Employment Practices Liability in 2002 Escalating Exposures

1
Employment Practices Liability in
2002Escalating Exposures

• Who is in the gun sights of the Plaintiffs bar?

2
Overview

• Evolution of coverage and climate since 1992
• Class action complaints continue to rise
• Plaintiffs bar experiment with new extortion
  tactics
• EEOC OFCCP continue aggressive stance
• Layoffs are at a record pace
• EPLI insurers must react

3
Evolution of EPLI Coverage

• 1992 stand alone EPLI coverage created
• On year earlier Congress amended Title VII
  impacts
• Contrast in plaintiff bar stance on EPL in 2002
  vs 1992
• What have these changes meant for Employers Loss
  experience in the employment arena?

4
What Is the Basis of the Discrimination?

• Majority of our class action complaints allege
  discrimination based on race
• Next category is gender
• Age discrimination allegations are common in
  outsourcing and downsizing claims

5
What Is Alleged?

• A pattern practice of discrimination in
• Hiring
• Wrongful terminations
• Glass ceiling or promotions
• Job assignments
• Training opportunities
• Compensation or pay

6
Who Are Some of the Key Players in the
Plaintiffs Bar?

• Saperstein Goldstein Demchak Baller
• Mehri Skalet
• Gordon, Silberman, Wiggins Childs
• Leiff Cabraser Heimann Bernstein
• Sprenger Lang
• Johnnie Cochran
• Leeds, Morelli Brown
• Willie Gary

7
Emerging or Current Tactics

• Class action cases
• Traditional high profile litigation seeking
  settlements for big dollars gt Saperstein, Gordon
  Silberman, Sprenger Lang
• Social reform
• Litigation trend against high profile defendants
  to set an example and change behavior gt Cyrus
  Mehri
• Multiple Claimant or Mass actions
• Group based litigation gt Leeds, Morelli Willie
  Gary

8
Emerging or Current Tactics

• Multiple claimant or mass actions
• Represent a group of 30 - 100 claimants all in
  the same protected class
• They have various discrimination impacts
• Threaten high publicity litigation on a class or
  individual basis
• Offer to settle out with the group via a
  negotiated process to air each individuals
  complaints
• Offer to make a positive statement about the
  employer

9
How Do the Employers React?

• Class actions we will fight, we dont
  discriminate, ultimately most settle
• Social Reform Cyrus Mehri does his homework.
  Most will settle for big dollars and will enact
  ongoing training, monitoring and oversight
• Mass actions Most opt to settle under the heat
  of the negative publicity

10
What Is New at the EEOC?

• New EEOC Chairperson Cari M. Dominguez
• Pulling back litigation authority from their
  field offices Litigation as last line of
  defense
• More mediation, settlement and conciliation with
  employers as opposed to litigation
• Still aggressively pursuing discrimination in the
  workplace, but focused on prevention
• OFCCP audits aggressively target compensation
  issues

11
Current Economic Impacts

• Significant merger acquisition activity, which
  often results in layoffs
• Expense driven downsizing and outsourcing
• Displaced workers looking for evidence of adverse
  discriminatory impacts
• We expect a possible surge in age and race
  discrimination claims

12
New Evidence of Increased EPL Case Costs

• 1/23/02 Press release regarding Jury Verdict
  Research Study for 2000 cases
• 44 increase over 1999 for median awards in EPL
  cases
• 218,000 median for discrimination and
  retaliation claims
• 7 year (1994-2000) Median by type
• Sex 100,000 Race 120,951
• Disability 175,001 Age 268,928
• Plaintiff recovery rates All EPL 67
• Race Discrimination 62 Sex Discrimination
  69

13
What Has Carriers Experience Been?

• Unfavorable accident year trend
• What is driving losses
• Size Large employers are huge targets
• Location CA, MA, NY, NJ, GA, FL, MI, southern
  TX. Coasts and cities are tougher
• Industry Retail, technology, telecom,
  transportation
• Significant new trend image conscious or
  publicly traded

14
How do Underwriters Respond?

• More intensive underwriting
• Are our Insureds prepared to defend themselves?
• Do they regularly assess and track their
  diversity trends?
• Do they review diversity trends in hiring,
  promotions, compensation, job assignments,
  training opportunities and terminations?
• Are they a Federal contractor? Have they had any
  OFCCP audits lately? What have the results been?
  Can we review their required affirmative action
  plans?
• Does their size or public image attract the
  plaintiffs bar?

15
How do Underwriters Respond?

• For large and image sensitive clients we need to
  address the following issues
• Require experienced class action or mass action
  defense counsel
• Greater Insured participation in losses via
  significant class or mass action deductibles and
  co-participation in losses via significant
  co-insurance
• The mass action deductible actually provides more
  certainty to the Insured as opposed to current
  policies
• Remedy inadequate pricing via rate increases

16
What Other Creative Solutions Can be considered?

• Finite risk deals for the primary or burn layer
  exposure
• Captive Insurance to fund for large self insured
  retentions
• Quota share line slip approaches to spread the
  carriers exposure up out of the primary or burn
  layer