Avoid Lawsuits When Laying Off Workers

With the U.S. economy in recession, companies are trying to make up for declining sales by reducing expenses. Workforce reductions, though they may improve short-run profits, may also cause long-term problems if the firm does not handle them with care. Angry former employees may look for justification for legal action. The employees who remain will take on extra work with no additional compensation, while they deal emotionally with the loss of colleagues and fear that the job cutting will eventually hit them. Consequently, companies must approach layoffs with caution.

The company must first determine whether a layoff is the best option. While it may quickly reduce costs, it may also cause the company to dismiss valuable workers. This will hurt long-term productivity, lower the morale of the survivors, and wipe out valuable institutional knowledge. There is also a risk that a layoff will unfairly affect older or minority workers, which could lead to discrimination complaints. Therefore, the company should look at alternatives such as hiring and wage freezes, adjustments to employee benefits, not replacing workers who leave or retire, and job sharing.

If the company decides that it must reduce its workforce, several careful steps are required;

 

  • Establish a specific goal for the layoff to achieve, such as a dollar amount of savings or number of positions.
  • Identify those job functions and skills that it will need to operate successfully after the layoff.
  • Set a timetable so that the reduction has a clear end.
  • Comply with federal and state labor laws.
  • Determine which jobs are unnecessary and eliminate them.

When determining which employees to dismiss, the company may legally use criteria such as length of service with the company, the necessity of a certain job classification, employee status (i.e., part-time or temporary), or employees’ performance records. Management should review candidates for dismissal to ensure that the cutback does not disproportionately impact classes of employees protected by law. If managers can find no other compelling business reason for terminating those employees, they must seek out alternatives.

Once managers have made selections and the decision to proceed, they must inform the affected workers in a professional manner. They should be able to clearly explain the reasons for the action; workers’ entitlement to benefits such as severance, health coverage, and others; and post-employment services available to the workers, such as outplacement. The workers may express emotions ranging from stunned silence to rage; the managers must be prepared to deal with their reactions in a businesslike manner. Remaining employees will have concerns about their own futures and the firm’s outlook. Management should, to the extent possible, explain the reasons for the layoff, the likelihood of additional job cuts, and the business goals the firm seeks to achieve through the layoffs.

The company must take particular care when the layoff involves older employees. Severance packages usually require the employee to waive his right to press a claim under federal law. However, regulations impose procedural requirements that an employer must meet before a court will consider the waivers valid. Companies must take special care to meet those requirements.

Shrinking a company is an unpleasant prospect that no manager relishes. Employee lawsuits may well result from a workforce reduction. However, if the firm handles the action with care and sensitivity, it can make such claims less likely and will be in a better position to defend itself against claims that do arise.

Attitude Adjustment: Change Employee Behavior to Reduce Injuries

Despite common belief, the majority of workplace injuries are not caused by unsafe conditions, but rather employee behavior. These “misbehaving” workers often overestimate their physical limits and make unsafe choices—such as lifting a 300-pound piece of equipment without assistance.

When DuPont conducted a study of all its workplace accidents over a 10-year period, they discovered that 96% of the incidents resulted from employees working beyond their limits. A 2006 Liberty Mutual Workplace Safety Study showed that more than 50% of all workplace injuries were a result of overexertion, falls, twisting the wrong way and other such “behavioral” accidents. These injuries led to an estimated $46 billion in annual worker’s compensation costs.

The OSHA factor

Considering these eye-opening statistics, it’s obvious that workers need an on-the-job attitude adjustment. Some believe the industry should turn to The Occupational Safety & Health Administration (OSHA) to reverse this disturbing trend. Unfortunately, OSHA may not be the solution.

Although the organization has acted as the watchdog for workplace safety for the past 30 years, OSHA generally focuses on making the workplace safer as opposed to changing employee behavior. After all, it’s a lot easier to modify a facility or repair a piece of machinery than it is to change the way a worker thinks and acts. Plus, many employers are wary of opening their doors to OSHA in fear that the organization will become overly involved in their every day affairs.

Taking charge

Because OSHA doesn’t seem to be the answer, it looks like employers are on their own when it comes to changing employee behavior. That means business owners must take the initiative to educate employees and cut down on preventable workplace injuries.

