10 Emerging Risks Affecting Public Entities
For many companies these days, the question is not if you will face an employment-related lawsuit, but when?
No matter how much you trust your employees or managers or how thoroughly you focus on training, it is extremely rare for a strategy to be 100 percent effective in avoiding claims of harassment or discrimination.
“The probability that a company will get sued for an alleged employment practices violation has increased dramatically; aggrieved employees drive some litigation, and, in other cases, plaintiffs’ lawyers encourage this type of claim,” said Beth Goldberg, chief underwriting officer, Financial Lines Division, Starr Insurance Companies. “These claims can be expensive just to defend, even if they are groundless.”
According to Westlaw, a legal research service by Thomson Reuters, plaintiffs win 51 percent of the time when employment practices liability (EPL) claims go to trial.
Losses from certain types of EPL lawsuits are also getting larger. Employment law firm Seyfarth Shaw LLP found that settlements for the 10 biggest class actions increased 55 percent from 2016 to 2017.
These damages, of course, don’t reflect the long-term impact to a company’s reputation. For all these reasons, boards are starting to take notice that, in today’s environment, an EPL insurance policy is not just “nice to have,” but an absolute necessity.
Four trends in particular are currently driving greater EPL exposure:
“The emotional distress and mental anguish components can be larger than the monetary demand for front pay and back pay,” Goldberg said.
Allegations from claimants may range from discomfort and embarrassment to anxiety and depression. They may claim that they’ve lost sleep and their health has deteriorated, due to the trauma of harassment or discrimination. Testimony from family, friends, and treating psychologists or psychiatrists can buttress these claims and win over a jury. It can be difficult to place a monetary value on these damages or argue with a claimant’s demand; determining what’s fair is very subjective.
Some federal discrimination statutes place caps on damages that plaintiffs can seek, but they can seek larger amounts by suing under different federal, state, and local laws that have no cap.
In New Jersey, for example, two brothers sued their former employer for racial discrimination, hostile work environment and retaliation under the New Jersey Law Against Discrimination (LAD).
The jury awarded them $2.5 million in damages, including $800,000 in emotional distress damages to one brother, and $600,000 to the other.
The “Me Too” movement has brought national attention to the issue of sexual harassment in and outside of the workplace. And while “Me Too” has provided a platform for victims to speak about their experiences and prompted a re-evaluation of what constitutes appropriate behavior, it has also increased the public profile of claims that may be false.
“Harassment has become a headline risk, one that is magnified by the media and can present an even greater threat to a company’s reputation,” said Lisa Lockhead, vice president, Head of Private & Not For Profit – Financial Lines, Starr Insurance Companies. Thanks to the power of social media, companies may be prosecuted in the court of public opinion, before they have a chance to present an argument or defend themselves. If the story gains enough traction, it could cost an executive his or her job and it can cost the company its consumers’ trust and loyalty.
“This type of reputational damage can happen even if a story is untrue,” Lockhead said. “The suggestion of misconduct may cast a cloud over the company’s brand value, which may translate into falling stock prices and long-term economic impact.”
Discriminatory practices that violate the Americans with Disabilities Act may similarly garner large settlements and present reputational risk. Recently, attorneys have sought out such potential problematic practices in places companies often overlook — their company websites.
“There has been a growing trend of plaintiff lawyers going after companies who do not make their websites accessible to the deaf and blind,” Goldberg said. According to research from Seyfarth Shaw LLP, plaintiffs filed 4,965 website accessibility lawsuits in the first half of 2018. At this rate, there will be close to 10,000 such suits by the end of the year – a 30 percent increase over 2017.
“People tend to associate ‘accessibility’ with physical spaces, but essentially every company has a website and this digital space is subject to the same oversight,” Goldberg said.
Physical spaces are still, however, up for grabs. Attorneys in some states are increasingly targeting small retail shops and corner stores that often lack the space to improve accessibility by widening doorways or installing ramps. According to a 2017 report by the New York Post, just five wheelchair-bound New Yorkers are behind almost 400 ADA lawsuits targeting small businesses across the city.
