On average, a US business with at least 10 employees stands a 12.5% chance of being involved in an employment liability lawsuit some time in its lifespan. That’s a fairly formidable figure on its own, but a new study by specialist insurer Hiscox reveals that in some states, businesses face an even greater likelihood of litigation.
California leads the pack with the most frequent incidences of EPL charges, Hiscox researchers found, with a 42% higher chance of being sued by an employee. Employers in the District of Columbia fared little better, with a litigation rate 32% higher than the national average.
Illinois (26%), Alabama (25%) and Mississippi (19%) rounded out the top five most risky states for business owners, with Arizona and Georgia falling close behind with rates 19% and 18% higher than the national average, respectively.
On the opposite end of the spectrum, employers in West Virginia, Massachusetts, Michigan, Kentucky and Washington can rest a little easier. There, the likelihood of being sued by an employer is as much as 30% less likely than elsewhere in the nation.
For producers in the top five states, the results of the Hiscox study send an important message—make sure clients are armed to the teeth with the proper insurance coverage. According to Mark Ogden, a managing partner of labor law firm Little Mendelson, employers in these states not only need a solid EPLI policy but higher limits on that policy.
“Not only are employment lawsuits more likely in those states, but the likelihood of catastrophic verdicts is also significantly higher,” Ogden said. “Unlike their federal counterparts, where compensatory and punitive damages combined are capped at $300,000, most state employment statutes impose no damages ceilings.”
Producers should also tap into the training materials offered by insurance carriers, particularly if their clients are without traditional human resources personnel or efficient communication. Materials can include employment “best practices” regarding race, sex, age, disability and other qualifiers.
“The bad news is that most employers don’t take advantage of [those resources],” said Ann Longmore, executive vice president of Willis’s Finex North America Practice. “The reason is the division of responsibility within the organization. Typically, HR departments are responsible for distributing risk management materials—not the folks who purchase the insurance.”
Small businesses are “often the most vulnerable” to employee lawsuits thanks to their lack of a legal department or company handbook, noted Longmore. Unfortunately, they also stand the most to lose.
“Just having to litigate something for six, eight, 10 years naturally generates significant defense costs,” said Longmore. “Small businesses really do have to worry about one big, bad lawsuit taking them down.”
Producers may have their work cut out for them there. According to a 2013 Chubb Corp. report, just 30% of privately owned businesses have an EPLI policy in place. Another 60% believe they are covered for employee lawsuits through their general liability policy.
Image Source: Hiscox
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