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January 01, 2001
Preparing Your Business for a Discrimination Lawsuit
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Policies, Education, And Insurance Can Help


NEW YORK, Nov. 30 -- Allegations of discrimination in the workplace are becoming commonplace. Coca-Cola's recent decision to pay $192 million to settle charges of racial discrimination is only the latest in a series of multi-million dollar settlements stemming from alleged acts of racial, sexual and other discrimination, according to the Insurance Information Institute (I.I.I.).

CBS recently settled a sex bias case with the Equal Opportunity Employment Commission (EEOC) for $8 million while Commonwealth Edison agreed to pay up to $2.5 million to settle charges that it discriminated against Latino employees. In recent years, Texaco, Home Depot, Mitsubishi, PepsiCo and dozens of other well-known corporations have spent hundreds of millions of dollars in settlements and jury awards in the midst of what has become a virtual explosion in employment practices liability litigation.

EEOC charges up 77% since 1992

During fiscal year 1999, 19,694 charges of discrimination were filed with the Equal Opportunity Employment Commission (EEOC), up 77% from the 11,096 charges files in fiscal year 1992.Approximately 37% of complaints allege racial discrimination, 31% allege sex discrimination while 9% assert discrimination based on national origin.The remaining 23% are a mixture of claims of discrimination based on religion, age, disability and other factors.

"Sooner or later, virtually every medium-to-large sized company is likely to find itself the defendant in a discrimination or sexual harassment lawsuit," said Dr. Robert P. Hartwig, vice president and chief economist, I.I.I."It is estimated that six out of 10 companies have been named in a discrimination or sexual harassment lawsuit in the past five years," he added.

Hartwig said that the boom in employment practices litigation is being fueled by new legislation that allows the recovery of monetary damages in cases of intentional discrimination, vaguely worded federal and state anti-discrimination laws, conflicting court rulings, heightened public awareness and rapidly changing workforce demographics.

"The 21st century's racially and ethnically diverse workforce is a potential powder keg," said Hartwig, adding that the litigious nature of today's society is the spark that could set it off."Men and women of every conceivable race, creed and color are more likely to be working with each other not just as peers, but also as subordinates and superiors than at any point in American history," he said.

Reducing exposure is goal

Corporate America is clamoring for ways to reduce its exposure to allegations of racial, sexual and other forms of discrimination."There are two defensive measures every corporation should take to protect itself against the threat of employment practices litigation," said Hartwig.The first is obvious and SOP at most large concerns. It involves the creation of a written policy that strictly forbids all forms of discrimination and harassment.The policy must be consistently enforced, be made known to all employees at all levels of the organization and include effective procedures for filing complaints. While most companies do OK at setting the policy, consistent enforcement and complaint procedures are frequently the cause of trouble.

Employment Practices Liability Insurance to the rescue

A second line of defense, according to the I.I.I., involves the purchase of employment practices liability insurance (EPLI) products and services. EPLI typically covers legal costs, damage awards and settlements arising from alleged claims of discrimination or wrongful termination.Insurers may also provide a wide range of resources such as attorney review of current employment practices, training and sample anti-discrimination policy handbooks.Standard commercial general liability, directors and officers liability and workers compensation policies typically do not cover costs associated with defending or settling discrimination lawsuits.

Determining the cost

More than 60 insurers sell EPLI today compared to just a handful when these policies first hit the market in 1990.The relatively modest cost of EPLI makes them attractive for even a moderate-sized company.A typical $1 million dollar policy with a $10,000 deductible for a company with 200 employees costs between $10,000 and $20,000, depending on the type of industry.

"For about $40 a day, a mid-sized company can protect itself against the ruinous impact that a discrimination lawsuit can have on a modest-sized business," said Hartwig.

The I.I.I. is a non-profit, communications organization supported by the property/casualty insurance industry. The Institutes web site is at http://www.iii.org.

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