(August 2019)
Emotions run high with employment-related practices liability (ERPL) claims which can make the financial stakes significant. The goal of an ERPL underwriter is to select applicants that want to reduce or eliminate claims’ frequency and severity in order to have a steady and productive workforce.
The application for ERPL is an integral part of the underwriting process. Many insurers incorporate applications as part of their policies. Because it may be part of the contract between the insured and insurer, accuracy is crucial.
A careful review of the loss history and claims experience of the employer is imperative. Past losses and trends are critical in determining acceptability, pricing, and what loss control procedures need to be implemented in order to mitigate future claims. The type of claims, the number of claims, and the dollar-amount of those claims in an employer's past are all important factors in the evaluation/underwriting process.
The following are some circumstances that should raise serious concerns with underwriting ERPL coverage.
· Employers that lack a written sexual harassment policy that has been communicated to all employees.
· Risks that make frequent acquisitions because they often are dealing with restructuring their workforce via layoffs, demotions, and job transfers.
· Decentralized risks because there can be a lack of control which can result in little or no consistency in procedures and implementation.
· Risks with a low percentage of women in their general workforce and/or in management.
· Risks with a low percentage of minorities or protected individuals in their general workforce and/or in management.
· Employers that do not perform serious audits or similar assessments. An employer must be prepared to evaluate their situation and to take rapid action to handle and problems that arise.
· Risks that do not have any experience or training in handling ERPL complaints and claims.
· Risks that use insurance to settle meritless claims because they are considered too costly to fight. This often encourages similar claims.
Underwriting must carefully evaluate the applicant’s ERPL procedures. The following aspects are very important to consider:
The employer should provide its workers with a written statement that explains the offenses and practices that are not considered acceptable. Written procedures should be distributed to employees, preferably via employee handbooks. Employers should thoroughly explain the steps necessary for handling complaints. It should also explain the penalties and/or actions associated with any offense or violation.
The world's best-written procedures are worthless unless they are implemented. An employer must make sure that the procedure is understood and carried out by all levels of management and supervision. Implementation is facilitated by securing the understanding and support of all of an organization's managers and supervisors. Training can be used to cultivate understanding and support, but an employer may have to resort to the use of penalties for non-compliance with procedures.
An equally important part of any procedure is its enforcement. Without enforcement, there is nothing to deter unacceptable behavior. Unfortunately, most individuals do not change their behavior patterns unless there is some external pressure to do so. Penalties for non-compliance must be clearly stated, supported, and enforced.
A detailed process must be developed and be in effect for handling ERPL allegations. Employees with complaints must be assured that their complaint will be fairly investigated and that if the complaint is valid, it will be resolved. Employees who believe they were taken seriously and treated fairly are likely to be satisfied with the results of filing an internal complaint.
Does the employer train its employees regarding acceptable workplace behavior? Is this training ongoing? Who is required to attend training sessions? Training should involve all employees (no exceptions) and should also involve follow-up to reinforce the desired behavior. Employers that provide such training may be more successful in preventing offenses from occurring.
Human Resource Audits, often conducted by human resource personnel, legal counsel, or outside consultants, are to determine if a company's procedures have been communicated to all employees and implemented accordingly. They can be used to determine the level of managerial support and to evaluate if the procedures are effective. A human resources audit will only be successful if the results are communicated to senior management and corrective actions are implemented. The monitoring process should be on-going.
Human resources audits can be expensive for smaller employers. Small businesses may depend on one or two employees to handle human resources tasks (usually along with other duties). For small businesses, there are software and procedure manuals they may purchase to assist in performing such an audit.
IMPORTANT: Unless the audit is conducted by legal counsel (qualifying as privileged information), resultant findings may be “discoverable” or used as evidence in lawsuits filed against the employer. Once an audit has been conducted and the results are shared with senior management, any necessary corrective action must be taken immediately.
A sound claims-handling process is
also critically important. An act that may result in a claim needs to be
reported to the insurer. Any actual claim needs to be reported immediately to
the insurer. A documented procedure for claims handling must exist and be
properly used. The use of alternative dispute resolution should always be
considered.
This method of handling disputes has become more popular in recent years and is a viable alternative to litigation. Claims can be handled quicker. The results are not open to public scrutiny. ADR is often more cost effective; ADR costs are usually less than legal fees and punitive awards can often be avoided.
The work environment is vital. If all employees feel safe and valued, productivity will be high and turnover low producing a win-win situation for the applicant and the ERPL underwriter. Some key techniques an employer can use to improve its work environment include:
Train management and supervisory staff on ERPL issues and offenses. Training should include discussing what causes ERPL losses and how to prevent them. Employers must understand the laws relevant to ERPL offenses and make management and supervisory employees aware of those laws.
An open-door policy may also be a successful strategy. If employees know that they have easy access to management and that they will be assisted with problems and concerns, they will be more open to quickly resolve complaints.
Employers must have a written statement about their work environment. The statement must be shared with employees. Further, employees should be provided a clear set of procedures for dealing with any work-related problems.
Alternative dispute resolution (ADR) is an effective method for dealing with various disagreements. ADR is a tool that needs to be stressed to employers. The proper, frequent use of ADR may reduce the number and dollar-amount of losses. Defense expenses are a major cost component in employment practices litigation, making it critical to use ADR to prevent lawsuits.
Related Article: Alternative Dispute Resolution - Mediation
An employer may consider either having an outside party or its own staff perform regular audits of its employment practices. An assessment of such activities may identify problem areas that need correction as well as enhance current practices. Such audits may include reviews of employee work classifications, adherence to relevant employment laws, adequacy of training, procedures, applications, recruitment and exit interviews, etc.