This scenario is fictitious but could become real for many employers, following massive protests against racial injustice and police brutality that, in numerous cities, were accompanied by rioting and violence. Employers, already struggling to reopen from the nationwide lockdown during the pandemic, face an even more painful recovery after weeks of riots across America. If employers discover some employees engaged in violence and looting, they may wonder if they can discipline those employees and worry about inviting liability if they do. What’s more, the marketplace for employment practices liability insurance is continuing to tighten.

Beginning May 26, hundreds of thousands of people participated in protests in 750 towns and cities across the United States. The event that triggered the protests was the May 25 killing of George Floyd during a police arrest in Minneapolis. In the ensuing days, Atlanta, Chicago, Los Angeles, Minneapolis, New York and other major cities, riots broke out. Mayors imposed curfews and more than two dozen states activated the National Guard. In the first week of the protests, more than 4,100 people were arrested.

Businesses of all sizes are exposed to lawsuits, and in the current environment, employment practices represent a major exposure. Employment practices liability (EPL) insurance exists to protect organizations from first-party and third-party claims of discrimination, and one of the most valuable features of EPL policies is defense cost coverage.

“Employers need to know that there is a difference between protected speech and actions that violate the law,” said Kunal Shah, Of Counsel at Wilson Elser Moskowitz Edelman & Dicker LLP in Dallas. “They should not automatically terminate employees for expressing their opinions on protests and race issues, but they can terminate if there is a clear indication an employee is breaking the law, looting, committing crimes or adopting or promoting discrimination because that reflects poorly on their employer.”

“Employers should be concerned about escalation of tensions in the workplace. Race discrimination is historically the No. 1 most filed charge with the Equal Employment Opportunity Commission (EEOC),” he said. “A lot of people are out of work and angry; these conditions often bring racial tensions to the surface.”

Shah said the pandemic has caused a backlog in EEOC claims, and he expects to see “an influx of employment discrimination claims hit later in the year, perhaps around December.” “Even though anyone can file a lawsuit, not all claims are meritorious. Employers have multiple defenses to EPL claims like a history of employee training on human resources issues, and having robust policies in place,” he said. On the other hand, “it’s tough for a plaintiff to prove discrimination if the evidence warranting termination has gone viral.” Some employers have terminated employees for social media posts and other actions that reflect badly on the organization or that go against the employer’s core values, Shah added.

“Employers should use a case-by-case approach when evaluating offenses that trigger disciplinary action,” he advised. “A thorough investigation and collecting documentation are critical anytime an employer imposes disciplinary measures up to and including termination.”

EPL MARKETPLACE TIGHTENING

The liability insurance marketplace began hardening well before the pandemic and recent riots. Retail agents and their insureds can expect to see continued tightening, especially in EPL coverage. As the pandemic took hold, many EPL insurers added exclusions for COVID-19-related claims, as well as for layoffs and reductions in force.

The pandemic recovery, as well as the protests and riots, are likely to lead to increased claims as employers rehire or lay off workers and claimants become more attuned to business decisions affecting the workforce. An uptick in employment practices liability claims occurred after the #MeToo movement raised awareness of sexual harassment.

Other developments in the EPL market include:

• Capacity restrictions. In the past, an insurer offering a $1 million EPL quote often would provide quotes for an additional $2 million or $3 million. More recently, EPL insurers have been reducing their offered limits, sometimes by as much as 50%.
• Tighter terms and conditions. With uncertainty increasing, more EPL insurers are insisting on higher deductibles or self-insured retentions, regardless of class of business. Insurers are also adding COVID-19 related exclusions.
• Reduced availability for new accounts. Renewal accounts may face higher rates, but it is becoming more challenging for new accounts to obtain EPL coverage. The coverage is available, though it generally requires discussions `with more markets than before.
• Requests for more financial information. Insurers are seeking more financial data during the underwriting process than before. Financial distress is considered a strong indicator of potential claims.

Despite the tightening marketplace, EPL products generally offer risk management tools to help insureds implement policies and procedures that mitigate exposure to lawsuits. Such tools may be more important than ever, to reduce risk and maximize coverage.

TRENDS IN BIAS CLAIMS

Title VII of the Civil Rights Act of 1964 prohibits discrimination on the basis of race or color, among other factors. The EEOC, which enforces the law, gathers data on charges relating to workplace discrimination. According to the EEOC, Title VII “forbids discrimination when it comes to any aspect of employment, including hiring, firing, pay, job assignments, promotions, layoff, fringe benefits, and any other term or condition of employment.”

EEOC data show that in its past five fiscal years, charges relating to racial discrimination have decreased somewhat, while those charging discrimination on the basis of color have increased. While related, race and color discrimination are distinct. Race discrimination involves treating a job applicant or employee unfavorably because they belong to a race or have personal characteristics associated with race. Color discrimination involves treating a person unfavorably because of his or her skin color. The EEOC notes that some charges of color discrimination can involve unfavorable treatment because a person is married to or associated with a person of a certain race or color.²

In fiscal 2019, race discrimination and sex discrimination were the most frequently filed charges under Title VII, according to the EEOC. Some charges are concurrently filed under other statutes, such as the Age Discrimination in Employment Act (ADEA), Equal Pay Act, and The Americans with Disabilities Act (ADA).

BOTTOM LINE

Employment practices liability insurance remains a valuable form of coverage for employers. With more discrimination claims likely from the pandemic and protests, retailers and insureds should explore ways to mitigate EPL exposures and maximize available coverage to defend against claims. Whether an insured is seeking stand- alone EPL insurance for the first time or has bought the coverage for years, a wholesale specialist is an important partner in finding the best options available. Contact your CRC Group producer for more information.

Contributor

• Brian Martin is a Broker in CRC’s Dallas office and member of the ExecPro Practice.

ABOUT WILSON ELSER MOSKOWITZ EDELMAN & DICKER LLP

Wilson Elser helps individuals and organizations transcend challenges and realize goals by offering an optimal balance of legal excellence and bottom-line value.

More than 800 attorneys strong, the firm serves clients of all sizes, across multiple industries and around the world. Wilson Elser has 38 strategically located offices in the United States and another in London. This depth and scale has made them one of the nation’s most influential law firms, ranked in the Am Law 200 and top 56 in the National Law Journal 500.

Since their founding in 1978, Wilson Elser has forged a reputation as a formidable player in insurance coverage and defense. Their experience in this tightly regulated, cost-conscious industry has shaped a firm culture of accomplished professionalism and cost efficiency that delivers demonstrable value to clients.

ENDNOTES

1. “List of George Floyd protests in the United States,” Wikipedia; https://en.wikipedia.org/wiki/List_of_George_Floyd_protests_in_the_United_States
2. “Facts about Race/Color Discrimination,” U.S. Equal Employment Opportunity Commission; https://www.eeoc.gov/laws/guidance/facts-about-racecolor-discrimination