Article Reviewed by a licensed insurance professional: Sam Meenasian (CA dept of insurance license #0F75955).
Estimated reading time: 3 minutes
Navigating business insurance can feel stressful when lawsuits enter the picture. A smarter approach is to separate the headlines from the data and focus on the types of claims that most often drive legal costs for employers.
States with higher employee claim activity (employment practices risk)
Hiscox analyzed employment charge activity (often the first step toward an employment lawsuit) using EEOC and state agency charge data, comparing states and jurisdictions to the national average. In the 2015 edition of its guide, Hiscox reported that for 2014, US companies had at least an 11.7% chance of having an employment charge filed against them, and some locations were materially above average.
Here are the locations cited as higher than the national average in that 2015 analysis:
- New Mexico: 66% higher than average
- Washington, DC: 65% higher
- Nevada: 47% higher
- Alabama: 41% higher
- California: 40% higher
- Mississippi: 39% higher
- Delaware: 35% higher
- Illinois: 34% higher
- Arkansas: 22% higher
- Tennessee: 20% higher
- Georgia: 19% higher
- Missouri: 15% higher
Important context. This dataset is about employment charge frequency, not a count of court verdicts, and it is based on the time period studied. Treat it as directional risk information, not a prediction for any one business.
Why risk varies by state and jurisdiction
One driver is the legal environment. Hiscox highlights that many higher-risk locations have state or local rules that go beyond federal requirements, including broader anti-discrimination and fair employment practices, pregnancy accommodation rules, restrictions on credit checks or background checks, and some locations with mandatory E-Verify for certain employers.
The bigger picture includes other types of insurance litigation
Employment disputes are only one category. Property and coverage disputes can spike after catastrophes. Lex Machina reported that in 2021, 26% of all insurance litigation filed in federal district courts was hurricane-related, with over 3,800 hurricane-related insurance lawsuits filed that year.
What this means for your business insurance decisions
Higher claim activity in a region can influence underwriting scrutiny, but premiums are still driven by your industry, payroll, controls, loss history, and policy structure. Use location trends as one input, then focus on building an insurance program that matches your real exposures.
A practical lawsuit protection checklist often includes:
- Employment Practices Liability Insurance (EPLI) for discrimination, harassment, retaliation, and certain wrongful termination allegations.
- General Liability for third-party bodily injury and property damage claims.
- Professional Liability or E and O for service errors, negligence allegations, or failure to perform.
- Cyber Liability for security incidents and privacy claims.
- Umbrella or Excess Liability to increase limits above primary policies.
Coverage varies by insurer and policy wording. Some matters, including certain wage and hour exposures, can be limited or excluded. For high-stakes decisions, review your risks with a licensed insurance broker and qualified counsel.
Protecting your business
Strong insurance is most effective when paired with prevention. Clear job descriptions, consistent documentation, manager training, up-to-date handbooks, and a documented complaint process reduce both claim frequency and claim severity. If an incident occurs, notify your carrier or broker early so you do not jeopardize conditions in the policy.
