The nomination of Judge Clarence Thomas to the U.S. Supreme Court stands out as one of the most memorable scenes of 1991.
A resolute man, accused of sexual harassment, sitting before the Senate panel empowered with the task of reviewing the president’s nominee for the highest court in the land. is an image indelibly ingrained on the American psyche.
But for all the decisions Thomas will make on the bench, it’s that nomination legacy that may have a far more powerful and long-lasting influence on society.
According to USX/S Insurance Broker Dave Stahl, the Thomas hearing is the line of demarcation. It focused the nation’s attention on the subject of sexual discrimination. Since then, the number of lawsuits has gone up dramatically, Stahl says. A clause in your handbook offers some protection against a lawsuit, but even if your company has done nothing wrong, it can be costly just to defend yourself.
That is where employment practice liability insurance can help.
“In today’s society, people can and will sue you at the drop of a hat,” says Karen Melton, vice president of finance at Kaufman Container.
To protect themselves, many company owners have purchased employment practice liability insurance to go with their business interruption and disaster insurance. The policy offers protection in the areas of employment discrimination, wrongful termination and sexual harassment.
According to Stahl, a broker with USX/S, which sells EPLI, employer defendants lose 60 percent of the cases that go to litigation. The median cost of an adverse employer’s verdict is more than $167,000, and the average cost of a trial is $450,000. EPLI will cover everything except the deductible.
That is just what happened to Kaufman Container. A woman was fired and offered severance pay. Instead, she sued the company for sexual discrimination and wrongful discharge. The case went to court, and after two days of trial, the two sides came to an agreement.
Melton says she wanted to continue with the case so that the company would be exonerated legally, but realizing that would likely cost more in legal fees than the settlement offer, the company agreed to settle.
That is one of the main reasons to have EPLI insurance, Melton says.
“Our main concern was because of the way that legal fees are going, we (needed) something that would defray those costs,” she says. “Our philosophy is we’re not doing anything wrong, so hopefully we would never have to pay out. But we may have to defend ourselves in something.”
Stahl puts it more bluntly: “No matter how good your practices are concerning your relationship with your employees, no matter whether you do everything right, there are people looking in this society to pull cash out of any cash cow that they can find.”
Deductibles generally range from $2,500 to $5,000, depending on the size of the company, Stahl says. For $1 million in coverage, Kaufman pays a $7,000 premium with a $5,000 deductible.
“It’s worth every penny of it,” Melton says. “In this day and age, $5,000 in legal fees is about two phone calls.”
That is what EPLI insurance was designed to cover. If a company is found guilty, any punitive damage payments are not covered — only the legal fees. There are also several exclusions. Policies generally do not cover claims filed under the Fair Labor Standards Act, OSHA, Employee Retirement Income Security Act, National Labor Relations Act, Social Security disability insurance claims or workers’ compensation
“We felt that the premiums were not exorbitant and that it was a good use of our funds to protect ourselves from potential liability and help cover, or at least defray, some of the legal expenses that we would incur if we were sued by a former employee,” Melton says.
In the case of the former employee who sued Kaufman, Melton says the company was able to recover about $70,000 in legal fees, although the total bill was closer to twice that. It has more coverage now than it did at the time of the suit.
While lawsuits have become more pervasive than they once were, only a minority of companies has EPL insurance. According to a study by the Employers Resource Council, about 30 percent of Cleveland area businesses have EPLI; of those companies, 31 percent have been sued by an employee within the past two years.
Kaufman first bought EPL insurance about 10 years ago, Melton says, around the time of the Clarence Thomas hearings, when sexual harassment lawsuits became more common. The very first EPLI came from London in the late 1980s.
“I still think it’s a good use of your money,” Melton says. “In today’s society, even if you don’t get sued, if they file a claim with the EEOC, you need an attorney to respond to that for you if you want to make sure that it’s done correctly. And this insurance will cover that also.
“Whether it’s true or not, just the cost of trying to defend your business against something that didn’t happen can literally ruin you. I’d rather be safe than sorry.”
How to reach: Kaufman Container, (440) 351-9463; USX/S, (440) 888-7300
Daniel G. Jacobs ([email protected]) is senior editor of SBN.