Retaliation Claims: The Fastest Growing EPLI Exposure

Employment Practices Liability Insurance (EPLI) was once dominated by claims of sexual harassment and racial discrimination. However, the landscape has shifted dramatically. Today, retaliation stands as the most frequent claim filed with regulatory agencies and the primary driver of loss for EPLI carriers. Understanding this exposure is critical for candidates preparing for the complete Professional Liability exam guide.

Retaliation occurs when an employer takes an adverse action against an employee for engaging in a "protected activity." Because the legal threshold to prove retaliation is often lower than the threshold for proving the underlying discrimination, these claims represent a significant financial risk to organizations of all sizes. Even if the initial complaint is found to be meritless, the employer can still be held liable for how they responded to the complaint.

To succeed in a retaliation lawsuit, a plaintiff generally must establish three specific elements. For insurance professionals, understanding these elements helps in evaluating the potential for a claim to trigger the Insuring Agreement of an EPLI policy:

• Protected Activity: The employee must have engaged in an activity protected by law. This includes filing a formal complaint, participating in an internal investigation, or even informally complaining to a supervisor about perceived workplace inequities.
• Adverse Employment Action: The employer must have taken an action that would dissuade a reasonable person from making or supporting a charge of discrimination. This is not limited to termination; it can include demotions, salary reductions, negative performance reviews, or undesirable shift changes.
• Causal Connection: There must be a link between the protected activity and the adverse action. Often, "temporal proximity" (how soon the action happened after the complaint) is used as evidence of this link.

One of the most dangerous aspects of retaliation claims for insurers is their independence from the underlying charge. Imagine an employee files a claim of age discrimination. The internal investigation proves there was no age bias involved in the company's decision. However, if the supervisor, frustrated by the accusation, begins excluding that employee from staff meetings or assigns them menial tasks, a retaliation claim is born.

Jurors who may be skeptical of a discrimination claim are often very sympathetic to a retaliation claim. The narrative of a "whistleblower" being punished by a powerful corporation is a compelling one. This makes these cases difficult to defend and expensive to settle, driving up the loss ratios for Professional Liability underwriters. To test your knowledge on how these claims impact policy limits, visit the practice Professional Liability questions page.

Standard EPLI policies are designed to cover "Wrongful Acts," which explicitly include retaliation. However, there are nuances in how coverage is applied:

• Definition of Insured: Coverage extends to the entity, its directors, officers, and employees. In retaliation cases, the individual manager who took the adverse action is often named alongside the company.
• Defense Costs: Retaliation claims often involve lengthy discovery periods to establish the "motive" behind an employment decision. Defense costs frequently erode a significant portion of the policy limits, especially in "burning limits" (aggregate) policies.
• Exclusions: While retaliation is a covered peril, policies may exclude claims related to wage and hour disputes or specific statutory violations unless an endorsement is added.
• Consent to Settle: Because retaliation claims are highly emotional, insureds may be reluctant to settle, triggering the "Hammer Clause" if the insurer recommends a settlement that the insured rejects.