Lawsuits can pose a considerable threat to businesses, and actions related to employment practices should be a particular area of concern to business owners. According to researchers, about 60 percent of employers can expect to be sued by a prospective, current or former employee.

“It’s the increasingly litigious nature of our society,” says Derek M. Hoch, president of Leverity Insurance Group. “These lawsuits really started to trend upward when the market plummeted to its lowest point in combination with the state of the economy over the past four to five years. Desperate times can sometimes lead to desperate actions. When people couldn’t find employment, they filed suits against employers who let them go during that period of recession.”

Smart Business spoke with Hoch about how employment practices liability (EPL) insurance can help businesses manage risks associated with such lawsuits.

What are the most widely recognized types of employment-related lawsuits?

  • Wrongful termination — Discharging an employee for invalid reasons.

  • Discrimination — Denial of equal treatment to employees of a protected class.

  • Sexual harassment — Workers subject to unwelcome sexual advances, or obscene or offensive remarks.

Lawsuits can also be based on things such as wrongful failure to employ or promote, wrongful discipline and religious discrimination.

How can EPL insurance protect employers?

More than half of all claims for employment-related liabilities are against businesses with fewer than 50 employees. Claims can be costly, especially if a case has the ability to go on for an extended period of time. The average cost of an employment lawsuit exceeds $270,000. Even if the lawsuit is frivolous, it still takes time away from operating your business.

An EPL policy will help to pick up these defense costs and any judgments or claims assessed against your business. In some instances, these cases are settled before they even go to court; EPL will pay for settlement costs as well.

EPL also covers claims filed with the U.S. Equal Employment Opportunity Commission (EEOC). In 2012, the EEOC reported 99,947 charges for harassment, and costs of resolving these claims were $364.6 million.

Why is purchasing third-party EPL insurance so important?

Third-party EPL addresses the coverage gap that leaves employers vulnerable to discrimination and harassment lawsuits from customers, clients, vendors and suppliers. Standard EPL policies only cover actions related to employees or prospective employees, and most general liability policies specifically exclude harassment and discrimination.

More insurance carriers are including third-party coverage as part of EPL policies because every company is at risk. It’s vital for any business that deals with customers on a daily basis.

Other than insurance, what approaches can companies take to protect themselves?

Have a legal professional review your employee handbook to ensure it contains all the necessary information, including policies covering sexual harassment, discrimination, equal opportunity, grievances, discipline, termination, performance evaluations, Internet usage, pregnancy leave, hiring and employment at-will. Then make sure employees sign off that they’ve read it.

If you don’t have a handbook, you may not be able to secure EPL insurance because insurance carriers take this very seriously. They want to see that you’ve taken proper steps in terms of risk management and providing a safe workplace.

You can protect yourself even more by making sure you’re following proper procedures regarding hiring, firing, performance reviews and even interviewing prior to hiring someone.

Taking these steps also reduces risk, which will generally translate into lower insurance premiums. EPL insurance works hand-in-hand with your internal employment practices to provide necessary resources to defend your company against a lawsuit or claim.

Derek M. Hoch is the president at Leverity Insurance Group. Reach him at (216) 861-2727 or

Request a quote on employment practices liability insurance or any other corporate coverage.

Insights Business Insurance is brought to you by Leverity Insurance Group

Published in Cleveland

While providing intriguing new business opportunities, social media channels also expose organizations to new risks. Social media channels represent far more than an intriguing business opportunity; they have become part of the fabric of social interactions for an increasing segment of the population. Rather than trying to put the social media genie back in the bottle, organizations should implement guidelines that are based on their risk assessment and promote the responsible use of social media.

“A set of guidelines stands not only to reduce the negative impact to the organization but also to reap the benefits of social media,” says Paul Feather, a manager in the Crowe Horwath LLP Dallas office. “By implementing guidelines based on a risk assessment, organizations can promote the responsible use of these powerful tools and reap their benefits.”

Smart Business learned more from Feather and Jim Stempak, principal at Crowe Horwath LLP, about how to properly monitor, manage and execute a social networking strategy.

What risks do businesses face in regard to their brand?

An organization’s employees, customers, and vendors can either be its greatest ambassadors or seriously undermine its brand and image. Organizations can’t control or change feedback on social networking sites — but they can be at greater risk if they fail to monitor it and respond in a timely manner when a response is appropriate.

An example of a company aware of this risk is Gap. In October 2010, the company changed its logo and promptly received negative feedback on social networking sites. Because Gap monitors such feedback, it was able to act quickly and change the logo back to the famous original.

Employees, with their insider knowledge and perspective, have the potential to cause even greater brand damage. In April 2009, Domino’s Pizza experienced the broad reach of social media after two employees posted a video on YouTube that showed them violating various health-code standards. By the time Domino’s realized it had a PR problem, millions of people had already seen the video and joined in discussions on Twitter.

Based on its presence on social media sites, an organization might also face reputational risks associated with managing its own message. An attempt to restrict negative commentary on an interactive site can draw more unwanted attention to an issue and create a public relations disaster.

How can social media present employee-related risks?

When hiring, HR might check candidates’ profiles on social media sites. But, even a site that is publicly available can expose information about a restricted class such as religion, race, age or sexual orientation, or information that is not accurate — a doctored photo, for example — and could lead an organization to make incorrect assumptions. Employers must also use care when terminating an employee due to something he or she posted on a social networking site, as there are laws that protect certain online activity under the National Labor Relations Act.

The social networking environment can often lead to a blurring of the line between personal and professional. When coworkers interact on sites like Twitter or Facebook, there is the potential that a coworker’s actions or personal opinions could be deemed offensive or inappropriate. Or, a boss’s personal views posted on a site could make the work environment uncomfortable for subordinates.

Perhaps the most harmful consequences to a business could come from information security risks. Employees can intentionally or inadvertently post confidential information about the company or a customer; individuals can post information such as passwords or user IDs that can leave them vulnerable to cyber attacks and theft; and viruses and other malware can make their way into company networks through social media sites.

How can businesses address these risks?

Engage a multidisciplinary team to document intended social media use, including HR’s use of social media for employee screening and cause for termination as well as employees’ activity, such as accessing sites on company devices, and the impact on productivity. Find out whether employees and supervisors are connected to one another and to customers on networking sites.

Assess the risk of social networking on company technology. Have you seen an impact on network connectivity due to social networking volume? Have you been affected by viruses originating from social media sites? What technology is available to monitor and manage social media use on the company network and mobile devices?

Once the risks to the company brand, technology and employment practices have been established, it’s vital to expand current policies and implement safeguards in regard to appropriate employee use. Define what type of social media use is acceptable during business hours and document standards about using social media relative to providing opinions about the organization; also define the consequences of noncompliance.

Expand anti-malware software to encompass attacks over social media channels, define how use of social media will be restricted and define the safeguards the organization will implement to detect social media-based malware and attacks.

Outline how marketing campaigns using social networks will be developed, approved and deployed to create a consistent messaging strategy. Also implement vendor management policies, including nondisclosure agreements and vendor contract standards; define how third-party organization with access to the organization’s data and assets will manage their employees on social networks.

Finally, provide social media policy training for all employees and create a system for monitoring social media channels. A new breed of software products and vendor services called social customer relationship management (CRM) tools helps organizations listen on public channels for social media chatter that affects their organization.

Paul Feather is a manager in the Crowe Horwath LLP Dallas office. Reach him at (214) 777-5230 or Jim Stempak is a principal in the Crowe Horwath LLP Dallas office. Reach him at (214) 777-5203 or

Published in Dallas