ergastolo – Arthur J. Gallagher & Co.
Questions?
John [email protected]
312.803.7426
Dorothy [email protected]
952.918.3951