Even when store owners are renters, they can still be held accountable for noncompliance with the ADA. “The plaintiff firms are naming both (renters and owners) to go after the deep pockets,” Lockhead said.
In addition to federal regulations, companies must also contend with variances in state law.
“In particular, states vary in their protection of rights afforded to the LGBTQ community. Companies should have an understanding that discrimination based on sexual orientation or gender identity, but what are their obligations as far as bathroom access, or using non-gendered pronouns, etc. What rights are protected and to what extent?” Lockhead said.
Discrimination based on physical appearance is also treated differently on a state-by-state basis. California, for example, expressly bars employers from discriminating based on body type, while New York does not.
“State laws go far beyond federal regulations, and understanding the differences is especially important for multi-state employers,” Goldberg said.
There are several risk control and risk transfer strategies organizations can deploy to mitigate the EPL losses. Some basic controls are critical, like employee handbooks that detail a code of conduct, policies and procedures around hiring and firing, thorough training, and a dedicated leader of human resources.
The ADA published a 27-item checklist to help companies make their websites accessible. Most are easy fixes, such as including text descriptions for links and navigation menus, and HTML alt tags for images for hearing-impaired visitors, or corresponding audio descriptions for the visually-impaired. Sites should also offer a way to contact a web manager with questions or complaints about accessibility.
These adjustments are not resource-intensive, even for smaller companies. But companies also need to do an assessment of their corporate culture.
Part of improving company culture is providing a way for employees to raise concerns without fear of retribution. To that end, “providing a way for employees to report issues internally directly to the board —anonymously if they wish — can help get ahead of potential claims. Change has to come from the top down,” Lockhead said.
To learn more, visit www.starrcompanies.com/insurance/employmentpracticeliability.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Starr Companies. The editorial staff of Risk & Insurance had no role in its preparation.
Packed with state-of-the-art electronics, priceless collections and high-end furnishings, and situated in scenic, often remote locations, the dwellings of high net worth individuals and families pose particular challenges when it comes to disaster resiliency. But help is on the way.
Armed with loss data, innovative new programs, technological advances, and a growing army of niche service-providers aimed at addressing an astonishingly diverse set of risks, insurers are increasingly determined to not just insure against their high net worth clients’ losses, but to prevent them.
Insurers have long been proactive in risk mitigation, but increasingly, after the recent surge in wildfire and storm losses, insureds are now, too.
“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy,” said Laura Sherman, founding partner at Baldwin Krystyn Sherman Partners.
And especially in the high net worth space, preventing that loss is vastly preferable to a payout, for insurers and insureds alike.
“If insurers can preserve even one house that’s 10 or 20 or 40 million dollars … whatever they have spent in a year is money well spent. Plus they’ve saved this important asset for the client,” said Bruce Gendelman, chairman and founder Bruce Gendelman Insurance Services.
As the number and size of luxury homes built in vulnerable areas has increased, so has the frequency and magnitude of extreme weather events, including hurricanes, harsh cold and winter storms, and wildfires.
“There is a growing desire to inhabit this riskier terrain,” said Jason Metzger, SVP Risk Management, PURE group of insurance companies. “In the western states alone, a little over a million homes are highly vulnerable to wildfires because of their proximity to forests that are fuller of fuel than they have been in years past.”
Such homes are often filled with expensive artwork and collections, from fine wine to rare books to couture to automobiles, each presenting unique challenges. The homes themselves present other vulnerabilities.
“Larger, more sophisticated homes are bristling with more technology than ever,” said Stephen Poux, SVP and head of Risk Management Services and Loss Prevention for AIG’s Private Client Group.
“A lightning strike can trash every electronic in the home.”
A variety of niche service providers are stepping forward to help.
Secure facilities provide hurricane-proof, wildfire-proof off-site storage for artwork, antiques, and all manner of collectibles for seasonal or rotating storage, as well as ahead of impending disasters.
Other companies help manage such collections — a substantial challenge anytime, but especially during a crisis.
“Knowing where it is, is a huge part of mitigating the risk,” said Eric Kahan, founder of Collector Systems, a cloud-based collection management company that allows collectors to monitor their collections during loans to museums, transit between homes, or evacuation to secure storage.
