NCPA - National Center for Policy Analysis

Bigger Bias Awards Cause Insurers to Raise Premiums

January 9, 2002

Because jury awards in employment discrimination and harassment cases have surged in the past decade, insurers who offer companies such coverage are doubling and sometimes even tripling their premiums.

Experts say insurers who offer what is known as "employment practices liability insurance" initially underestimated the number of small awards that companies pay every year and did not anticipate the growing size of jury verdicts.

  • One-fifth of jury verdicts in such cases, which involve discrimination, sexual harassment and wrongful termination complaints, are for $1 million or more -- compared to only 7 percent of cases as recently as 1994.
  • As the number of claims made each year to the Equal Employment Opportunity Commission has remained steady at roughly 80,000, the awards made in settlements and mediation have increased by nearly two-thirds in the last few years -- to nearly $250 million for the fiscal year that ended last September.
  • Surveys show that about 30 percent of companies carried some sort of employment practices liability coverage as of 1999.
  • Most of the very largest companies in the U.S. have coverage, but their officials typically decline to discuss it -- fearing they will become targets for suits or leave people with the impression they have a systemic problem.

Experts say that after Congress made it easier for employees to sue on discrimination grounds in 1991, many companies failed to appreciate the extent of their liability -- treating the prospect of a suit as just the cost of doing business.

Source: Reed Abelson, "Surge in Bias Cases Punishes Insurers, and Premiums Rise," New York Times, January 9, 2002.

 

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