THE GOALS OF EMPLOYMENT LAw
Compensation
In rulemaking, Congress may choose a public or private enforcement mechanism, or a combination of the two. Enforcement of employment law relies heavily on private rights of action.18 To encourage plaintiffs who have experienced wrongful employment actions to file lawsuits against their employers, Congress and state legislatures have granted a right to damages that gives these victims recover their losses. 2, at 1 (1991) (stating that the amendments to Title VII are intended to ``strengthen the existing protections and remedies available under the federal civil rights laws to provide more effective deterrence and adequate redress for victims of discrimination ").
Punitive damages alone are not directly related to the goal of compensating victims for their costs and therefore serve only the purpose of deterring bad behavior.
Deterrence
COMMERCIAL INSURANCE AND EMPLOYMENT LIABILITY
Commercial Insurance
2021] EMPLOYMENT PRACTICES LIABILITY INSURANCE 957 are generally divided into property risks and liability risks.28 Property risks cover damage to a business's property (eg, damage to an assembly line caused by fire), while of liability include damages owed to a third party with legal liability. 28 While the insurance industry sometimes refers to liability insurance as accident insurance, we refer to it here as liability insurance to avoid using specific insurance industry terms. INST., https://www.iii.org/article/commercial-general-liability-insurance [https://perma.cc/UE75-7XH6] (last visited Jan. describing commercial general liability insurance ).
31 See Product Liability Insurance vs. General Liability, EK INS., https://ekin-surance.com/cgl/product-liability-insurance-vs-general-liability.html [https://.
EPLI History
THE EPLI MARKET TODAY
Scope of the Market
A recent estimate puts uptake rates in the 40 percent range for companies with more than 1,000 employees, as opposed to a 7 percent uptake rate in companies with 1-25 employees.5 5 A range of businesses across industries are purchasing EPLI. In 2018, the largest purchaser was the "Information, Finance, Insurance, Real Estate and Renting and Leasing, and Professional Business Services" industry.5 6 Other major drivers of premiums include "Educational Services, Health Care, and Social Assistance Trade, Transportation, and Warehousing ," and "State and Local Government."5 7. The Betterley Report predicts that many EPLI service providers are at risk of paying out large claims in the coming years, particularly in the entertainment industry.5 8 As a result, many insurers from the market for EPLI in the entertainment industry and completely refuse to provide coverage to entertainment businesses because of the risks they pose.59 Other insurers scrutinize EPLI applicants in the entertainment industry more closely. thoroughly than that of other industries.6 0.
Other examples of industries for which some insurers refuse to write EPLI coverage include law firms, car dealerships, adult entertainment companies, and casinos.61 These industries could be considered to have unacceptable risks. insurance companies due to unpredictability or a high level of damage.
Addressing Moral Hazard
While insurers benefit from excesses and limits because they reduce moral hazard, insureds often choose policies with such provisions because they reduce their premiums. In general, the higher a deductible and the lower a policy limit, the cheaper the policy will be.6 8. The 2019 Betterley Report summarizes the major EPLI insurers' menu of options for policyholders when it comes to deductible amounts, limits and proportional risk sharing. Twenty of the thirty-two insurers included in the report do not offer policies with a $0 deductible and state a minimum excess ranging from $1,000 to Of the twelve insurers that do not offer a non-zero minimum list, only four specifically state that their policies have a $0 deductible, and the remaining eight are ambiguous.70.
In terms of policy limits, the highest limit is $50 million, with the majority of companies offering limits up to $25 million.71 None of the thirty-two insurers require a minimum proportional risk sharing percentage, and the majority state that the insured can choose any level . Applications for EPLI insurance are generally comprehensive and ask about the applicant's business practices, employment numbers and turnover, as well as any past employment claims.72 Any material inaccuracy or omission in an insurance application is grounds for non-coverage if a claim arises.7 3 Companies therefore have strong incentives to provide all relevant information requested in an EPLI application. This, in turn, means that insurance companies have a wealth of information about the employment practices and loss experiences of applicants and renewing insureds when setting the pricing of EPLI policies.
72 See, e.g. Application for Employment Practices Insurance, IRONSHORE,. https://www.ironshore.com/pdfs/products/EPLIApplication.pdf) [https://. See Defendant Harvey Weinstein's Third-Party Complaint for Breach of Contract and Breach of the Duty of Good Faith and Fair Dealing (Bad Faith) at 2-11, Fed. The fact that the insurer had to come back to a misrepresentation made on an application twelve years earlier is presumably because the renewal applications were less extensive and therefore did not contain enough information to include any misrepresentations.
