Research Says Small, Mid-Size Businesses Ignore EPL Risk

Research commissioned by specialist insurer Beazley (BEZ.L) among leading brokers of employment practices liability (EPL) insurance has identified a misplaced optimism among many small and mid-sized U.S. businesses about the scale of the risk presented by EPL claims.

Brokers reported that many of their clients continue to adopt an attitude of “it will never happen to me,” despite clear evidence that the severity of EPL claims is on the rise.

According to the latest figures from Jury Verdict Research, published in November 2005, median compensatory jury awards for EPL suits have been rising by an average of almost 5 percent per annum, from $164,200 in 1998 to $218,133 by 2004. One driver of the trend has been the increasingly aggressive approach adopted by the U.S. Equal Employment Opportunity Commission (EEOC), which reported that it obtained an unprecedented $168.1 million in monetary relief through litigation in 2004.

Part of the reason for the lack of concern on the part of small and mid-sized businesses, according to brokers, is the media bias toward reporting only multi-million dollar awards against Fortune 500 corporations. This reinforces a widespread impression that EPL claims are primarily a big company problem.

“Nothing could be further from the truth,” said Carrie Brodzinski, EPL product manager for Beazley in the United States. “The largest number of EPL settlements fall into the $100,000 to $250,000 dollar range. These are not multinational corporations defending massive class action lawsuits. They are mainstream businesses, often employing only a few hundred people.”

Service and retail firms have been the target of EPL litigation more often than any other category of firm since 1998, according to Jury Verdict Research. But although these actions outnumbered those against manufacturing and industrial companies by more than three to one, the level of median awards against manufacturing and industrial companies was far higher, at $250,000 compared with $137,853 for service and retail companies.

Another strong message coming out of Beazley’s research among brokers is that many clients wish to use their own lawyers to defend them against EPL claims. Insurers have historically been reluctant to do this, insisting that their policyholders select defense counsel from a panel assembled by the insurer.

Beazley, an underwriter of EPL insurance for U.S. businesses in the Lloyd’s market, recently launched a policy underwritten locally in the U.S. and available on an admitted basis for businesses with up to 10,000 employees.

Under the policy, specific consideration will be given to the insured’s choice of counsel. The policy offers coverage for the full array of employment related claims including violation of the Family and Medical Leave Act.