How the Current Employment Practices Liability Insurance Market Is Impacting Small Businesses

As fears over COVID-19-related discrimination claims mount, more businesses are eager for EPLI coverage. But insurers are scaling back their offerings.
By: | October 14, 2021

At the onset of the pandemic, Employment Practices Liability Insurance (EPLI) underwriters started to get nervous.

Bringing employees back to the office after 18 months would be logistically challenging. Masks and testing would likely be required, and in some cases, an employer may choose to mandate vaccination.

Employers needed to figure out how to implement these policies while keeping workers safe and without discriminating against anyone, all under the pressure of an ever-changing global pandemic.

Regardless of what actions businesses took, some employees in the U.S. were bound to file lawsuits — and they have. Nearly 3,000 COVID-19-related employment lawsuits have been filed since the pandemic began, Reuters reports.

Ranging from those over workplace safety and remote-work disputes to those alleging discrimination, these legal actions have the potential to become a major financial headache for employers and their EPLI insurers.

Jason Binette, EPL product manager, AmTrust EXEC

Workers could sue if they want to avoid a vaccine mandate, or they could allege that requiring workers to come back to the office 100% of the time violates the Americans with Disabilities Act. Others might file wrongful termination suits if they were laid off as the pandemic put a financial strain on companies.

EPLI policies protect companies by providing coverage for the costs of defending lawsuits and any compensation awards for wrongful employment decisions, discrimination, harassment and workplace retaliation suits — so these policies would definitely be called upon in the case of many COVID-19-related employment legal actions.

With an eye toward these new, pandemic-induced risks, EPLI insurers have started scaling back coverage. At the same time, businesses are becoming more eager to purchase EPLI policies to protect them from any COVID-19 related claims.

“There has been a market shift. Overall, pricing has increased,” said Jason Binette, EPL product manager, AmTrust EXEC.

As insurers and insureds attempt to play hot potato with this risk, small businesses are bearing the brunt of the tightening market as they see higher policy retentions, premium increases and even new exclusions specific to COVID exposures.

Small Businesses and the EPLI Claims Market

On the whole, the EPLI market appears to be tightening in response to the pandemic.

At renewal, carriers are increasing premiums anywhere from 10-50% across the marketplace, Binette notes. Other markets are pulling back from the line altogether.

“Some markets have pulled back entirely. They’ve stopped writing EPLI, or they’ve put a hold on it,” Binette said. “You’re seeing a lot of tightening across the marketplace.”

Retentions are also increasing. A policy with a $5,000 retention may find their insurer wants to slap on a $25,000 retention at renewal, according to Binette.

“I think it’s particularly hard for small businesses at the moment because of the higher retentions, which they might not be able to cover in the event of a claim,” he said.

And many insurers are adding exclusions for claims related to vaccine mandates, wrongful termination suits that are connected to pandemic-related downsizing and lawsuits alleging violations of the Families First Coronavirus Relief Act, leaving insureds to foot the bill for even more of the claims costs.

On the extreme end, Binette has seen carriers write exclusions for any discrimination claims that directly or indirectly involve the pandemic.

Even with tightening restrictions, businesses are still interested in purchasing EPLI policies, many for the first time. AmTrust has seen a 22% increase in first-time buyers, with a large share of that interest coming from small businesses.

“I have seen a lot of first-time buyer risks coming across my desk, more than in the past,” he said. “It’s really driven by the fact that they’re having a harder time getting coverage from other insurers.”

Are EPLI Claims Risks Overblown?

Despite carriers’ fears, EPLI claims don’t seem to be on the rise, and many of the claims currently out there are not related to the COVID-19 pandemic.

In 2019, the EEOC reported 72,000 employment-related cases. In 2020, there were only 67,000 cases — a significant dip Binette attributes to federal unemployment benefits. He said there might be an increase in cases when those benefits end on September 5.

“Usually, with loss of income and the inability to find gainful employment is when EPL cases go up,” he said.

Many of the cases filed in 2020 were related to sexual harassment, retaliation, gender pay gaps, gig worker classification, and medical marijuana usage, not COVID-19, AmTrust reports.

“There haven’t been an astronomical amount of COVID claims,” Binette said.

Even vaccine mandates, which were expected to be an active area for EPLI claims activity, aren’t seeing many challenges. Vaccine-related claims account for less than 5% of COVID-related EPL suits in America, Reuters notes.

When claims related to vaccine mandates do arise, the courts have been siding with employers and long-established precedents. In one case, a judge tossed out a lawsuit 117 Houston Methodist Hospital workers levied against their employer over vaccine mandates, saying she did not see merit in the plaintiff’s arguments.

Still, it’s too early to tell if lawsuits over vaccine mandates and other COVID-19 related issues will lead to a large number of EPLI claims.

The emergency temporary standard issued by the U.S. Labor Department on September 9 requires companies with more than 100 employees to require vaccination or weekly testing for their employees. If they don’t comply, employers face fines of up to $14,000 per violation.

This new rule could open more employers to lawsuits over vaccine mandates or other COVID-19-related lawsuits over weekly testing requirements. However, the rule is likely to be challenged by unions, GOP governors and others before it goes into effect.

“The vaccine mandate is going to be something that we need to keep an eye on,” Binette said. “It’ll be interesting to see when that will go into effect.” &

Courtney DuChene is an associate editor at Risk & Insurance. She can be reached at [email protected]

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