In 1999, Nicholas Koutrakos made a decision that may have seemed out of step with his peers. At the suggestion of his company’s insurance carrier, the CFO and co-owner of Call 4 Health/Health Care Answering Services expanded the company’s workers’ compensation policy to include employment practices liability insurance (EPLI) coverage.

The tiny 10-person company had never been sued by an employee for discrimination in the workplace, the risk that EPLI covers. Yet Koutrakos thought it prudent to include the coverage, which became prominent in the early 1990s after Anita Hill's sexual-harassment charges against Clarence Thomas, then a nominee for U.S. Supreme Court justice, during Senate hearings in 1991.

Today, the company has grown to 35 employees, and Koutrakos expects it to grow to 100 by 2010. As a result, he plans to increase HCAS’s $20,000 annual EPLI coverage limits, raising the company's $5,000 deductible in the process. Overall, he expects a rate increase, mainly because he’s insuring more employees. Further, he will likely buy EPLI coverage that's separate from his workers’ comp policy, since not many carriers continue to offer such broadened policies.

Because of what he sees as HCAS's close attention to regulatory compliance, Koutrakos still doesn’t expect the company to be hit with a bias lawsuit. Further, the Boca Raton-based company has a good track record regarding how it treats employees. For example, Koutrakos and chief executive officer Joseph Pores decided to upgrade the company's 401(k) and profit sharing plan this year, despite a fee hike from the company that manages the plans.

Besides the company's loss prevention efforts, however, Koutrakos feels that ample bias coverage is essential. That’s because one lost, uninsured suit could cripple the cash flow of his growing $1.8 million company, according to the finance chief. That’s a risk that Koutrakos, who along with Pores built the company from scratch, is not keen on taking.

Buying adequate bias coverage is indeed "an astute decision for a company that size," according to Richard Betterley, president of Betterley Risk Consultants Inc. in Sterling, Mass. That's especially true, given the relatively level pricing commercial insureds can expect. Betterley predicts EPLI rates for 2005 will stay moderately flat for companies with good risk profiles that are insuring the same number of employees as last year. He forecasts a swing of no more than 10 percent, up or down, for most buyers.

But not all small companies are taking the bait. In fact, says Betterley, although more companies are buying EPLI policies than in the past (gross premiums for EPL insurance are up 15 percent from last year, according to a study by Betterley), many small and mid-size companies aren't buying enough of it. Typically, companies with 100 employees or less are sticking with annual coverage levels of $1 million that carry $25,000 deductibles, he says.

Such levels of coverage might leave the companies exposed to damaging risk, the consultant adds. His reasoning? The rising frequency and severity of discrimination lawsuits and settlements has increased the likelihood that small, underinsured companies will be tangled up in heavy-duty litigation soon.

Indeed, a judgment for the plaintiff in a typically sized jury verdict could devastate a small company. In an analysis based on U.S. Equal Employment Opportunity Commission (EEOC) claims figures released late last year, Marsh Inc., the biggest insurance broker, reported that the median compensatory jury award in employment lawsuits for 2003 was $250,000, compared with $133,691 in 1997. (The EEOC identifies and tracks discrimination charges in eight categories: race, sex/gender, retaliation, age, disability, national origin, religion, and equal pay.)

Further, in 2003, 18 percent of the awards were for $1 million or more, compared with 7 percent in 1997. And there’s no sign that the rise in the severity of awards will reverse. In fact, says the Marsh report, discrimination claims continue to gravitate toward state and local courts, where award caps don’t apply.

Regarding the frequency of the claims, the Marsh study reports a modest 12 percent rise over the past decade, citing an increase from 30,000 individual cases in 1993 to 81,000 cases in 2003. The EEOC totals understate the actual number of employment-practices cases, however, because the tallies don’t include out-of-court settlements, says Gina Higgins, a Marsh managing director and head of the company's EPLI practice.

The broker explains that data about such settlements, many of which are undisclosed in financial statements, is hard to unearth. Nevertheless, settlements are the rule rather than the exception. The American Bar Association found that just 1.8 percent of all civil cases filed in federal court went to trial last year, with state court filings reflecting a similar trend.

One factor that could drive employees to take bias cases to court is the increasing likelihood that they'll win. Marsh reports that the probability for a plaintiff verdict in all federal discrimination cases was 70 percent in 2003, compared with 58 percent in 1997. In state cases, the probability was 71 percent in favor of the employees, up from 55 percent. Add private settlements to the mix, and workers win between at least 80 percent of their cases, experts claim.

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