Here are a few steps employers can take to cut back on “behavioral” accidents:

  • Appraise the situation: Take a closer look at past employee injuries that have occurred in your workplace. If you notice any patterns or trends, it’s time to make significant changes in that area. For example, if most injuries occurred when employees were attempting to carry heavy boxes, focus on teaching workers to safely move boxes with the assistance of another worker or a forklift.
  • Get supervisors on board: Ensure that your front line supervisors make injury prevention a top priority. Not only should they constantly enforce safety guidelines, but they also need to raise awareness throughout the ranks.
  • Work as a team: Workplace injury prevention requires plenty of teamwork. Make sure that all your employees understand the importance of working together and keeping an eye out for their fellow workers.
  • Create incentive programs: Consider offering your workers special rewards for sustaining a safe workplace. For example, let workers know that if there are no injuries within a 6- or 12-month period, they’ll be rewarded with a party, gift certificates or even an extra vacation day. This will give them greater incentive to make safe choices on a daily basis.
  • Hire the right people: Try to employ safety-conscious, reliable workers who are genuinely concerned with injury prevention.
  • Train your workers: Without the proper education and training, workers cannot be expected to perform their jobs safely. Ensure that all your employees are well-trained in safety guidelines and offer refresher courses each year.

Changing human behavior is no easy task. It will take loads of time and hard work to change your employees’ ways, but it will be well worth the effort in the long run. If you can successfully adjust your workers’ attitudes, you’ll enjoy lower insurance premiums, more productive workers and fewer injury-related absences.

You may even be eligible for inclusion in OSHA’s Safety and Health Achievement Recognition Program (SHARP). This program recognizes small businesses with an exemplary safety and health management system. If you receive this prominent recognition, your worksite will be exempt from programmed inspections as long as your SHARP certification is valid.

Curtail Workers’ Comp Costs in a Tough Economy

Workers’ compensation costs are always a concern for employers—but in today’s tough economy, employers should be more watchful than ever. As financially stressed employees grow increasingly worried about their money problems, many are preoccupied and less attentive on the job. This can greatly increase the risk of an injury. Plus, when employees become anxious about potential layoffs, workers’ compensation claims may increase as workers look for a way to maintain their income.

This is precisely why employers need to take every possible measure to rein in workers’ comp costs right now. Here are a few steps you can take to make sure employees stay happy and claims don’t mushroom out of control:

Open the lines of communication

Everywhere they turn, employees are hearing bad news about the economy. Consequently, workers are growing increasingly anxious about their job security and financial well-being. Now more than ever, it is absolutely critical for employers to keep the lines of communication open with their worried employees.

However, while it’s important to give workers the morale boost they need, it’s also important to be truthful. Don’t sugar-coat a bad situation. Studies show that employees who work for employers who are truthful, fair and supportive have lower levels of stress, anxiety and depression.

Research also shows that workers trust their immediate boss more than the company’s senior leaders. Therefore, direct supervisors should offer their employees plenty of support right now and immediately address any widespread anxiety or rumors.

Keep a close watch on claims

Although employers should always meticulously monitor claims, this becomes even more vital in a rough economy. That’s because many workers may attempt to abuse the system when they are feeling financially stressed.

As you scrutinize the amount and type of claims being filed by your employees, keep an eye out for suspicious trends or patterns. This may help you identify potential abuse. If you suspect any type of exploitation, report it immediately.

Give employees the right title

If your company has recently gone through lay offs or experienced a reduction in workforce, some workers may have changed positions or taken on additional responsibilities. If this is the case, ensure that your employees’ job classifications are up-to-date.

Encourage good health

Companies with wellness programs, fitness opportunities, nutritious food choices and other health-related perks have healthier, more productive employees. Healthy employees are less likely to suffer from illness or injury—which means they are less likely to miss work.

This is why it’s so important to adopt some sort of wellness program for your employees and establish a relationship with a qualified occupational medical provider. Find physicians who follow ACOEM (American College of Occupational and Environmental Medicine). Although they may be more expensive, it’s well worth the cost. These experts will take time to understand your company’s needs and ensure your workers stay healthy, productive and on the job—which will save you untold amounts of money in the long run.

