Employment Practices Liability Insurance and Ex Post Moral Hazard

39 Pages Posted: 30 Mar 2020 Last revised: 28 Apr 2020

See all articles by Erin E. Meyers

Erin E. Meyers

Vanderbilt University, Law School, Law and Economics, Students

Joni Hersch

Vanderbilt University - Law School; IZA Institute of Labor Economics; Vanderbilt University - Owen Graduate School of Management; Vanderbilt University - College of Arts and Science - Department of Economics

Date Written: March 5, 2020

Abstract

Employment Practices Liability Insurance (EPLI) is a form of insurance that protects employers from claims of discrimination, harassment, retaliation, and wrongful termination. EPLI contracts as currently written often do not exclude intentional actions or payment of punitive damages, creating potentially severe moral hazard problems. We propose potential alterations that would hold employers accountable for prohibited employment acts when upper management is involved, while still allowing the EPLI market to reduce risk to employers and help compensate victims.

Specifically, the extent of employers’ fault, as evidenced through upper-management involvement, should correlate with their direct payment of damages. Three potential insurance-related options could achieve this goal. These include, in cases where upper-management is involved, (1) giving the insurer the right to pursue subrogation against the employer, (2) mandating that the employer pay a minimum coinsurance rate, and (3) granting the EEOC power to pursue uninsurable fines in the most egregious cases.

Keywords: Insurance, Employment Discrimination, Moral Hazard, Human Resources, Sexual Harassment, Employment Law, MeToo, Management

JEL Classification: G22, J71, J78, K0, K15, K31, K38, M5

Suggested Citation

Meyers, Erin E. and Hersch, Joni, Employment Practices Liability Insurance and Ex Post Moral Hazard (March 5, 2020). Cornell Law Review, Forthcoming 2021, Vanderbilt Law Research Paper No. 20-20, Available at SSRN: https://ssrn.com/abstract=3561141

Erin E. Meyers

Vanderbilt University, Law School, Law and Economics, Students ( email )

Nashville, TN
United States

Joni Hersch (Contact Author)

Vanderbilt University - Law School ( email )

131 21st Avenue South
Nashville, TN 37203-1181
United States
615-343-7717 (Phone)
615-322-6631 (Fax)

HOME PAGE: http://law.vanderbilt.edu/go/phdlawecon

IZA Institute of Labor Economics ( email )

P.O. Box 7240
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Germany

Vanderbilt University - Owen Graduate School of Management

401 21st Avenue South
Nashville, TN 37203
United States

Vanderbilt University - College of Arts and Science - Department of Economics

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Nashville, TN 37235
United States

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