20211 LIABILITY PRACTICES LIABILITY INSURANCE 965 Finally, loss prevention programs are another means of reducing moral hazard. Insurers in the EPLI area offer comprehensive loss prevention programs for their policyholders, which the insurers market as being provided at no additional cost.7 5 Seven of the 32 insurers included in the Betterley report offer a 1-800 number for employee complaints, while 24 of 32 offer a hotline that insured companies can call with legal questions regarding employment practices.7 6 Twenty insurers offer assistance in drafting employment policies or handbooks, either through a model employment handbook or sample guidelines. for employment practices.7 7 Twenty-one insurance companies offer education and training on best practices in the field of employment.7 8.
Claims Handling and Liability Limits
Three insurers offer advice from an HR professional, twenty-five offer consultancy services from a lawyer, and one insurer offers advice from either an HR professional or lawyer.79. For claims in excess of policy limits, any money spent on defense costs reduces the likely damages for the victim, as research shows that insurance policy limits often serve as de facto limits on damages.8 2. One of the reasons cited by the District Court for the Southern District of New York in the rejection of the proposed Weinstein class action was related to the problems created by shrinking borders.
The proposed settlement would be paid in full by insurance policies and would award about $19 million in class-action compensation to victims, while awarding about $15 million to Weinstein's legal defense.83 The judge noted that he was prioritizing Weinstein's defense costs over those affected. he was a victim.
Intentional Acts and Punitive Damages
PREVIOUS CRITICISMS OF EPLI
ASSESSING EPLI'S IMPACT
Ex Ante Moral Hazard
The existence of EPLI does not appear to introduce ex ante moral hazard to a greater extent than other forms of business liability insurance. First, insurance companies appear to monitor and reduce the likelihood of improper employment. In the EPLI insurance market, insurers use a variety of strategies that reduce the amount of moral hazard of their policyholders, including deductibles, caps, and charging premiums based on the company's individual risk level.112 In fact, insurers themselves have private incentives. to reduce moral hazard,113 so their use of these strategies is not surprising.
When insurers try to reduce moral hazard for their bottom line, society benefits as well. Loss prevention programs offered by many insurers are designed to combat ex ante moral hazard and can help spread industry best practices to companies purchasing insurance. Although previous EPLI commentators have argued that the risk-based approach to implementing loss cuts runs counter to the moral views of labor law,114 we counter that any shift in moral views is appropriate where there is a shift.
THEORY suggesting that the practice of setting premium rates based on claims history, which is evidence of the insured's level of risk, reduces moral hazard); Ralph A. Under Moral Hazard, in HANDBOOK OF INSURANCE 205, 207 (ed. Georges Dionne, 2d ed. 2013) (discussing deductibles and limits as possible tools to reduce moral hazard).
Ex Post Moral Hazard
PROMOTING ACCOUNTABILITY FOR EMPLOYER-
Regulating Insurers
- Mandatory Risk Sharing
- Subrogation
- Promoting Victim Compensation
- Potential Downsides to Insurance
We suggest that one means of aligning corporate incentives with deterrence goals could be to require a mandatory minimum coinsurance rate in cases of employer-facilitated errors. Under this proposal, all EPLI contracts would be required to include a clause with a minimum co-insurance rate that would kick in in the event of employer-facilitated errors. Another potential solution could be to mandate that all EPLI contracts contain a right of subrogation in the event of an employer-facilitated right.
34; If the court determines that the employer-facilitated wrongful standard has been met, the employer owes the insurance company any money paid to the victim as settlement or restitution. 135 We argue that in the case of employer-facilitated watches—which are already incredibly unique to the extent that they are insurable—such subrogation is a desirable option. One wonders why—if the moral hazard issue is so worrisome—it is not desirable to simply place an outright ban on insurance coverage for employer-facilitated errors.
The short answer is that ideally, victims of employer-assisted wrongs should not bear the burden of insufficient funds to pay damages. The difference between commercial crime insurance and EPLI is that no third party is harmed in cases of employee theft. In these situations, any insurance funds would be made available to victims in cases of employer-assisted errors and it would be between the insurer and the insured business to determine the division of liability between them.
However, the current EPLI market is the result of competition that has created pressure to provide coverage for punitive damages and employer-enabled errors. Additionally, the uncertainty surrounding insurability in employer-caused malpractice cases means that insurers can use the threat of coverage disputes to pressure plaintiffs into lower settlements.
Creating Uninsurable EEOC Fines
By providing comprehensive coverage for actions facilitated or covered by high-level employees, EPLI removes incentives to address employment wrongdoing at the company level. Both options would encourage businesses to take appropriate action against illegal employment acts without undermining the benefits created by EPLI.