Educate your employees about finances

In our current economic downturn, many of your employees are likely struggling to manage their finances. They don’t know where to turn for financial advice and expertise.

To relieve some of their stress, consider sponsoring office workshops and classes about financial matters like reducing credit card debt, investing wisely, securing a home loan and saving for college. This will give your employees the financial guidance they need while ensuring that they stay happy and productive on the job.

 

In any economy, whether it’s up or down, one thing is always clear: every day a worker is off the job, the employer loses money. Although you may be focused on other company problems right now, such as a reduced workforce, dwindling budgets and a decrease in sales, it’s important to maintain your focus on workers’ compensation issues.

Try to cut back on illnesses and injuries with a wellness program and other health perks. If an employee is injured, do everything possible to return that worker safely to the job as quickly as possible. After all, the longer an employee is out of work, the more difficult it is to get him back to work—and the higher the price tag for the employer.

Covered for Intellectual Property Infringement Risks?

You may not even be aware of a critical breech in your general liability coverage. But you’re not alone. Many businesses carry little to no intellectual property infringement coverage, when, in fact, they would be wise to do so.

Over the past decade or so, there has been a growing trend by many insurers to dramatically reduce coverage for advertising injury in general liability policies. In addition, newer policy forms exclude coverage for trademark and patent infringement claims altogether.

The common misconception is that this coverage applies primarily to the publishing industry. But, if your business has any involvement with media, technology, or both, you may need to conduct a risk audit to uncover exposure to potential intellectual property infringement claims.

Does your business need intellectual property insurance?

Businesses which might be exposed include:

  • Publishing companies
  • Companies which mimic a popular brand slogan or name in their own advertising
  • Companies involved in e-commerce
  • Any company which has a web presence
  • Media companies which specialize in advertising, publishing, broadcasting, photography and similar related professions 

Types of insurance 

Depending on your exposure, available coverage options include: 

  • Intellectual property insurance which is a more encompassing form of insurance to enforce your patents and also extends coverage to copyrights and trademarks.
  • Patent insurance to protect holders of patents from patent infringement losses.
  • Liability insurance for patent infringement to protect sellers, manufacturers and also users when a claim is brought against them for alleged infringement of patents.
  • Specialized media liability insurance for any company which specializes in any media format.
  • Advertising injury insurance to cover any potential claims that stem from advertising campaigns.  An advertising injury is any statement made in advertising that causes loss to another person or entity.

Types of coverage 

There are generally three types of intellectual property insurance coverage currently available which include: 

  • Legal defense only which will provide coverage for the costs of legal defense but nothing for any awarded damages.
  • Indemnity and legal defense which pays for both legal defense costs and any awarded damages.
  • Enforcement coverageto pay for any legal costs to pursue an intellectual property infringement claim against a third party.

To qualify for intellectual property insurance you may be required to show that you have performed an Intellectual Property Search or have registered for a patent, copyright, or trademark.

Intellectual property is specialized insurance coverage. Premium differences for any form of intellectual property infringement coverage vastly differ so carefully examine what each policy covers and excludes. You may need to consult with both your insurance broker and your legal counsel to limit your risk exposure.

Understanding Waivers of Subrogation

Suppose an air conditioning contractor, while installing a system for a new industrial building, has an accident. Another contractor’s employee on the job site suffers injuries when the AC contractor’s scaffolding collapses and falls on top of him. The injured worker sues the AC contractor and the project owner. The project’s contract included a requirement that the contractor assume the owner’s liability for any accidents arising out of the contractor’s work. Consequently, the contractor’s general liability insurance company pays the injured worker for both the contractor and owner’s shares of the damages. The insurance company, however, has determined that the owner was twenty percent responsible for the accident. It files a claim with the owner demanding some of its money back.

The insurance company’s action is entirely legal. Many project owners and general contractors, wanting to avoid this situation, insist that their subcontractors agree to a waiver of subrogation.

