Employment Practices Insurance in the Age of Covid

Overall trends for the past 30 years in the employment practices liability insurance market have been influenced by society and culture. As concerns over racial and disability discrimination, sexual harassment, gender inequality, wage-and-hour enforcement, and now COVID ebb and flow, EPLI responds.

Jordan Kurkowski, vice president and professional lines broker with AmWINS Brokerage in Grand Rapids, Mich., believes an employer’s risk today is heightened by both increased public intolerance for harassment and instant, worldwide distribution of news through social media.

“This year has been a whammy of layoffs, severance packages, furloughs along with the riots of Black Lives Matter and the #MeToo movement,” Kurkowski said. “It’s an underwriter’s nightmare.”

EPLI claims often follow large changes in workforce, including reductions, promotions and demotions.

“There is more of that happening during this time period with massive unrest in our country,” he said. “We’ve seen political and religious beliefs trigger some of these claims, too.”

Now the COVID vaccine and potential vaccine mandates will add a new element.

While it’s too early to know the full impact on the EPLI line, Kurkowski said, “it’s an interesting time in this space.”

Employers are now facing the second wave of risk management concerns related to COVID.

“Initially, prior to the vaccine, the insurance industry was concerned about employers making the decision on whether or not to force people to come into work, or if they sent employees home, who do you bring back or who do you furlough?” according to Alan D. Goodrich, of HMK Insurance, an Alera Group company based in Bethlehem, Pa.

Furloughs and layoffs often bring risks of wrongful termination and employment practices litigation, he added.

While these concerns remain, Goodrich said, COVID is ushering in a new round of employment related risks as the vaccine becomes available to the broader population. The questions now revolves around what should employers do?

“Can they require them? Or should they encourage people to get them? And what happens if certain groups refuse to take the vaccine?” asks Goodrich.

“These are all things that employers are wrestling with and I think the long-term effects of COVID as it relates to insurance issues, including employment practices, has yet to be written.”

While the recently released guidance from the Equal Employment Opportunity Commission (EEOC) does say that employers can mandate the COVID vaccine, there are other possible scenarios to consider.

The EEOC’s current guidance on the responsibilities and rights of employers and employees related to the COVID-19 vaccine, including cases where employers require employees to be vaccinated, states that if an employee cannot get vaccinated for COVID-19 because of a disability or a “sincerely held religious belief, practice, or observance,” and there is no “reasonable accommodation” possible, then it would be lawful for the employer to exclude the employee from the workplace.

However, this does not mean the employer may automatically terminate the worker. Employers will need to determine if any other rights apply under the equal employment laws or other federal, state, and local authorities.

The EEOC guidelines are not necessarily the final word because they do not analyze other federal laws or other federal rules that might reach another conclusion, according to Wade E. Ballard, attorney and certified specialist, employment and labor law at Ford Harrison LLP in Spartanburg, S.C.

It is also unclear whether employers should mandate a COVID vaccine given the Food and Drug Administration’s current position on emergency use authorization.

“That very well could change in the coming months when there’s been final approval of the vaccine, but right now, you have uncertainty,” said Rachel Ziolkowski Ullrich, also an attorney specializing in Labor & Employment Law who is part of Ford Harrison’s Coronavirus Taskforce.

‘This year has been a whammy of layoffs, severance packages, furloughs along with the riots of Black Lives Matter and the #MeToo movement. It’s an underwriter’s nightmare.’

Employers will need to work through the process set forth by the EEOC’s guidance, but the question remains whether an employer can or should mandate at this juncture, she said.

From an EPLI perspective, Ullrich expects to see an uptick in vaccine-related claims for disability or religious discrimination, resulting from allegations of an employer’s failure to accommodate when employees refuse to take the vaccine. “At this point, I think it’s going to be very important for employers to start training their supervisors on how to handle accommodation requests,” Ullrich said.

Rick Warren, partner at Ford Harrison who specializes labor and employment law and serves on the firm’s Coronavirus Taskforce, expects that the insurance industry will continue to see OSHA-related complaints against employers.

Warren said he has been handling dozens of OSHA complaints against employers, many of them in the healthcare industry, but not exclusively.

The complaints alleged the failure of employers to provide a safe and healthy work environment under the general duty clause of OSHA, or alleged violations of specific OSHA standards.

“Whether such claims are covered by EPLI, I suppose depends on the policy itself but there have been thousands of OSHA or state OSHA complaints filed nationwide this year dealing with COVID and alleging unsafe working conditions,” Warren said.

Reasonable Accommodation

According to Ballard, one question that will be asked is: Can employers accommodate? He says the same issue arises every year with the flu and hospitals that decide to mandate the flu vaccine. “Our hospital clients get all sorts of religious requests for exemption,” he said. To make accommodations, most facilities will allow workers to continue working by mandating the use of a mask, he added.

Ullrich believes that another question employers might face is why they can’t provide accommodations for those employees unwilling or unable to get a vaccine. “We’ve spent the last eight months making accommodations — masking, social distancing, hand-washing and working from home,” she said. So why isn’t that same protocol a reasonable accommodation now?

“Or if the job can be done remotely, why not allow, as a reasonable accommodation, someone to continue to work from home since you’ve allowed them to work from home thus far?” Warren asked.

If employers decide not to mandate COVID vaccines for employees could they face additional risk?

