A recent ruling by the U.S. District Court for the Southern District of New York, in which the court awarded $250 million in punitive damages in an employment practices liability (EPL) case, highlights the importance of EPL insurance. The award is the largest to date in the history of employment discrimination cases.

The plaintiffs alleged that: they were paid less than male employees, pregnant women were subjected to adverse employment decisions, complaints of sexual harassment were ignored, and less qualified male employees were promoted over qualified women.

"Although the defendant has stated that it strongly disputes the verdict, the decision is a 'game changer' in many respects," noted Adeola Adele, Marsh's Employment Practices Liability Insurance Product Leader.

"For example, the verdict or any resulting settlement is likely to contribute to an increasingly litigious environment for employers, particularly regarding claims alleging gender and race discrimination. Additionally, an already emboldened plaintiffs’ employment bar is likely to be even more aggressive and employers may feel pressure to agree to higher settlements, more often simply to avoid protracted litigation as well as the reputational and financial risks associated with these claims."

"Therefore, companies are advised to remain vigilant in the implementation and enforcement of anti-discrimination and procedures. Having the policies or procedures in place may be insufficient," Adele added.

For clients in jurisdictions where punitive damages are uninsurable as a matter of public policy, Bermuda markets offer standalone employment practices liability insurance (EPLI) policies that include punitive damages. Bermuda markets also offer punitive damages wrap policies that may fill the coverage gap in situations where the domestic EPLI carrier is prohibited from insuring punitive damages.

Companies can maximize EPLI coverage in a class action by purchasing adequate limits of liability (which, among several factors, is dictated by employee count).