6 Emerging Risks for Manufacturers
High-profile harassment and discrimination claims — like those that surfaced against Amazon, Uber, Google and other giants — recently have made headlines and brought public attention to hot-button issues like equal pay and workplace diversity.
But the real employment practices risk for most companies lies in more mundane, everyday oversights.
Seemingly innocuous conversations with employees can be fraught with liability if the employer links certain personal details which may be connected to an employee’s disability to work attendance or performance.
Even when it seems they are doing everything right, employers can easily find themselves stuck in the complex web of employment regulations, including the Americans with Disabilities Act (ADA) and the Family and Medical Leave Act (FMLA). Disciplinary measures against employees, even when legally justified, can still spark retaliation claims.
“If employees feel they were fired as punishment for using any time off allotted to them through the ADA or FMLA, they individually can file a retaliation claim against their employer,” said Joe Werner, director, Employment Practices Liability, Nationwide.
Such cases carry a strong human element that appeals to jurors’ sense of compassion and are easier for plaintiffs to argue.
“When making a legal and justified decision to terminate someone, employers don’t typically think about how that might look to a jury that has no stake in their organization,” Werner said.
While they can’t avoid every claim, employers can take proactive steps to ensure they fulfill their regulatory obligations and build the best possible defense for themselves in the event a claim is filed.
Loss control services provided by insurers can deliver significant value for insureds who take advantage of them.
While many carriers offer a legal hotline, most stipulate that any guidance provided through that channel does not constitute as legal advice; the purpose is more to provide a general regulatory overview and outline an employer’s obligations.
Through a partnership with the law firm Littler Mendelson, however, Nationwide provides access to actual legal advice from attorneys with EPL experience and state-specific knowledge at no additional cost to insureds. Should policyholders encounter a situation they don’t feel equipped to handle, specific guidance is only a phone call away.
“Calling the hotline costs our clients nothing, but it may help them avoid thousands in settlements and legal fees down the road,” Werner said.
Two recent scenarios demonstrate just how easily employers can incur liability — and how the legal hotline can help mitigate it.
Littler Mendelson’s legal hotline was contacted by a large professional service company seeking guidance on how to handle an employee with attendance issues. The employee had worked for the company for about four years with only minor performance issues. However, she had been absent from the office a great deal in the preceding four months, exhausting her accrued sick and vacation time. The employer was on the verge of terminating her.
“Counsel asked the employer if he had any idea why his worker had been absent so frequently. While he didn’t know for sure, the employer had heard a rumor that this employee suffered from depression,” Werner said.
Depression qualifies as a disability under the Americans with Disabilities Act. If this was indeed the reason for her attendance problems, the employer was advised of its legal obligation to engage with her in an interactive process to determine if they could offer her a reasonable accommodation.
After investigating, the employer discovered that the employee had indeed spoken to her manager about her depression.
“For whatever reason, either due to lack of training or simple oversight, the manager failed to pass that information along to the company’s human resources department,” Werner said. “It may have seemed to the manager that he was simply having a personal conversation, and may not have realized that this could be pertinent to potential human resource issues. Many employers don’t realize that a mental health issue is considered a disability under the ADA.”
In this case, reasonable accommodations were investigated which, it was determined, could include a leave of absence or a reduced schedule for the employee.
This scenario demonstrates how communication gaps typical of large companies with segregated management hierarchies can increase an organization’s exposure to an employment practices-related claim.
In another instance, a manufacturer called the hotline for legal help with an employee in his 60s who had a knee replacement surgery earlier that year, but was still missing work due to other health conditions. He had taken all 12 weeks entitled to him under the FMLA, as well as his accrued vacation and sick time. Again, the employer was considering termination.
Littler Mendelson advised that serious health conditions may also qualify as a disability as defined by the ADA. Again, the employer was legally bound to engage the worker in the interactive process to search for a reasonable accommodation in the form of additional time off.
“The employer was so focused on the FMLA that it overlooked its obligations under the ADA, which is a common mistake,” Werner said.
These scenarios could play out in any work environment. Simple, ordinary oversights could trigger an ADA violation that eventually leads to an Employment Practices Liability lawsuit.
