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Discrimination lawsuits can be pricey without proper coverage

The Coca-Cola Company in November 2000 agreed to pay approximately $188 million to settle a racial bias lawsuit brought against it by current and former employees. The settlement is believed to be the largest ever of its kind, and although Coke is reaching into its own pockets to pay the settlement, businesses large and small can purchase insurance to avoid taking hefty hits to their bottom line.

"The 21st Century's racially and ethnically diverse work force is a potential powder keg."

Employment practices liability insurance (EPLI) covers legal costs, damage awards, and settlements that arise from discrimination, sexual harassment, or wrongful termination lawsuits, and according to Bob Hartwig, chief economist at the Insurance Information Institute (III), most big businesses should purchase it.

"Sooner or later, virtually every medium- to large-sized company is likely to find itself the defendant in a discrimination or sexual harassment suit," Hartwig says. "The 21st Century's racially and ethnically diverse work force is a potential powder keg."

Is the insurance worth it?

The III estimates that 60 insurers sell EPLI, but the cost might be more than some businesses are willing to take on. For $1 million worth of coverage that comes with a $10,000 deductible, the III says a company with 200 employees would pay between $10,000 and $20,000 in annual premiums.

Hartwig also says it's unlikely that large companies such as Coke and CBS — another industry giant that was hit in October 2000 with a multimillion dollar discrimination lawsuit settlement — would purchase EPLI coverage. "It's not unusual for big companies to self-insure all the way down the line," he says.

The average bias or harassment settlement rarely approaches even the $1 million mark. The United States Department of Justice estimated the median award for employment-related lawsuits filed in U.S. District Courts in 1998 at $137,500, making EPLI coverage a real option, if not a bargain, Hartwig says.

"For about $40 a day, a mid-sized company can protect itself against the ruinous impact that a discrimination lawsuit can have," he says.

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