Increase in EPL and D&O claims in US in 2022, predicts Clyde & Co

Next year is likely to see an increase in claims in the US for employment practices liability (EPL) and D&O, according to Clyde & Co.

The law firm made the forecasts as part of a series of predictions for the insurance market in the coming year. It also said the managing general agent (MGA) market is set to grow globally, while alternative capital is expected to play a greater role in the ongoing hard market.

Clyde & Co predicts that vaccine mandates in the US will bring an influx of EPL claims. “The enforceability of mandates remains uncertain, with various court challenges and directives from both the public and private sector. Vaccine mandates are top of mind for US companies right now and employers must be vigilant and act in accordance with the laws set forth, but also be prepared for claims that will likely arise,” said partner Kimberly Forrester, based in San Francisco.

She added that the introduction of vaccine and mask mandates will bring an influx of retaliation and discrimination claims, brought on by everyone from new hires to long-time employees. In addition, many employers may be reluctant to enforce such policies in the workplace, which is likely to trigger claims by employees that they are being required to work in an unsafe environment.

Another concern highlighted by Clyde & Co is that among these claims will be employees who feel that their employer’s policy, whatever it may be, has had an unfair or adverse effect on their employment due to their vaccination status, and as a result, they have missed out on or were overlooked for promotions or opportunities to advance. There may also be an increase in claims from those who have been terminated after being denied an exemption to mandates based on disability or religion.

Clyde & Co partner Brian Harrison, also based in San Francisco, said: “We expect to also see an uptick in claims in the next 12 months in each of these areas. Sure to be relevant to some of these claims are Covid exclusions that are being endorsed onto some EPL policies, and because there is no precedent for applying them and the landscape for enforcing them is fluid and continues to change, there are likely to be disputes and resulting litigation with respect to their application.”

As for D&O, Clyde & Co predicts that increasingly aggressive US regulators will drive a rise in claims under D&O policies, as US regulatory enforcement activity increases substantially as President Joe Biden’s policies are fully implemented and the US comes out of the Covid-19 pandemic.

Edward Kirk, Clyde & Co partner in New York, said: “There is a strong expectation that the Biden administration will: (1) increase scrutiny of financial institutions and Wall Street; (2) shift to implementing broad social policy goals through regulation of public companies and new disclosure requirements; (3) increase oversight of market participants in many areas; and (4) increase international cooperation, causing more parallel investigations in different countries. In particular, US regulators will closely scrutinise environmental, social and governance issues, including climate change and diversity disclosures.”

He noted that under Donald Trump, corporate crime enforcement fell significantly, but the US Department of Justice (DoJ) recently announced a series of new actions designed to demonstrate the DoJ’s commitment to combatting corporate crime and holding individuals accountable.

“As a result, D&O insurers can expect to see more claims for coverage relating to regulatory investigations and actions, as well as follow-on shareholder actions and other types of civil litigation against companies and their directors and officers,” said Kirk.

Finally, Clyde & Co predicts that the MGA market will grow, but warns that traditional capacity should watch its back from the alternative capital market.

“MGA owners are confident the market is set to grow in 2022. Although conversations with capacity providers are likely to remain challenging, businesses that are able to generate a consistent return are looking to the 2022 renewals with confidence, according to our research conducted this year,” said Clyde & Co partner James Cooper in London.

He continued: “2022 is likely to see a continued rise in the popularity of the Lloyd’s market – indeed Lloyd’s is more popular with carriers than it has ever been. Almost half (47%) of the carriers we spoke to believe that it provides the best environment in which to grow and develop MGA business… Both carriers and MGAs cite the US as a strong market to grow and develop in 2022.”

Cooper added: “Europe’s star also looks set to rise next year. In 2021, the proportion of businesses identifying it as the best growth opportunity more than doubled to 13%, a trend that is reflected in our own offices, which have seen many more MGA enquiries around exploiting the model for specialist risk and distribution opportunities.”

But he warned that the tailwind of capital flooding into the MGA space suggests there may be a pickup in the adoption of alternative capital, including ILS, PE, reinsurance, investment funds and even MGA’s own capital during the next 12-24 months. “We predict that in the ongoing hard market, insurers in both Lloyd’s and the company market will need to keep a weather eye on the competition to ensure profitable books are not lost to different funding models,” Cooper concluded.