Subrogation is a legal principle in which a person who has paid another’s expenses or debt assumes the other’s rights to recover from the person responsible for the expenses or debt. For example, if someone hits your car in a parking lot and causes significant damage, your insurance company will pay you for the damage (assuming you bought collision insurance,) then recover the amount of its payment (subrogate) from the other driver (or, more commonly, from the driver’s insurance company.) Subrogation holds ultimately responsible the person who should pay for the damage.

Owners and general contractors want to transfer their liability to subcontractors, to the extent that they can. Therefore, contracts often include a waiver of subrogation agreement. In such an agreement, the subcontractor promises not to pursue recovery from the other party. That agreement might bind the subcontractor’s insurance company, depending on the type of policy and its terms.

A standard commercial general liability policy forbids the policyholder from doing anything to impair the insurance company’s rights after the loss occurs. This implies that a waiver of subrogation agreed to before a loss binds the company. Also, the sub’s policy may protect the other party if it names him as an additional insured. Under common law, an insurance company may not subrogate against its own insured. To remove any doubt, the sub should ask the company to add an endorsement applying a waiver of subrogation to the person or organization named in it. Insurance companies vary on the amount of premium they charge for this; some make no charge at all.

The standard business auto insurance policy has language similar to the general liability policy. Unlike GL insurance, there is no standard waiver of subrogation endorsement for auto insurance. Some insurance companies may offer their own versions of such an endorsement. Again, premium charges will vary.

Workers’ compensation policies require an endorsement whenever a waiver of subrogation is desired. This endorsement may apply on a blanket basis to all parties with whom the insured has written contracts requiring waivers. Alternatively, it can apply only to the party listed on its schedule. The insurance company may charge up to two percent of the policy premium for blanket coverage or two to five percent of the project’s premium for individual coverage.

Commercial property and inland marine insurance policies vary as to whether they permit waivers of subrogation even before a loss.

In all cases, a contractor or building tenant who is required by contract to provide such a waiver should check the relevant insurance policies. Policy changes should be requested if it is unclear whether they permit pre-loss waivers. The firm should consult with an insurance agent on all insurance-related contractual matters to ensure that the proper coverage is in place.

Key Coverage Options under Employment Practices Liability Policies

Uninsured employment practices claims can devastate a company. Many organizations find Employment Practices Liability Insurance essential to their risk management programs. Once a firm decides to buy EPL coverage, it must weigh several important coverage options.

A business can buy a stand-alone EPL policy or as an additional coverage on a Directors and Officers Liability policy. Adding it to a D&O policy may be less expensive, easier to manage, and the defense provisions for the two coverages will be consistent. However, a stand-alone policy provides additional limits, offers more flexibility in terms of defense provisions, and may offer broader coverage.

The firm also must choose the deductible amount (also called the “self-insured retention.”) A relatively low deductible means lower out-of-pocket costs when a loss occurs but a higher premium. It can also mean even higher future premiums or policy non-renewal if the firm suffers frequent small losses. A higher deductible reduces the immediate premium and may help lower future costs, but can also be a strain on a firm with frequent losses or troubled finances.

Policies can either obligate the insurance company to provide defense when a loss occurs or they can relieve the company of that duty. With a “no duty to defend” policy, the firm controls the selection of legal counsel, decides which claims to contest, and manages its reputation. However, this can involve considerable upfront expense — the firm must pay for the defense and settlement first, then seek reimbursement from the company. Also, the firm may lack the expertise in claims handling that an insurance company can offer.

Some firms, such as retail stores, medical offices, and restaurants, have frequent exposure to customers. These firms may be susceptible to claims that an employee harassed customers. Standard EPL policies and Commercial General Liability policies do not provide third party coverage for claims made by people other than employees or job applicants. Therefore, firms like these may want to add this coverage to their EPL policies. This will cost an additional premium, but the additional cost may be much less than the cost of uncovered claims.

Studies have shown that courts award punitive damages in a large number of employment practices cases. These damages can run into hundreds of thousands of dollars. While not all states permit insurance to cover punitive damages, firms in those states that do may want to consider buying it. Insurance companies may offer it subject to the regular policy limits, or only with reduced limits. The cost is normally some percentage of the standard policy premium.

