Industry figures have reiterated the importance of specialized liability insurance following Merrill Lynch’s $160m payout over institutionalized racism claims
The lawsuit against the financial giant asserted that the company culture was “toxic” at the Bank of America-owned brokerage firm. Aside from hiring only 700 African American employees, Merrill Lynch was also said to rely on stereotypes.
Specialized liability insurance policies may mean the difference between weathering the storm and total financial ruin – especially as small and midsize companies do not have the financial resources to deal with such class-action lawsuits.
“Small or new businesses are often the most vulnerable to employment claims…particularly in today’s economy where [employment practice suits] are on the rise,” said Loretta Worters, a spokesperson for the Insurance Information Institute. “That’s because they usually lack a legal department or company handbook detailing the policies and procedures that guide hiring, disciplining, or terminating employees.”
Ann Longmore, executive vice president of Willis’s Finex North America Practice, added that the increased litigation process also contributes to steep legal costs for companies.
“[Class-action lawsuits] involve large groups of employees and are very complex. Just having to litigate something for six, eight, 10 years naturally generates significant defense costs,” said Longmore. “Is $10m enough? $25m? These are significant costs and the bills are still being paid years later.”
Businesses can guard against the massive payouts that follow lawsuits like the one against Merrill Lynch is by purchasing an employment practices liability (EPL) insurance policy.
EPL policies pay, up to policy limits, damages for which an employer is legally liable for violating civil and other legal rights of its employees. These policies also pay for legal defense costs, which are especially steep for small companies without legal departments.
According to Worters, most EPL policies come with limits ranging from $1m to $25m, though larger companies usually have higher limits. Because “everyone starts with some exposure,” as Longmore says, EPL policies are almost always a good investment for even the smallest businesses.
EPL policies also offer a large degree of risk management resources, including training materials on employment practices regarding race, sex, age, disability, and other qualifiers.
“The bad news is that most employers don’t take advantage of that,” Longmore said. “The reason is the division of responsibility within the organization. Typically, HR departments are responsible for purchasing risk management materials, not the folks who purchase the insurance.”