California’s Harsh EPLI Landscape Made Worse by COVID

It’s common knowledge that the employee practices liability insurance arena nationwide has been unfriendly to buyers. Earlier this year, a survey of 20 EPLI carriers showed 15 reported rate increases for the line ranging from 5% to 35%.

The problem is worse — by multiples it appears — in the Golden State.

Tyie Moore, area senior vice president in executive lines for Risk Placement Services, has been writing EPLI for 20-plus years, and while she says California has always been a “different animal,” the last two or three years have caused her and her clients a lot of pain and anguish.

Moore, who is based in Los Angeles, said problem No. 1 is that claims in California are bigger and there are more of them.

In years past, many claims she saw in California were small nuisance claims that would often get settled quickly.

“Looking at my book of business, maybe one out of every 40 accounts had an EPL claim on that,” she said.

Now, she estimates, three to four out of 10 of her accounts have EPL claim.

It costs about 260% more to resolve a claim in California than it does outside of the state, and according to a recent report from Kaufman Borgeest & Ryan, 21% of reported settlements in excess of $2 million were brought in California, as were four out of the top 10 settlements.

Over the last three years, Moore has been “heavily shopping renewals” for her clients.

“We’ve seen this firming of the market,” she said.

COVID-19 hasn’t done much to help California’s EPLI market, according to Chris Williams, the employment practices liability product manager at Travelers.

“The bulk of the EPL COVID claims are brought in California,” Williams said.

Williams estimates about one-fifth of all EPL COVID-related claims have been filed in the state.

The Jackson Lewis COVID-19 Employment LitWatch, which tracks complaints filed in federal and state courts nationwide that allege labor and employment law violations related to the virus, showed a sharp rise in complaints per week and cumulative complaints, with more than 2,200 complaints filed nationwide in the most recent count.

Moore had already seen numerous carriers taking rate and retention increases in recent years, but when the pandemic hit in 2020, it moved those still offering low terms off the fence.

“When 2020 hit, it’s like the entire marketplace decided in step to do it,” Moore said.

Don’t expect an improvements with the pandemic winding down, Williams warned.

Bringing workers back into the office — especially those who may have gotten used to, and may have liked, working from home — will be an added challenge in the employment practices liability arena.

“I think there’s going to be some challenges for employers in terms of return to the office,” Williams said.

COVID is also ushering in a new round of employment related risks as the vaccine becomes available to the broader population. Questions now revolve around what should employers do, if they can require vaccines, if they should encourage people to get them, and what will happen if certain groups refuse to take the vaccine?

COVID aside, Williams blames California’s particularly severe EPLI environment on: a litigation culture (an expectation that cases will settle for more in California); higher salaries (a driver of EPL settlements is the lost wage claim, and California tends to have higher salaries than the rest of the country); and laws and regulations that favor workers over employers.

Moore agreed that numerous factors are contributing to California’s EPLI environment, but she believes litigiousness is a reason that may stand above the others.

“The price to settle these lawsuits has just grown at an exponential rate,” Moore said.

In years past, her small to mid-size accounts of 50 and under employees could get a $5,000 to $10,000 retention.

“Those days are gone,” Moore said.

Small accounts are looking at a $25,000 retention, and many mid- to large-size accounts are “staring at a $50,000 retention,” and she believes much of this is driven by lawsuits.

“The attorneys on both sides … they know what recent claims have settled for and now the expectation is that claimants’ attorneys want that amount or more,” she said.

For example, she’s seen the same type and circumstances for a sexual harassment claim in another state settle for $25,000, but in California such a claim will settle for $150,000 minimum.

This has all made Moore’s job quite a bit more difficult.

“You’ve got to work 10 times harder for that same renewal account,” she said.

She’s had to “heavily shop” accounts to more and more carriers, and then she must return to her clients and tell them about the high rates, educate them on the market and prep them for what’s ahead and what to do next.

Moore has also seen a diminished capacity for limits in the marketplace — with limits dropping in many cases from $5 million to $2 million — while some carriers have stopped quoting any new business, an instead saving capacity for renewals. It’s due to the large losses, she said.

The fallout is that she’s work multiples harder and longer on accounts that previously required one or two carriers to reach their desired limits.

“Now we’re having to do that with four carriers — or more,” she said.