EPL policies provide coverage on a “claims made” basis, meaning that they cover claims submitted to the insurance company during the policy term. The policies normally contain a “retroactive date;” they will not cover claims for incidents that occurred prior to that date. For example, a policy with a retroactive date of January 1, 2004 will cover claims submitted during the policy term if they occurred on or after January 1, 2004. The retroactive date can be the same as the policy’s inception date or some prior date. The earlier the retroactive date, the more claims the policy may potentially cover and the higher the policy premium will be. Firms buying EPL coverage for the first time or switching insurance companies may want to purchase early retroactive dates.

The correct choices for these options will vary greatly, depending on a firm’s characteristics and needs. An insurance agent experienced with EPL policies can provide guidance for these decisions. Because employment practices claims can be so costly, it is worth it to weigh these options carefully.

Financing Environmental Loss with Environmental Insurance

Virtually every type of business has some exposure to losses caused by pollutants. The classic example is a factory dumping waste in a river, but health care facilities have medical waste, schools have fleets of busses and fuel storage facilities, print shops have inks and solvents, and offices have toners and other substances used in office equipment. Standard commercial general liability insurance does not cover many types of pollution incidents that could result in lawsuits. However, many specialized policies are available.

Every contractor has some exposure to pollution-related losses. Heavy equipment can leak fluids. Paints and solvents can spill at a job site. Fuel storage tanks at the contractor’s building can leak. A truck hauling hazardous debris from a job site can overturn. To protect themselves against these types of losses, contractors can purchase Contractor’s Pollution Liability Insurance. These policies protect the contractor against claims from third parties for bodily injury, property damage and cleanup costs, and will pay the costs of defending lawsuits. The claim must result from a “pollution incident” (as the policy defines the term) for coverage to apply.

Firms outside the construction industry may need Pollution Legal Liability Insurance. Insurers have designed these policies to address the environmental risks associated with owning property, operating a facility, or running a worksite. Manufacturers, hospitals, schools, power plants, repair shops, and fuel distributors are just a few businesses that need this protection. Like the contractors’ form, it covers injuries, property damage, cleanup and defense costs. However, this policy applies only to specifically identified locations. It can cover multiple exposures, such as new and existing pollution conditions, pollution caused by products the firm sells, liability from the existence of mold, and liability from transporting pollutants.

Many organizations have fuel storage tanks above or below ground. If they leak, the resulting cleanup costs can be very expensive. A Tank Pollution Liability policy will pay for injuries and damage to others and government-mandated cleanup costs.

Lenders run the risk that their debtors will default on loans because of a pollution incident. Lender Liability Pollution policies can address this risk by covering financial loss resulting from the default of a loan on an identified location due to a pollution incident. The policies typically pay the amount of the outstanding loan balance or the cost of remediation, whichever is less.

Many products are either hazardous themselves (such as fertilizers, fuels, paints and cleaning chemicals) or are designed to contain or store hazardous products (such as drums, hoses, tanks, and pumps.) Manufacturers, distributors and sellers of these products are vulnerable to liability for harm they cause. Products Pollution Liability policies cover injuries, damages, and remediation costs resulting from the failure of a product or caused by the product itself.

Property owners and remediation firms that implement pollution cleanup projects sometimes get nasty surprises in the form of cost overruns. To give these firms some certainty for projects costing $2 million or more, Remediation Cost Cap policies are available. These programs cover losses resulting when contamination is greater than expected, new contaminated areas at the site are discovered, regulatory requirements change during the project, or when regulators re-open projects that were thought to be complete.

The terms and conditions of all these policies will vary from one insurer to another, so it is important to review them carefully. It is also advisable to consult with an insurance agent with expertise in environmental insurance. An uninsured pollution loss can devastate an organization. Environmental liability insurance, chosen carefully, can help ensure your organization’s survival.

This Was No Accident and That Means No Insurance

Insurance companies design policies to cover their customers’ risks of accidental loss. A contractor excavating earth on a city street hits an underground telephone cable and knocks out service to a few thousand businesses and homes. A supermarket employee has partially mopped a floor when a manager summons him to help at the cash registers. A customer trips and falls over the mop left on the floor. Both of these are accidents, not injuries or damage that the businesses or their employees intended. Insurance will cover these incidents, but what about situations where the harm might not have been accidental?

