Posted on 27 Jul 04
More than one in four (26%) privately held companies has faced litigation by an employee or former employee in the past few years, according to a nationwide survey sponsored by the Chubb Group of Insurance Companies.
The Chubb 2004 Private Company Risk Survey found that executives at 44% of the firms surveyed say it's likely that an employee will sue them, their board members, and/or their company this year. One in two respondents (50%) expect their company to face a discrimination complaint lodged with federal or state authorities.
More than half the respondents estimated that it would cost more than $100,000 to settle an employment discrimination or harassment lawsuit; ten percent said it would cost at least $1 million. "Executives at many private companies realize that they're vulnerable to lawsuits from employees and former employees," says Lisa McGee, Chubb & Son Private Company Customer Group manager. "They are concerned, and rightly so, about the cost to defend against these lawsuits and the potential losses."
According to the survey, private companies are also concerned about lawsuits from retired employees. Nearly one in four respondents believe that a retiree will sue the company, its directors and officers, and/or its benefits plan administrators, and fiduciaries this year. The Employee Retirement Income Security Act of 1974 (ERISA) makes fiduciaries personally liable for losses to benefit plans incurred as a result of their breach of duties. The most frequent charges against fiduciaries include denial or change of benefits, administrative error, incorrect benefit calculation, improper advice or counsel, misleading representation, and wrongful termination of a plan.
The study found that many private companies are taking steps to lower their risks and reduce potential losses. Forty percent of the companies surveyed bought Employment Practices Liability insurance (EPLI), while 24% purchased Fiduciary Liability insurance. In addition, 72% of companies surveyed have written policies banning employment discrimination and sexual harassment, and 52% offer employment discrimination and/or sexual harassment training.
Impulse Research Corp (Los Angeles) conducted the survey, interviewing the CEO, CFO, and other top managers of 300 privately held companies. To learn more, go to www.chubb/news/pr20040525.html.
EMPLOYMENT PRACTICES LIABILITY JURY AWARDS: UP, UP, AND AWAY!
If the preceding information wasn’t enough to encourage buying EPLI, consider this: The national median compensatory jury-award median for employment-practice liability cases (which include discrimination and wrongful termination claims) rose 18% in 2003 to $250,000! The median compensatory award for discrimination cases (which involve age, race, disability, or sex discrimination) during the same period fell 2% to $232,322.
According to Employment Practice Liability: Jury Award Trends and Statistics 2004 Edition, a report by Jury Verdict Research (JVR), the median jury award for employment-practice cases has increased significantly during the past two reporting years. What's more, age discrimination and disability discrimination plaintiffs received the most compensation from juries over the seven-year period studied. JVR maintains a nationwide database of more than 239,000 plaintiff and defense verdicts, and settlements.
More employers are waking up to the need for EPLI. Although there's no such thing as eliminating all risks, it's wise to at least keep them under control. Fortunately, unlike many other insurance policies, the cost of EPLI is holding fairly steady.
Hardest hit are businesses with existing losses or reductions in force. Insurance companies are trying to keep the product profitable and affordable by increasing retentions (usually