Employment bias insurance gaining popularity

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By Lisa Keen
Dolan Media Newswires

Insurance carriers are becoming frequent players in employment discrimination lawsuits thanks to something known as EPLI.

Employment Practices Liability Insurance allows employers to extend their coverage beyond that available under comprehensive general liability policies. While CGL typically protects against only accidental incidents resulting in bodily injury, EPLI is specifically crafted to insure against lawsuits alleging unfair employment practices, such as discrimination, harassment, wrongful discharge, and failure to hire or promote.

Demand for the insurance has grown “rapidly” since a spate of employment-related cases following the passage of the Americans with Disabilities Act of 1990 and the Civil Rights Act of 1991, according to the Insurance Information Institute.

With the growing presence of EPLI in employment bias suits, insurance companies are exerting increased control over the process, dictating what expenses can be incurred as part of the defense, deciding how long to draw out the litigation, and even substituting their own lawyers to represent the employers, practitioners say.

But the presence of an EPLI policy can also mean a discrimination suit is more likely to be paid, produce a larger award for clients, and take the emotional heat out of a conflict, say attorneys.

Crush of complaints

Former Massachusetts Employment Lawyers Association President Elizabeth A. Rodgers said she noticed an increase in employment cases involving EPLI coverage following an “explosion” in discrimination suits related to the economic nosedive in 2008. That downturn resulted in layoffs that hit protected groups especially hard.

At the same time, large jury verdicts for retaliation were being upheld by the courts, and the U.S. Supreme Court issued several employee-friendly decisions in discrimination cases, making summary judgment more difficult and defense more costly, said Rodgers, who recently participated in an American Bar Association webinar on the impact of EPLI on employment claims.

Paul Holtzman of Krokidas & Bluestein in Boston said he, too, has “definitely” seen an increase in bias cases involving EPLI coverage in the past decade.

Data from the Risk Insurance Management Society backs up Holtzman’s observation: 41 percent of consumer companies had EPLI in 2006, compared to 55 percent in 2011. While 36 percent of information technology companies were covered in 2006, that number jumped to 43 percent in 2011. For health care companies, meanwhile, 19 percent had EPLI coverage in 2006, compared to 37 percent in 2011.

Holtzman, who has written about the availability of insurance coverage for employment claims for an MCLE publication, said while only large companies could afford EPLI in the early 1990s, today small and mid-sized employers are able to purchase policies, which dramatically dropped in cost between 2004 and 2010.

Pluses, minuses

Employment attorneys say EPLI impacts both plaintiffs and defendants.

Plaintiffs’ lawyers say the fact that an employer has EPLI coverage means employees are more likely to win a financial award and recover attorneys’ fees. EPLI typically pays for an insured company’s legal fees, as well as most judgments and settlements.

But defense attorneys note that EPLI also protects the employer.

“On one hand, the other side might think there’s a deep pocket and will try for a big settlement,” said Catherine E. Reuben of Hirsch, Roberts, Weinstein in Boston. “But the existence of insurance can also send a message that [the employer] is not worried about legal fees and won’t settle just because of legal fees.”

Attorneys on both sides say the involvement of a dispassionate insurance adjuster can both speed a complaint toward settlement and slow down litigation.

“You’re not only dealing with the defendant, but also an adjuster, and it’s time-consuming,” said Boston lawyer Denise I. Murphy, past chair of the Massachusetts Bar Association’s Labor and Employment Section. “You need consensus from that third party who is not involved in the facts or in the ongoing business. And the time spent educating the insurance company is not billable time — or, at least, time for which the insurance companies will pay.”

“It’s frustrating,” added Murphy, a lawyer at Rubin & Rudman.

Katherine J. Michon, who co-chairs the Boston Bar Association’s Labor and Employment Section, said insurance companies can further slow the settlement process because they are paying their attorneys at a lower rate and it is easier to drag out the process without incurring substantial fees.

Reuben, who defends employers in discrimination suits, including those with EPLI insurance, said she is familiar with the stereotype that insurance companies seek to settle rather than fight a case.

But Reuben said her firm has found some insurance companies do not take that approach.

“They’re willing to take it all the way, if it’s warranted,” Reuben said. “It really depends on the carrier.”

Mediator Mark L. Irvings of Brookline said the presence of EPLI insurance can promote more “objective analysis” of a dispute, which can speed resolution.

Irvings said he has seen insurance companies dictate to their lawyers before a mediation involving an EPLI-covered employer that they want the matter settled under a certain amount.

And frequently the insurer will send an adjuster to mediation with a specific agenda — “like trying to advance the position that front pay is an equitable remedy and therefore not covered by the insurance policy” — which can lead to the employer hiring coverage counsel to “facilitate coverage and, hence, a settlement,” Irvings said.

The fine print

As with any employment discrimination suit, a defendant may want to stem the tide of a particular group of bias claims by digging in its heels and prolonging discovery, forcing the plaintiff to incur a growing mound of legal fees and expenses.

But when it comes to making a decision to settle, the insurance company’s interest is not always in cue with that of the employer because carriers look at the litigation from a purely business perspective.

“The insured company is looking at how much time is being taken away from its core business and how the litigation affects their reputation and morale in workplace. The insurance company doesn’t care about that; just what’s the cost of this particular case,” Irvings said.

Bronwyn L. Roberts, who practices at Duane Morris in Boston, said many policies include a “hammer clause” that requires an insured that “unreasonably” stonewalls a settlement to pay a judgment above the amount at which the insurer initially wanted to settle.

That reality on the defense side can mean frustration for plaintiffs.

“Plaintiffs face opposing counsel who often will not, or cannot, offer settlements which would have been considered reasonable [years ago],” said Rodgers, a lawyer at Rodgers, Powers & Schwartz in Boston.

Plaintiffs’ attorneys also face another frustration with EPLI coverage: wading through the fine print of an employer’s EPLI policy to determine what it covers and what it excludes.

Most EPLI policies, Rodgers said, exclude coverage for sexual misconduct, ERISA claims and punitive damages, for instance.

“Looking through several hundred pages of dense text in an insurance policy is off-putting and something not many attorneys are familiar with,” Holtzman said. “But it’s worth the effort to dig into these policies and worth the effort to make an independent assessment of whether coverage exists. Insurance carriers will often deny coverage at first blush, but with meaningful inquiry and some reasoned argument, it is often possible to change that outcome and obtain coverage despite initial denial.”

Others point out the snags that can occur when insurers are not familiar with Massachusetts law.

“Most are not from Massachusetts and they don’t understand that our MCAD has full adjudicatory power — that it can and will have full trials,” Murphy said. “Most state [human rights] agencies don’t. Most refer cases to the attorney general for prosecution. With the MCAD, you can appeal to the Superior Court, but you don’t get a new trial. So if there’s a trial at the MCAD, it’s a full trial and there can be monetary and injunctive relief. Trying to convince insurance attorneys who don’t practice here that that’s true is very difficult.”

Defense attorneys, meanwhile, have their own issues.

“It takes some getting used to the fact that a lawyer essentially has two clients who may differ as to strategy: the carrier and the defendant employer,” Roberts said.