The standard commercial general liability insurance policy provides coverage for “occurrences,” defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Therefore, for the policy to apply to a specific incident, the incident must be an accident. Moreover, the policy goes on to state that it does not apply to bodily injury or property damage “expected or intended from the standpoint of any insured.” The questions of whether incidents were accidents and whether an insured expected or intended resulting injuries or damages have been fodder for the courts for years.

Courts in every state have tried to develop a precise meaning for the term “accident.” The definitions vary somewhat, but they all seek to evaluate the responsible person’s intentions. For example, one state defines accident as an “unintended and unforeseen injurious occurrence.” Another state holds an incident to be accidental if the insured did not intend the resulting damage, even if he intended the specific act. Still another calls an accident, “something out of the usual course of things…not anticipated and not naturally to be expected.”  Therefore, it’s an accident when a painting contractor sprays paint all over ten parked cars because he intended to operate a spray-painting gun but did not intend for the wind to blow the paint on the cars.

Courts settle the question of whether a person intended harm to occur when they determine the facts of a case. However, they tend to rule that harm resulting from some actions can never be accidental. The high court in one state held that an act is not accidental when it is so “inherently injurious” that it is certain to result in an injury. Examples of this type of conduct are sexual molestation of children and firing a weapon at close range. Other states have held that a court can infer that someone intended to cause an injury only when a reasonable person can reach no other conclusion. Therefore, if two conclusions are possible and only one of them points to intent to cause harm, the court must assume that the person did not intend harm. The CGL policy would provide coverage for the person in this situation.

Public policy prevents insurance companies from insuring people against liability for injuries or damages they intentionally cause. Otherwise, people could commit these sorts of acts with little risk to themselves. Besides, businesses pay good money to insure themselves against accidents. It is unfair to these organizations when intentional injury claims raise the cost for everyone.

However, proving what someone’s intentions were at a particular moment is difficult. If your organization has an incident that you believe might result in a liability claim, you should report it to your insurance agent as soon as possible. Let the insurance company investigate, and know that your insurance is there to protect you from the consequences of true accidents.

Goldilocks Workers Compensation Reserves: Too High, Too Low, or Just Right?

Workers’ compensation is often one of the largest items in a business’ insurance budget. Relatively small claims for injuries like cuts or abrasions can impact the coverage’s cost, but more influential are the larger claims for more serious injuries. This type of loss requires the insurance company to set up a reserve, or estimate of a claim’s ultimate cost. The accuracy of a reserve has important implications for both the employer and insurer.

Businesses may feel that insurers set reserves too high, and that can happen. Over-reserving unnecessarily inflates the insurer’s liabilities and reduces its surplus (net worth.) This in turn reduces the amount of insurance the company can provide without raising fears about its financial stability. Although the experience modification formula penalizes a firm more for frequent claims than for severe ones, over-reserving does make the firm’s modification greater than it should be, resulting in higher premiums. Finally, over-reserving distorts a firm’s loss ratio, which makes the firm’s business less attractive to underwriters.

Under-reserving presents the greater threat to insurers. If the company sets the reserve too low, the claim can develop more rapidly than expected. The company may eventually find itself with a large obligation for which it is not prepared to play. Also, company managers tend to focus their attention on large claims and delegate handling of smaller ones. This means that an under-reserved claim will not receive proper management attention; the company will not apply claim control measures until it is too late for them to make a difference. Inadequate reserves can also affect a company’s financial stability ratings. Rating agencies such as A.M. Best may decide to lower a company’s rating if it finds significant under-reserving. This may cause customers to move their business to companies with higher ratings.

Certain types of claims are more likely than others to develop into high-dollar ones. Back injuries tend to be very expensive. Aging factory or warehouse laborers who have endured years of stress may need long-term treatment and, in some cases, surgery. Depending on the worker’s age, he might not return to work. Older employees who suffer injuries to their feet and legs may also have expensive claims. These employees may have pre-existing conditions, such as diabetes or hypertension, which worsen the consequences of an injury, resulting in amputations or heart attacks. Other injuries may aggravate conditions such as obesity or spinal problems, making the worker’s diagnosis more severe and increasing the disability period.