“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy.” — Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners
Insurers also employ specialists in-house. AIG employs four art curators who advise clients on how to protect and preserve their art collections.
Perhaps the best known and most striking example of this kind of direct insurer involvement are the fire teams insurers retain or employ to monitor fires and even spray retardant or water on threatened properties.
All high net worth carriers have programs that leverage expertise, loss data, and relationships with vendors to help clients avoid and recover from losses, employing the highest levels of customer service to accomplish this as unobtrusively as possible.
“What allows you to do your job best is when you develop that relationship with a client, where it’s the same people that are interacting with them on every front for their risk management,” said Steve Bitterman, chief risk services officer for Vault Insurance.
Site visits are an essential first step, allowing insurers to assess risks, make recommendations to reduce them, and establish plans in the event of a disaster.
“When you’re in a catastrophic situation, it’s high stress, time is of the essence, and people forget things,” said Sherman. “Having a written plan in place is paramount to success.”
Another important component is knowing who will execute that plan in homes that are often unoccupied.
Domestic staff may lack the knowledge or authority to protect the homeowner’s assets, and during a disaster may be distracted dealing with threats to their own homes and families. Adequate planning includes ensuring that whoever is responsible has the training and authority to execute the plan.
Insurers use technologies like GPS and satellite imagery to determine which homes are directly threatened by storms or wildfires. They also assess and vet technologies that can be implemented by homeowners, from impact glass to alarm and monitoring systems, to more obscure but potentially more important options.
AIG’s Poux recommends two types of vents that mitigate important, and unexpected risks.
“There’s a fantastic technology called Smart Vent, which allows water to flow in and out of the foundation,” Poux said. “… The weight of water outside a foundation can push a foundation wall in. If you equalize that water inside and out at the same level, you negate that.”
Another wildfire risk — embers getting sucked into the attic — is, according to Poux, “typically the greatest cause of the destruction of homes.” But, he said, “Special ember-resisting venting, like Brandguard Vents, can remove that exposure altogether.”
Many disaster resiliency technologies can be applied at any time, but often the cost is fractional if implemented during initial construction. AIG’s Smart Build is a free program for new or remodeled homes that evolved out of AIG’s construction insurance programs.
Previously available only to homes valued at $5 million and up, Smart Build recently expanded to include homes of $1 million and up. Roughly 100 homes are enrolled, with an average value of $13 million.
“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work.” — Curt Goetsch, head of underwriting, Private Client Group, Ironshore
“We know what goes wrong in high net worth homes,” said Poux, citing AIG’s decades of loss data.
“We’re incenting our client and by proxy their builder, their architects and their broker, to give us a seat at the design table. … That enables us to help tweak the architectural plans in ways that are very easy to do with a pencil, as opposed to after a home is built.”
Poux cites a remote ranch property in Texas.
“The client was rebuilding a home but also installing new roads and grading and driveways. … The property was very far from the fire department and there wasn’t any available water on the property.”
Poux’s team was able to recommend underground water storage tanks, something that would have been prohibitively expensive after construction.
“But if the ground is open and you’ve got heavy equipment, it’s a relatively minor additional expense.”
Homes that graduate from the Smart Build program may be eligible for preferred pricing due to their added resilience, Poux said.
A major component of disaster resiliency is still recovery from loss, and preparation is key to the prompt service expected by homeowners paying six- or seven-figure premiums.
Before Irma, PURE sent contact information for pre-assigned claim adjusters to insureds in the storm’s direct path.
“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work,” said Curt Goetsch, head of underwriting for Ironshore’s Private Client Group.
“If you’ve got custom construction or imported materials in your house, you’re not going to go down the street and just find somebody that can do that kind of work, or has those materials in stock.”
In the wake of disaster, even basic services can be scarce.
“Our claims and risk management departments have to work together in advance of the storm,” said Bitterman, “to have contractors and restoration companies and tarp and board services that are going to respond to our company’s clients, that will commit resources to us.”
And while local agents’ connections can be invaluable, Goetsch sees insurers taking more of that responsibility from the agent, to at least get the claim started.
“When there is a disaster, the agency’s staff may have to deal with personal losses,” Goetsch said. &