Author: Emily Loupee
The COVID-19 pandemic has altered whether and how many people work. Employment Practices Liability Insurance (EPLI), which covers claims brought by employees against their employer for wrongful employment practices, has been impacted by widespread organization closures, employee layoffs and furloughs, new remote workforces and other changes. Many months after restrictions were put into place in the U.S. due to COVID-19, much of the impact has yet to be realized. But there has been an increased number of EPLI claims, and there is an expectation of further increases as disruption continues. Additionally, the $600 per week unemployment supplement under the CARES Act expired on July 31, 2020, unless renewed or changed. With unemployment rates at historic highs, EPLI claims and litigation may increase.
COVID-19 insurance claims trends
Claims trends related to COVID-19 include allegations of employee discrimination in the layoff and rehiring selection process, as well as retaliation. These trends could include increases in claims alleging violations of the federal Worker Adjustment and Retraining Notification (WARN) Act and equivalent state laws which require advance notice in cases of qualified plant closing and mass layoffs. However, most EPLI policies exclude coverage for these types of claims.
- The WARN Act allows for the waiver of the required 60-day notice in “unforeseeable business circumstances,” and indicates that COVID-19 may fall into this category depending on a company’s specific situation, though reasonable advanced notice is still required.
The Equal Employment Opportunity Commission (EEOC) has provided guidance on employment practices on its website, including guidance for employers on their compliance with laws like the Americans with Disabilities Act (ADA) and the Rehabilitation Act during COVID-19.
- The EEOC generally recommends complying with the Centers for Disease Control (CDC) guidelines and recognizes that changes to these guidelines may lead to compliance challenges.
- These challenges, along with the inherent difficulties in keeping up with various public directives, could lead to increased insurance claims and litigation.
An additional concern is that certain COVID-19-related insurance claims may not be covered under a standard EPLI policy.
- Data from the Occupational Safety and Health Administration (OSHA) enforcement website shows to date there have been 7,385 federal complaints and 19,552 state complaints relating to COVID-19. These may include implementing social distancing rules and wearing protective gear.
- An employee may bring allegations as a whistleblower, which may be investigated by state departments of labor to determine whether the state or local stay-at-home order was violated.
- It is unclear whether such allegations are covered under an EPLI policy, which generally only cover specific employment-related allegations. Although the investigation or whistleblower suit may not be covered, any related allegations of retaliation, wrongful termination or discrimination would likely trigger EPLI coverage.
Reporting claims and notices of circumstances requires a review of the specific policy requirements. While most policies allow for the reporting of notices of circumstances that may give rise to a future claim, they typically specify various information that must be included. Furthermore, the events giving rise to an anticipated claim must have already occurred. You should review and discuss the terms and conditions of your policies and the facts relating to potential claims with your insurer and broker when deciding whether and how to report a claim or notice of circumstance.
Other factors impacting the marketplace
The impact of COVID-19 is in addition to existing trends of increased claims frequency and severity. Based on our experience in the marketplace and conversations with carriers, these trends include:
- The #metoo and #timesup movements which have resulted in more allegations of sexual harassment, gender discrimination and equal pay violations.
- Biometric screening and other privacy laws in Illinois, California and other regions.
- The Supreme Court’s recent decision recognizing a broader application of Title VII gender discrimination in the workplace.
- Social inflation, which describes changes in sentiment affecting litigants and juries alike, contributes to increased litigation and settlement costs.
- The Black Lives Matter movement is expected to lead to increases in racial discrimination claims, allegations that companies are not prioritizing diversity, challenges to corporate policies and practices, and/or increased scrutiny on the behavior of executives.
The outcomes and impact of these trends are dynamic and may include:
- Increased losses, which may force insurers to raise insurance premiums, increase deductibles/retentions, offer lower limits and/or restrict coverage terms
- Some insurers opting to leave the market in select jurisdictions or entirely, which could lead to less competitive pricing.
- Premium increases by 10-20% for companies with little or no claims history, and few or no layoffs or furloughs. However, companies that have been significantly impacted and/or have past paid claims may experience premium increases in the range of 15-40% or higher, depending on the specifics.
- Future increases may hasten as conditions continue. We’re generally seeing higher deductibles/ retentions all across the country, with a typical $250,000 minimum for companies in higher risk states like California, New York, Texas, Michigan and Florida. Most insurers are offering only $5 million in limit capacity, though excess capacity remains abundant and is more competitive than primary coverage.
The increasing need for EPLI
Although a significant level of uncertainty exists, it is clear that the changes brought on by COVID-19, the Black Lives Matter and #metoo movements, social inflation and other social and environmental events will continue to impact the quantity and magnitude of EPLI claims, and the availability and cost for coverage. Despite this challenging environment, we are not seeing many companies transfer this risk via an EPLI policy.
It is more critical than ever to explore this option as part of your renewal strategy. In the middle of 2020, insurance coverage remains widely available and, depending on your organization’s appetite for risk, the premium may still be low enough to validate the risk transfer. We anticipate that increases in future claims litigation may result in further premium increases and restrictions in capacity for the remainder of 2020 and into 2021. It continues to be imperative that you work with an experienced insurance broker that specializes in EPLI in order to obtain the most effective insurance coverage during a challenging time.
Please contact your local Gallagher Management Liability specialist for more information.