Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor!

Amid uncertainty, management liability risk rising

Economic uncertainty and social trends are increasing management liability risks for private companies and nonprofits, and are creating challenges for insurance companies. With economic indicators pointing in different directions and the legal environment generating large verdicts, now is a good time for private and nonprofit organizations to better understand the value of their directors and officers and employment practices liability insurance programs.

Ongoing inflation is a stressor for businesses across all sectors, and the labor market has become both more expensive and less flexible. These conditions are causing an uptick in layoffs, a trend that contributes to D&O and EPL claims.

Core economic inflation has been reducing since it hit 6.6% in 2022, its highest point in more than 40 years, and currently is about 3.9%. The Federal Reserve has indicated it expects to cut interest rates in 2024, as inflation moves toward 2%, but inflation remains sticky, leaving the Fed unable to act. Existing financial burdens, high costs of capital and less liquidity remain challenges, especially for small businesses and nonprofit organizations that are facing lower donation rates.

U.S. employment trends also are problematic, with the Bureau of Labor Statistics reporting little change in workforce participation, and the unemployment rate holding steady. In January 2024, BLS data indicated the ongoing challenge employers have in filling open positions: with little change in the 8.9 million job openings nationally, new hires represented 5.7 million workers, while total separations numbered 5.3 million. While the economy continues to add jobs, there has also been an uptick in layoffs, especially in certain sectors like tech, finance and retail.

Litigation risks are rising

These trends contribute to greater risks for private and nonprofit organizations, as many struggle to do more with less. Continuing staff turnover and potential layoffs also present multiple challenges, ranging from higher recruitment and training costs, the potential deterioration of service quality, and a heightened risk of employment practices claims. As employers struggle with the current job market, the severity of employment-related lawsuits continues to rise. Social inflation, in which jurors’ attitudes toward litigation and compensation tends to favor plaintiffs, is alive and well across management liability lines. In late 2023, for example, a Los Angeles jury awarded a nurse $41 million in damages after she alleged her hospital employer retaliated against her for raising patient safety concerns. The Equal Employment Opportunity Commission, meanwhile, filed 143 lawsuits charging discrimination or harassment in 2023, a 50% increase from the prior year.

How insurance can help

Underwriting organizations that have extensive experience serving the needs of private and nonprofit organizations are in a strong position to help risk professionals at these entities, especially when a claim arises. Philadelphia Insurance Companies has 35+ years of management liability experience and we serve a wide variety of organizations, which give us insights we can share for the benefit of our policyholders.

Here are a few ways that risk professionals at private and nonprofit organizations can mitigate management liability risks in the current environment of economic uncertainty:

• Review exposures. Exposures continue to rise for private and nonprofit organizations, and no one is completely immune from litigation. Location, nature of operations, M&A activity, plus many other characteristics all play a critical role in an organization’s risk profile.  Philadelphia Insurance Companies has experience with a broad range of claims scenarios and can provide policyholders with coverage that meets their needs.

• Working with a strong insurer. When a lawsuit arises, one of the most important benefits of management liability insurance is having an experienced partner in your corner. Even when a claim has no merit, defending it can become quite expensive, running into tens or even hundreds of thousands of dollars. By selecting an insurance partner that is strong financially and has long experience in management liability claims, organizations can gain a significant advantage.

• Using loss control resources. Philadelphia Insurance Companies offers expert resources to assist organizations in improving their practices and reducing their liability exposures. Such resources can be a big help in preventing costly losses. PHLY Gateway, an enhanced risk management portal our company launched recently, offers a trove of informational resources. Those resources include tips on preventing wrongful termination and harassment claims, sample handbooks, state mandated sexual harassment training and a best practices help line with no limit on calls for consultation.

The last thing a private or nonprofit organization wants is an expensive lawsuit, but with the right insurance partners, they can manage risk better.

For more information on management liability solutions, please visit www.phly.com.

  

George R. Schalick Jr. is Senior Vice President of Management & Professional Liability at Philadelphia Insurance Companies. Michael Sisk is Vice President of Management & Professional Liability at Philadelphia Insurance Companies.