“Every employer is susceptible to employment practices liability claims,” Werner said.
“Both employers had the good sense to make use of a loss control service provided by their insurer before acting, so we can surmise that they are focused on proper risk management and compliance. However, as demonstrated by these examples, even conscientious employers can overlook potential employment law requirements.”
It is possible that, even after engaging in the interactive process, an employer finds that there is no reasonable accommodation it can provide to an employee. In those cases, termination could be a legally viable option, but the company still must be prepared to demonstrate that it made every reasonable effort to find an accommodation before taking that step.
In addition to its legal hotline, Nationwide provides a variety of resources and training materials through Freedom 360° HR, an online portal delivering daily news updates and human resource developments, as well as educational materials around all aspects of employment practices.
A series of short videos dubbed “Littler Learning Points” features two attorneys having a Q&A-style conversation about topics ranging from Equal Employment Opportunity Commission filing requirements to the definition of reasonable accommodation and wage and hour compliance.
Additionally, Nationwide offers employee online training modules provided by HR Classroom. The modules are designed to satisfy an employer’s legal training requirements and provide educational programs covering workplace topics, such as ethical workplace behavior, proper anti-discrimination and anti-harassment prevention and policy, workplace diversity and wage and hour issues.
“Utilizing these services will help to show that the employer took every step necessary to do right by their employee, and that’s the best defense you can build against an employment practices or retaliation claim,” Werner said.
Contact Joe Werner, director, at 212-329-6961 or [email protected] for more information
Nationwide is a Fortune 500 company with 16 million policies in force and an A.M. Best Rating of A+ XV. We are committed to responsive problem-solving and providing flexible and customized coverage.
Products underwritten by Nationwide Mutual Insurance Company and Affiliated Companies. Not all Nationwide affiliated companies are mutual companies, and not all Nationwide members are insured by a mutual company. Subject to underwriting guidelines, review and approval. Products and discounts not available to all persons in all states. Certain property-casualty coverages may be provided by a surplus lines insurer. Surplus lines insurers do not generally participate in state guaranty funds, and insureds are therefore not protected by such funds. Home Office: One Nationwide Plaza, Columbus, OH. Nationwide, the Nationwide N and Eagle and other marks displayed on this page are service marks of Nationwide Mutual Insurance Company, unless otherwise disclosed. © 2017 Nationwide Mutual Insurance Company.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Nationwide. The editorial staff of Risk & Insurance had no role in its preparation.
Wind energy is all grown up. It is no longer an alternative, but in some wholesale markets has set the incremental cost of generation.
As the industry has grown, turbine towers have as well. And as the older ones roll out of their warranty periods, there are more claims.
This is a bit of a pinch in a soft market, but it gives underwriters new insight into performance over time — insight not available while manufacturers were repairing or replacing components.
“There is a lot of capacity in the wind market,” said Charles Long, area senior vice president for renewable energy at broker Arthur J. Gallagher.
“The segment is still very soft. What we are not seeing is any major change in forms from the major underwriters. They still have 280-page forms. The specialty underwriters have a 48-page form. The larger carriers need to get away from a standard form with multiple endorsements and move to a form designed for wind, or solar, or storage. It is starting to become apparent to the clients that the firms have not kept up with construction or operations,” at renewable energy facilities, he said.
Third-party liability also remains competitive, Long noted.
“The traditional markets are doing liability very well. There are opportunities for us to market to multiple carriers. There is a lot of generation out there, but the bulk of the writing is by a handful of insurers.”
Broadly the market is “still softish,” said Jatin Sharma, head of business development for specialty underwriter G-Cube.
“There has been an increase in some distressed areas, but there has also been some regional firming. Our focus is very much on the technical underwriting. We are also emphasizing standardization, clean contracts. That extends to business interruption, marine transit, and other covers.”
“Gear-box maintenance has been a significant issue for a long time, and now with bigger and bigger blades, leading-edge erosion has become a big topic,” said Sharma. “Others include cracking and lightning and even catastrophic blade loss.”
Long, at Gallagher, noted that operationally, gear boxes have been getting significantly better. “Now it is blades that have become a concern,” he said. “Problems include cracking, fraying, splitting.
