NEW YORK Aug. 19, 1997 — Insurance Services Office, Inc. (ISO), the country's largest provider of property/casualty information services, has introduced the first standardized insurance program to protect employers from one of the fastest growing litigation threats — employee lawsuits for abusive practices such as sexual harassment and racial and other forms of discrimination.
ISO's Employment-Related Practices Liability Program, which will be available to all ISO-participating insurance companies, has been filed with state insurance regulators for approval effective April 1, 1998.
The ISO program includes policy forms, manual rules and loss costs (projections of future claims). It is the first new line of insurance that ISO has introduced in more than 20 years.
"This new program responds to one of the fastest growing liability threats employers face today," said Domenick J. Yezzi, Jr., ISO's vice president — Specialty Commercial Lines." In recent years employers large and small have been increasingly subject to lawsuits arising out of wrongful termination, racial discrimination, and sexual harassment in the workplace," said Yezzi.
"Virtually any business is a prospect for employment-related practices liability insurance," said Yezzi, noting the federal laws on race discrimination and disabilities bias — often used by workers as the basis of lawsuits — apply to businesses large and small.
The number of lawsuits filed for sexual harassment, alone, more than doubled from 6,100 in 1990 to more than 15,500 in 1995.
"Not only are the number of suits rising, so are plaintiffs' awards," said the ISO executive. He noted that in 1995, the median compensatory award for a wrongful termination claim was more than $200,000 — 45 percent higher than it was only a year earlier — and 329 percent higher than in 1988. A 1996 survey revealed that half of all small businesses polled would have shut down if they lost $250,000 in court. "There's no question this coverage program is needed," said Yezzi.
ISO's development of this benchmark program, which can be used countrywide by large, medium or small insurers, will introduce economies of scale that will facilitate entry into the employment-related practices market by competitors of all sizes, added Yezzi.
"Until recently, insurance coverage for employment lawsuits for discriminatory acts based on race, age, sex, physical handicaps, marital status, sexual orientation and national origin was obscure. Today it is a mainstream business necessity," Yezzi said.
The ISO Employment-Related Liability Practices program has been in the making since last fall and is based on input from ISO's insurer customers and various ISO advisory panels representing a cross-section of insurance and business interests.
The ISO policy specifically insures a company, its managers and supervisors. The policy covers insureds' liability for claims arising out of an injury to an employee because of an employment-related offense, as well as providing legal defense for the insured. Injury may result from discrimination that results in refusal to hire; failure to promote; termination; demotion; discipline or defamation. Injury also can include coercion of an employee to perform an unlawful act; work-related sexual harassment; or verbal, physical, mental or emotional abuse.
Coverage would be triggered by a claim first made during the policy period. The amounts covered for both defense expenses and damages are contained within the policy limits.
The ISO program excludes:
The new program can be written as a stand-alone policy or can be made part of ISO's Commercial Package Policy.
ISO's new program makes available a number of optional coverages including:
"A number of insurers are beginning to address the growing need for employment-related practices coverage, but coverage is far from standardized at this point," said Yezzi. "ISO's new program will provide a necessary benchmark for this new line of insurance, providing standardization, expense controls and uniform statistical reporting that will enhance competition and benefit consumers."