Worried About Being Sued by Your Employees? You Should Be!


By Carl Santa Maria, CPCU

We’ve all heard or seen it around the office. Whether it’s an off-color joke around the water cooler, improper advances by a supervisor, or hiring decisions excluding certain ages or genders, there are many local, state and federal laws that enforce the fair treatment of present, past and potential employees, and even 3rd party contractors.

As an employer, you bear the significant and growing risk of claims for various forms of discrimination, harassment, and wrongful termination. These claims are either made through private attorneys or government agencies, such as the federal Equal Employment Opportunity Commission (EEOC), for investigation and potential action. Whether taken to trial or settled out of court, companies can incur large costs from an employee lawsuit.

A minefield for employers

One of the higher profile cases today involves Texas Roadhouse, a chain of steakhouse restaurants, which was sued by the Equal Employment Opportunity Commission, for what the EEOC claims is systemic age discrimination. In this case, not a single complaint had been filed with the EEOC to prompt the charges. Texas Roadhouse is fighting the charge, spending millions on legal fees to date, with the trial still at least a year away.

In another case, a woman resigned her position after three years with a company and sued four managers/directors for sexual harassment and gender discrimination. A company investigation uncovered clear evidence of the misconduct and dismissed three of the four people involved. As a result, the defendants were personally liable for attorney fees and a settlement totaling nearly $300,000.

With loads of information available online and several high-profile cases in the news, employees today are much more aware of their rights. Even if you treat people fairly and within the law, others that you hire, contract or otherwise work with might not. And if they create an uncomfortable or hostile work environment for those working for you, it’s still your business that gets sued.

What can you do?

In recognition of the growing risk, more and more businesses are providing specific training to managers and employees in an attempt to create a more fair and inclusive culture. However, it is estimated that 60 percent of all companies will be sued over employment-related issues.

Companies should protect themselves with Employment Practices Liability Insurance (EPLI), which covers these specific types of claims. It is inexpensive, easy to obtain, and it can be purchased as a stand-alone policy or as part of a business and management liability package, which can include D&O, fiduciary, crime and cyber coverages. Nevertheless, it is estimated that in 2015 less than half of all employers carried EPLI coverage, meaning most companies are bearing this rapidly growing risk themselves.

You are vulnerable from your first contact with a potential employee through the exit interview, so it is wise to speak with a corporate insurance broker as soon as you decide to hire employees. A knowledgeable broker can help you understand your exposure and provide risk management advice and EPLI coverage as part of a comprehensive risk mitigation solution.

Carl Santa Maria is Chairman and CEO of Santa Maria & Company (SMC), a risk management consultancy and commercial insurance brokerage in the San Francisco Bay area with deep expertise helping companies protect what is most important to them: their assets, their employees, and their futures. Contact SMC at 925-956-7600 or online at www.smcrisk.com.


Experts in Risk Management and Providing Peace of Mind

Attention, execs and directors: Your personal assets are at risk!

By Craig M. Santa Maria

Did you know that corporate exec stress
executives and directors, small business owners, and even volunteer board members at non-profits can be held personally liable in legal judgments against their company or organization? It’s true, and it is a risk that is often overlooked.

Typically when a lawsuit is filed against an entity alleging mismanagement, both the entity and its executives and board directors are named as defendants, and both corporate and personal assets are at risk.

For example, a state attorney general sued a large charitable foundation and its trustees, alleging the trustees were excessively compensated and did not manage the foundation in a manner that supported its intended purpose. In the end, the suit was settled for over $5 million.

In another case, a software developer sued the directors and officers of a partner company in a failed joint venture, for misappropriation of his intellectual property. The plaintiff claimed the defendant firm took his ideas and developed its own software, allegedly retaining and using the IP to create a competing product. Upon settlement, the defendants were liable for hundreds of thousands in attorney fees and settlement costs.

While it’s reasonable to think that personal risk might deter individuals from starting a business or joining a board of directors, that risk can be mostly or totally mitigated by a quality directors and officers (D&O) liability insurance policy. In both examples above, the personal assets were protected by a D&O policy.

D&O vs. E&O

D&O liability is one of several types of coverage available as part of a Business & Management Liability Policy (others include Employment Practices Liability, Fiduciary Liability, and sometimes Crime and Privacy liabilities). D&O is sometimes called “management errors and omission (E&O) liability”; however D&O and E&O are very different. D&O liability is directly related to the performance and duties of management. E&O is concerned with performance failures and negligence related to your products or services. Both are significant risks and it is generally a good idea to carry both policies.

When Do You Need It?

Every organization’s owners, executives or directors are at risk of being held liable for the consequences of their decisions. It is particularly important to have D&O insurance when you establish a board of directors or take on investors. Both potential directors and investors will be unwilling to risk their personal assets to support your organization, no matter how strongly they believe in it.

If you are not covered by a D&O policy, you should seriously consider purchasing one for your business or demand that the organization for which you are a director or officer purchase one. A quality insurance broker can help you decide if it is necessary and design a policy that meets your needs.


Craig M. Santa Maria is President and COO of Santa Maria & Company (SMC), a risk management consultancy and commercial insurance brokerage in the San Francisco Bay area with deep expertise helping companies protect what is most important to them: their assets, their employees, and their futures. Contact SMC at 925-956-7600 or online at www.smcrisk.com.


Santa Maria & Company:  Experts in Risk Management and Providing Peace of Mind