Are discrimination, wrongful termination, harassment and other employment-related lawsuits something that owners of private companies need to worry about? They sure are.

In 2003, the Equal Employment Opportunity Commission (EEOC) handled 81,293 employment-practices complaints, the second-highest number since 1995. Employment-practices liability (EPL) settlements reported by the EEOC were $236.2 million, not including monetary awards won through litigation. The median jury award in an EPL verdict was $250,000, according to Jury Verdict Research.

Charges of race discrimination (35 percent of all charges) and sex discrimination (30 percent) were the most prevalent charges reported by the EEOC in 2003. But age discrimination cases, which made up 23.5 percent of charges handled by the EEOC in 2003, top the jury award charts, with a median jury award of more than $266,000 from 1996 to 2002, according to Jury Verdict Research.

How do these statistics translate into individual private company experience?

According to the Chubb 2004 Private Company Risk Survey, 26 percent of executives at privately held companies reported that their company had been sued by an employee or former employee, and 22 percent reported that an employee had filed a discrimination or harassment complaint with the EEOC or state agency during the past few years.

When asked whether an allegation or actual case of wrongful termination, discrimination or sexual harassment would cause serious financial harm to their businesses, 32 percent of the executives said it would.

Given the facts, you would think that most, if not all, privately held companies would protect themselves with employment-practices liability insurance (EPLI). However, 60 percent of private companies don’t have any EPLI. Among small businesses (defined in the study as those with less than $10 million in annual revenue), 75 percent have no EPLI.

Still, there is hope. About three in four companies reported that they have written policies banning employment discrimination and sexual harassment, and about the same number said they plan to implement new human resources policies, procedures and training programs to help prevent losses.

Such steps are critical because, should your company be the subject of an EPL lawsuit, its best chance will be an affirmative defense.

In two landmark 1998 cases, the U.S. Supreme Court stated that an employer may be protected if it takes “reasonable care” to prevent sexual harassment and its employee unreasonably failed to take advantage of any preventive or corrective opportunities that it provides.

To qualify for an affirmative defense, an employer must be able to show that it took steps to provide a positive, non-threatening work environment for its employees. These steps can include:

• Developing and promoting an anti-harassment and anti-discrimination policy.

• Creating a work environment that is accepting of diversity.

• Providing harassment and discrimination training to supervisors and employees.

• Conducting a periodic audit of employment policies and procedures.

• Developing procedures that allow employees to report incidents without fear of retaliation.

• Rewarding and promoting employees strictly on merit.

• Exhibiting a balance of employees by race and sex at all organizational levels.

All of this may sound daunting, but this is where a good insurance partner can provide valuable assistance. Typically, as part of its EPLI coverage, an insurer will offer risk management services that can help with most of these steps. These services are usually provided free or at a reduced cost as an enhancement to the coverage.

Seen in the light of the potential havoc caused by an EPL lawsuit, purchasing employment-practices liability insurance makes sense and is a good business practice.

Nickie Hunter and Jarrett Wright are practice leaders in the Chubb Group of Insurance Cos.’ West Des Moines office.