To the delight of those able to afford it, several marketsnow exist for companies looking to insure Wage and Hour (W&H)risk, which is one of, if not the, largestemployment-related exposures in the U.S.

“Carriers are beginning to dip their toe in,” says Gerald L.Maatman Jr., a partner in Seyfarth Shaw, a leading nationalemployment and labor law firm. “They are beginning to warm up tothe idea.”

There may be no better time for the insurance market to enterthis particular risk transfer.

According to Seyfarth's widely attributed “Annual WorkplaceClass Action Litigation Report,” penned by Maatman, the top 10private settlements entered into or paid on W&H class-actionlawsuits in 2012 amounted to $292 million, up from about $221million the previous year.

“Five years ago, of every 10 big lawsuits, seven were employmentdiscrimination and three were wage & hour,” says Maatman. “Nowfor every 10 big lawsuits, nine are wage & hour and one isemployment discrimination.”

Coverage isn't cheap for cases involving employee claims thatweren't paid properly. And for now, W&H coverage is basicallymeant for larger corporations since retentions are very high (ataround $5 million for starters). But this testing of thewaters—especially if these W&H solutions are relativelysuccessful and gain the attention of competition—could push W&Hinsurance into the mainstream, similar to how Employment PracticesLiability Insurance (EPLI) has become more common.

W&H claims remain largely nonexistent from coverage underEPLI policies under the Fair Labor Standards Act exclusion. Aninsured could perhaps get some defense costs paid if it creativelywrapped a covered peril into the claim, but carriers had becomeincreasingly aware of this tactic and tightened up policy language.Some policies included W&H defense costs, but limits were verylow; therefore, the coverage was meant for smaller businesses.

However, as insurers largely shied away from the exposure,businesses did more to mitigate on their own. After all, W&Hclaims remained an enormous expense: As a result, data wasaccumulating.

“We felt it was necessary to begin to look at this exposuredifferently,” says Adeola Adele, U.S. Employment PracticesLiability product leader in Marsh's Financial and ProfessionalLiability Practice (FINPRO).

It didn't happen overnight. Adele says this was a three-yearprocess of data compiling and careful policy creation, but thereare now three lead markets on Marsh's Wage & Hour PreferredSolution program, introduced in January.

“We convinced these markets they wouldn't lose their shirts,”Adele says from her office in New York. The policy is gainingtraction, she adds: Marsh has one completed application, and thereare a few more submissions.

“If you don't test new ideas, you don't get to develop them,”she says. “You have to start somewhere.”

At least initially, the starting point is withlarge clients who may still be able to benefit from retaining thefirst $5 million. This is also the business segment most likelyable to absorb the premium the market is demanding. The policyprovides up to $100 million in coverage.

Marsh's product also includes a proprietary W&H riskmanagement toolkit from sister company Mercer.

Last year, Aon Risk Solutions was first to appear on the W&Hscene with a $50 million-limit W&H product for largeemployers.

“The problem has always been the archaic nature of the law—aDepression-Era statute applied to the 21^st Centuryworkplace,” says Tom Hams, national Employment Practices Liabilitypractice leader for Aon Risk Solutions. “This disconnect created anopportunity for the plaintiffs' bar.”

However, corporations have been trying to “get it right,” Hamsadds. Human resources departments are initiating controls to limitclaims.

“They've always had the exposure but couldn't transfer therisk,” says Hams. “The challenge was educating the marketplace andthen one [carrier] stepped up and said, 'I got this.'”

Four others have stepped up as well to create a core W&Hmarket of five carriers. The competition has surprised Hams:Changes within the first few W&H insurance deals related toterms and conditions offered has been “dramatic,” headds.

“You get the competitive juices flowing—the desire for premium,”he says. “It's promising for clients.”

Richard Betterley, president of Betterley Risk Consultants, oncepredicted insurers might first start offering W&H coverage tosmall and mid-sized businesses, whose violations of the FLSA areoften times unintentional because they can't keep up withregulations, he says. Still, he calls the current W&H productsa “significant step forward in EPLI coverage for larger employers,”adding that he “would not be surprised to see other carriersoffering comparable products, and perhaps even extending intosmaller employers” eventually.

A W&H solution for all could be even more welcomed soon.Maatman says he predicts W&H claims trends to continue since arecent Supreme Court decision (Dukes v. Wal-Mart) makes it muchmore difficult for plaintiffs to certify class-actiondiscrimination lawsuits.

Whether this ruling applies to W&H claims has yet to beseen, which means “a lot of good lawyers are migrating into[W&H],” observes Maatman, adding in his report that the “crestof the wave of W&H litigation is still not in sight.”

W&H litigation outpaced all other types of employment classactions in 2012, and W&H-related ruling from state and federalcourts more than tripled decisions for class actions for employmentdiscrimination or Employee Retirement Income Security Act (ERISA)combined.

“We are advising employers to make wage-and-hour compliance andrisk management a top priority,” says Maatman.