Other claims may develop into large losses because of the worker’s circumstances. Suppose a two-earner household has been paying for childcare for years, and the youngest child reaches the age where such care is no longer necessary. The parents are accustomed to a standard of living where they live on the after-childcare income. Workers’ compensation benefits with no childcare expense may be similar to a parent’s wages after paying for childcare. This gives the worker less of an incentive to return to work. Workers who are nearing retirement also have a reduced incentive to return to the job after experiencing a period of disability, as they may be mentally prepared to stop working. Conversely, seasonal employees who need income to carry them through the off-season have incentives to prolong their disability periods. So do workers whose companies are laying off employees or whose plants are closing.

Employers should work closely with their insurance agents and companies to monitor workers’ compensation claim activity. Claims that fit into any of the types described above need special attention. The art of claim reserving is one of making educated estimates based on evidence and experience. Employers should verify that their insurers’ claim reserves are both fair and realistic.

What the Lilly Ledbetter Fair Pay Act Means for Your Business and Your Insurance

On January 29, 2009, President Barack Obama signed into law the Lilly Ledbetter Fair Pay Act of 2009. Congress approved this law to make it easier for workers to win wage discrimination lawsuits against their employers. What does the law say, and what does it mean for employers? Will a business’s employment practices liability insurance (EPLI) policy cover the suits that this law will allow to go forward?

Lilly Ledbetter was a production supervisor at a Goodyear tire plant in Alabama. Shortly before her retirement, she learned that for years the company had paid her substantially less than it had paid male employees for the same job. Because the company calculated her pension benefits based on her earnings while employed, the lower wage affected both her past and future income. Six months before her retirement in 1998, she sued the company for equal pay under the federal Civil Rights Act of 1964. This law imposes a 180-day statute of limitations for filing a discrimination lawsuit, meaning that the worker must file the suit within 180 days of when the discrimination occurred. Ledbetter argued that the company unfairly discriminated against her due to her gender, while Goodyear claimed that it based evaluations only on competence.

The trial court ruled in Ledbetter’s favor. Goodyear appealed on the grounds that the law barred all claims for discrimination occurring more than 180 days before she first inquired into it; the appellate court agreed. She appealed to the U.S. Supreme Court, but in 2007 a divided court ruled in favor of the company. Soon after, Democrats in Congress introduced a bill to overturn the ruling. It passed the House of Representatives but was unable to overcome procedural obstacles in the Senate, and the 110th Congress adjourned without further action. The new Congress quickly enacted the bill in January 2009, and it became the first law President Obama signed. It amended the Civil Rights Act to provide that the statute of limitations resets with every payment of unfairly discriminatory wages. This allows employees to file suits at the time they learn of alleged discrimination, even if the discrimination began years or decades earlier.

An EPLI policy covers an employer for a variety of acts, including discrimination, wrongful termination, harassment, retaliation, and other types of inappropriate conduct. Most policies define discrimination as including violations of federal, state and local laws that give protected status to certain individuals. Because of these provisions, EPLI policies should cover employers for damages they must pay as the result of violations of the Civil Rights Act. In addition, the policy will pay the costs of defending the organization against the claim, even if the claim is groundless.

EPLI policies cover claims made during the policy period, but only if the alleged wrongful act occurred on or after a specific date, known as the “retroactive date.” For example, a policy written for the period January 1, 2009 to January 1, 2010 and with a retroactive date of January 1, 2005 will cover a claim made on November 1, 2008 for an act that happened on July 1, 2008. It will not cover a claim made on the same date for an act that happened on July 1, 2001. There is no standard EPLI policy, so the policies will vary by company. An insurance agent can explain the differences among different policies to an employer.

The Lilly Ledbetter Equal Pay Act makes employers more vulnerable to successful wage discrimination suits. To avoid financial loss from this, employers should be certain that their wage practices comply with the Civil Rights Act, and they should obtain a comprehensive EPLI policy from a reputable insurance company.