When COVID-19 first struck, there was a lot of concern among underwriters and insureds around how the pandemic would impact employment practices liability (EPL). The big fear was that there would be a dramatic uptick in discrimination and retaliation claims as a result of pandemic-related lay-offs and staffing decisions.
“With regards to COVID-19, the biggest EPL exposure is the lay-offs, especially permanent lay-offs,” said Andre Linsky, senior underwriter - Management Liability and Financial Institutions at CNA. “But we haven’t yet seen an increase in claims because most companies seem to have been following the right procedures, using legal counsel, and getting the discharge letters signed. Surprisingly, we haven’t seen too much EPL-related litigation arise out of COVID.”
Despite that slight silver lining to the COVID cloud, the EPL insurance market in Canada is starting to tighten up. Premiums are increasing in the range of 10-15%, and deductibles are also on the rise. Linsky attributes these hardening conditions to an increase in claims activity, coupled with years of potentially inadequate pricing and a sustained low-interest rate environment, which is impacting the insurance industry’s ability to make strong returns on underwriting and investment income.
“Litigation costs are also going up,” he added. “Lawyers are not cheap, and the litigation process seems to be lasting longer and longer. Also, people are more aware that they can sue their employer. There are adverts on the TV and the radio, with plaintiff attorneys saying: ‘Your job was terminated – did you get what is owed to you?’ So, people are more inclined to consult with a lawyer and sue their employer as they lose their jobs.”
While EPL litigation is not as rife in the Canadian market as it is across the border in the United States, certain trends tied into social inflation have increased EPL exposure for Canadian employers. For example, when #MeToo made headlines around the world in 2017, this prompted people to publicly share their experiences of sexual assault or harassment and hold employers to account. Racial discrimination has also been top of mind for employers and employees, especially over the past year with the increase in incidents of racial tension and protests in the US and around the world.
All of these issues are influencing the EPL insurance market in Canada. Amid hardening conditions, compounded by the COVID-19 pandemic, it is vital that insurance brokers obtain all the information needed to submit complete submissions to underwriters, Linsky stressed. They need to obtain a complete picture of a company’s operations related to COVID-19, and how they’re planning to navigate their recovery in what is still quite an uncertain future.
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“The first thing we want to know is whether the insured laid anyone off because of COVID,” said Linsky. “It’s not just industries like hospitality, travel and retail where they have had to let employees go. Even some manufacturing companies terminated staff because their operations were deemed not essential in some jurisdictions. In asking those questions, it helps insureds to think about risk management best practices – and we do offer help with that.
“We offer our insureds some legal assistance via an HR helpline, where they can get 30-minutes of free advice on an EPL-related matter that they’d like some counsel on. They don’t need to have had a claim; the helpline is there if they want some guidance on how best to deal with an EPL-related issue. That’s also a great help to us because it mitigates the risk and reduces the potential for future claims.”
Moving forward, CNA will take a “one risk at a time” approach to EPL underwriting, said Linsky. He added: “Given the current uncertainty around COVID and Canada’s vaccine roll-out, we’re still thinking that lay-offs are possible and further lockdowns are possible, and so we’re asking questions to ensure that insureds have the right controls in place should those things happen. We’re going to assess every risk one-by-one, and we’ll make unique decisions on every file.”
