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Beware Liability Pitfalls Created by Regulations

Two scenarios demonstrate how employment practices risk for most companies lies in more mundane, everyday oversights.
By: | August 29, 2017 • 7 min read

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.

Proactive Loss Control

Joe Werner, Director
Management Liability and Specialty
Nationwide

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.

Case Study #1: Coping with Mental Illness

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.

Case Study #2: Accommodating Health Conditions

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.

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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.”

Build Your Best Defense

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

To learn about Nationwide’s Employment Practices Liability loss control services, visit www.freedom360hr.com and http://nationwide.hrcare.com.

About Nationwide

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.

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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.




Nationwide, a Fortune 100 company, is one of the largest and strongest diversified insurance and financial services organizations in the U.S. and is rated A+ by both A.M. Best and Standard & Poor’s.

More from Risk & Insurance

More from Risk & Insurance

High Net Worth

High Net Worth Clients Live in CAT Zones. Here’s What Their Resiliency Plan Should Include

Having a resiliency plan and practicing it can make all the difference in a disaster.
By: | September 14, 2018 • 7 min read

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.

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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.

High Net Worth Vulnerabilities

Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners

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.”

Niche Service Providers

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.

High-Level Service for High Net Worth

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.”

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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.

Evaluating New Technology

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.”

Building Smart

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.

Curt Goetsch, head of underwriting, Private Client Group, Ironshore

“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.

Recovery from Loss

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.

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“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. &

Jon McGoran is a novelist and magazine editor based outside of Philadelphia. He can be reached at [email protected]