A.: The exposure stems from employment practices, either real or perceived, which may violate federal
or state laws, other regulations or societal standards. Examples:

A.: No, but legislation over the past 10 years, plus the visibility created by the Clarence Thomas
confirmation hearings, and nearly continuous newspaper "headlines" have increased public
awareness dramatically, resulting in skyrocketing numbers of claims.

A.: Charges filed with the EEOC and corresponding state agencies for employment cases has grown
by 50% from 1989-1997 to approximately 150,000 per year. The number of new employment
discrimination lawsuits filed in state and federal courts is growing by over 20% a year, and is now in
excess of 70,000 per year – greater than the number of new product liability suits filed annually!

A.: Most, yes. But there are thousands of cases a year where large damage awards/settlements are
made. Discrimination/harassment verdicts are now averaging over $800,000 each, for all
employers. Defense costs for such cases are averaging over $125,000-$150,000 for litigated
cases. Even when the amount of each loss in excess of $1 million is eliminated, the average
plaintiff verdict is $324,000., plus defense costs.

A.: No. Clearly, the larger companies make the headlines. However, even the smallest of companies
have problems. While some federal laws only apply to firms above a certain size (i.e., the Civil
Rights Act applies to firms above 15 employees), 37 states reduce this threshold, some to as low
as one employee. Further, employers of all sizes are liable under common law for charges of
negligence or intentional tort. Employers of less than 15 employees are experiencing plaintiff
verdicts in employment discrimination cases that average $240,000 even after removing the
amount of each judgment in excess of $1 million. Employers of between 50 and 100 employees
are averaging just over $300,000 per plaintiff verdict (after capping each at $1 million). Again,
these numbers are before the additional expense of defending oneself which is averaging
$125,000-$150,000 per verdict, and before trying to calculate the value of the time and effort spent
within the employer responding to such cases.

A.: Yes, they do. Less than 5% of all lawsuits initiated actually go to verdict. But of the remaining
95%+, those that receive settlements are averaging almost $50,000., with an almost equal amount
spent on defense. Even cases for which lawsuits are never initiated, when settled during the
administrative process of the EEOC or state agencies, are averaging awards of almost $200,000.,
also with significant defense expenses required.

A.: Some do, but not most. State laws have no such caps, and as a result, you are exposed to
unlimited damages for most causes of action. Further, there is never a cap on defense costs, or
under tort claims.

A.: In absence of a specific exclusion, there may be a little coverage ¾ but not much. The Workers’
Compensation policy has a standard exclusion for these exposures under the Employers Liability
coverage part. Commercial Umbrellas often exclude the exposure but without the exclusion, only
provide very limited coverage. D&O policies may provide some coverage, but unless endorsed,
usually do not extend coverage to the corporate entity, only to the individual directors and officers.

A.: Our product is designed for all your agency's current or prospective insureds.

A.: Yes. You must warrant that you will adopt within the first year of coverage the minimum risk
management procedures we outline, if you do not already have them in place. These procedures
and necessary forms/resources will be provided by us at no additional charge.

Q.: So what are the "negatives" from a buyer’s perspective?

A.: The following issues have been raised by potential customers in our market research:

1) Claims-made coverage form
Since the exposures in employment practices claims are volatile and dynamic, the only way we
can provide coverage is on a claims-made form. Claims-made coverage applies to losses for
which the claim against you is made during the policy period. This compares to an occurrence
form provided for many insurance exposures which applies to losses which first occur during
the policy period. We recognize that claims-made coverage may be new to many insureds, but
it allows us to provide broader coverage and make it more affordable. Virtually all writers of
EPLI do so on a claims-made form, which is typically used for all Errors & Omissions and
Professional insurance. Your insurance agent can explain this and how it fits your business.

2) Deductibles & Co-insurance
The establishment of a $5,000 minimum deductible was an essential element to keep the
premium affordable for the small business. Higher deductibles can reduce premiums. And you
can further reduce your premium by retaining a co-insurance percentage of each loss which we
will cap at a fixed dollar amount for you.
These two features are also important to ensure that you remain a risk management partner
with us, actively committed to implementing appropriate risk management/loss control
procedures.

3) No coverage for Bodily Injury
While BI complaints are rare in these cases ("injury" is usually economic or "personal injury"),
they should be covered by Workers’ Compensation or Health Insurance.

4) No coverage for Contractual Liability
The policy does cover those liabilities you have in absence of the contract. However, if you
provide additional benefits or guarantees in a contract (individual or collective), you must be
prepared to honor those promises.

A.: That’s the easy part. Wide-ranging risk management advice and assistance which helps you create
and maintain procedures that reduce your exposures to loss, save time and money, and help avoid
situations that can create bad feelings among employees, leading to low morale. Further, this
information will help ensure that you are in compliance with applicable federal and state laws.