According to Warren, if employers follow guidance from governmental health agencies, whether they decide to mandate or not, there should not be additional exposure. However, if the guidance is that employers can now safely mandate COVID vaccines and they choose not to, then that may be a different story, he said.

“The flip side of that is if you mandate the vaccine and someone has a severe reaction, that very well could be covered by workers’ compensation,” he said, adding that much will depend on the individual state’s workers’ comp system.

Employer Steps

What can employers do to protect themselves?

“Start looking at your accommodations policy and start training your employees and your managers on how to handle accommodations, either religious or disability requests when it comes to the vaccination,” advised Ullrich.

If an employer mandates that employees be vaccinated, then it is important to also have employees sign a “carefully drafted consent form,” Ballard said.

Ullrich said employers should make sure consents forms are written in the language spoken most often by the employee so that the employee understands their consent.

Ballard also suggested employers may want to create incentives for employees to get vaccinated.

“You can provide some financial benefit or incentive to people, give them a paid day off [to get the vaccine] or provide a small bonus. If there is a way to provide incentives, employers can do that to get people to take vaccines,” he said.

Insurance Market Trends

In the view of AmWINS’ Kurkowski, EPLI claims stemming from the pandemic are blending. “For example, someone is let go or demoted and then we have a retaliation claim on top of discrimination or harassment,” he said. That might be age discrimination related, which is the leader in EPLI claims, he said.

“These private companies that I look at every day, they can hire a

25-something for half the cost of their 55-year-old,” he said. “That happens.”

Market conditions in the EPLI segment are hardening even more than just a year ago, according to AmWINS’ “Employment Practices Liability: #whatstrending” report written by Kurkowski.

Today, EPLI rates are increasing anywhere from 10% to 50% for many classes of business. Steeper increases are seen in problematic classes, such as healthcare and hospitality, as well as problematic states, such as Florida, Illinois, New York, and Texas. California, in particular, has seen significant hardening, with some underwriters increasing retentions dramatically in the state or pulling out of the market altogether.

“Clearly, folks are way more conservative with restaurants, hospitality, transportation, anything that’s really been impacted by the lockdown,” Kurkowski said. “We saw a three-month period when COVID started, where people froze their books and were not writing anything new.”

‘Start looking at your accommodations policy and start training your employees and your managers on how to handle accommodations, either religious or disability requests when it comes to the vaccination.’

Changed Market

Two or three years ago, many EPLI accounts were still seeing zero retentions and very low premiums, according to Kurkowski. Today the market is seeing $10,000, $25,000 retentions and that is continuing to creep up. That’s in addition to the much higher rate environment today.

He believes these trends are a combination of COVID along with #MeToo and he believes the EPLI market is also influenced by what is happening in the directors and officers liability market.

He noted that EPL coverage is packaged with D&O, which is the “hardest piece to write right now in the management liability package.”

“When you talk to underwriters, they predict 2021 will be a tough year economically with a lot of bankruptcies, so that triggers D&O. And if they are writing EPLI, fiduciary and crime, too, it’s going to trigger the EPLI because there’s going to be layoffs,” he said. “And when people get desperate, there is more employee theft that happens.”

When taking a holistic view of the EPLI market it’s important to have a conversation about those other lines of business as well, he noted.

Kurkowski sees underwriters asking “COVID questions” at renewals. “If there were layoffs, how many people? Were lawyers consulted? Were there severance packages offered? Did you hire the people back? How many people? All of that stuff.”

In his view, EPLI carriers don’t seem to be exiting the market entirely but instead are exiting certain classes of business. There were other markets shying away from new EPLI business, too, he said.

If there’s a deep recession this year as some carriers are forecasting, things will harden even further.

He sees the EPL market dependent upon what happens with D&O and the economy.

“I see a D&O hard market for the next three to five years and I would put EPLI in the two to four year hard market bucket,” he said.

There are other coverage trends.

On the management liability package, Kurkowski says there will be first party liability but that normally does not extend to third party.

“It’s not going to have the wage and hour, or privacy violation,” he said. Another coverage trend: the immigration investigation extension. “It’s going to be a very bland third-party liability piece and, the coverage piece isn’t going to go really past discrimination or harassment, and it may even be more restrictive than that,” he said.

Manny Cho, executive vice president for Executive Lines, at RPS, agrees there’s tighter underwriting. But while there has been talk about COVID exclusions or pandemic exclusions that so far hasn’t happened.

“What we saw is actually underwriters going back to underwriting,” he said.

“COVID questions and hire or rehire questions and I’m sure there will be some questions coming around the vaccines, and thoughts about reopening in 2021 because that’s clearly going to be the biggest potential exposure.”

He agrees that underwriting will continue to be tied heavily to D&O as underwriters on EPL risks want to understand the financial stability of companies before they’ll put out quotes.

“It’s definitely changing and I think 2021, with all lines of business, there’ll be a lot more underwriting, especially in the higher hit classes of business such as hospitality, restaurants, and the travel industry,” he said.

EPLI has been one of the “harder markets” this year, he added. “We anticipate 2021 to be continue its harder market trend with increasing retentions in more volatile areas.”

Despite those conditions, there’s still interest in EPLI from new underwriters, according to Cho.

“We have seen a couple new carriers come into the market, which is interesting,” he said. That means that rates are probably where they should be, he added. “Or at the very least projected to be pretty good.”