“In response, operators are using more sophisticated inspection techniques, including flying drones. Those reduce the amount of climbing necessary, reducing risk to personnel as well.”
Underwriters certainly like that, and it is a huge cost saver to the owners, however, “we are not yet seeing that credited in the underwriting,” said Long.
He added that insurance is playing an important role in the development of renewable energy beyond the traditional property, casualty, and liability coverages.
“Most projects operate at lower capacity than anticipated. But they can purchase coverage for when the wind won’t blow or the sun won’t shine. Weather risk coverage can be done in multiple ways, or there can be an actual put, up to a fixed portion of capacity, plus or minus 20 percent, like a collar; a straight over/under.”
As useful as those financial instruments are, the first priority is to get power into the grid. And for that, Long anticipates “aggressive forward moves around storage. Spikes into the system are not good. Grid storage is not just a way of providing power when the wind is not blowing; it also acts as a shock absorber for times when the wind blows too hard. There are ebbs and flows in wind and solar so we really need that surge capacity.”
Long noted that there are some companies that are storage only.
“That is really what the utilities are seeking. The storage company becomes, in effect, just another generator. It has its own [power purchase agreement] and its own interconnect.”
“Most projects operate at lower capacity than anticipated. But they can purchase coverage for when the wind won’t blow or the sun won’t shine.” —Charles Long, area senior vice president for renewable energy, Arthur J. Gallagher
Another trend is co-location, with wind and solar, as well as grid-storage or auxiliary generation, on the same site.
“Investors like it because it boosts internal rates of return on the equity side,” said Sharma. “But while it increases revenue, it also increases exposure. … You may have a $400 million wind farm, plus a $150 million solar array on the same substation.”
In the beginning, wind turbines did not generate much power, explained Rob Battenfield, senior vice president and head of downstream at JLT Specialty USA.
“As turbines developed, they got higher and higher, with bigger blades. They became more economically viable. There are still subsidies, and at present those subsidies drive the investment decisions.”
For example, some non-tax paying utilities are not eligible for the tax credits, so they don’t invest in new wind power. But once smaller companies or private investors have made use of the credits, the big utilities are likely to provide a ready secondary market for the builders to recoup their capital.
That structure also affects insurance. More PPAs mandate grid storage for intermittent generators such as wind and solar. State of the art for such storage is lithium-ion batteries, which have been prone to fires if damaged or if they malfunction.
“Grid storage is getting larger,” said Battenfield. “If you have variable generation you need to balance that. Most underwriters insure generation and storage together. Project leaders may need to have that because of non-recourse debt financing. On the other side, insurers may be syndicating the battery risk, but to the insured it is all together.”
“Grid storage is getting larger. If you have variable generation you need to balance that.” — Rob Battenfield, senior vice president, head of downstream, JLT Specialty USA
There has also been a mechanical and maintenance evolution along the way. “The early-generation short turbines were throwing gears all the time,” said Battenfield.
But now, he said, with fewer manufacturers in play, “the blades, gears, nacelles, and generators are much more mechanically sound and much more standardized. Carriers are more willing to write that risk.”
There is also more operational and maintenance data now as warranties roll off. Battenfield suggested that the door started to open on that data three or four years ago, but it won’t stay open forever.
“When the equipment was under warranty, it would just be repaired or replaced by the manufacturer,” he said.
“Now there’s more equipment out of warranty, there are more claims. However, if the big utilities start to aggregate wind farms, claims are likely to drop again. That is because the utilities have large retentions, often about $5 million. Claims and premiums are likely to go down for wind equipment.”
Repair costs are also dropping, said Battenfield.
“An out-of-warranty blade set replacement can cost $300,000. But if it is repairable by a third party, it could cost as little as $30,000 to have a specialist in fiberglass do it in a few days.”
As that approach becomes more prevalent, business interruption (BI) coverage comes to the fore. Battenfield stressed that it is important for owners to understand their PPA obligations, as well as BI triggers and waiting periods.
“The BI challenge can be bigger than the property loss,” said Battenfield. “It is important that coverage dovetails into the operator’s contractual obligations.” &