Want to give a risk manager a headache? Say three words: employment practices liability.

Want to worry a liability insurer? Tell him that plaintiffs lawyers are looking for new growth opportunities to sue their clients on behalf of disgruntled employees, angry shareholders and customers burned over year-2000 computer problems.No one listening to speakers during the Professional Liability Underwriting Society's meeting here last week was happy to hear this news, except those looking to increase billable hours of work.


''This is an industry in transition,'' said Patrick M. Kelly, partner at Wilson, Elser, Moskowitz, Edelman & Dicker's Los Angeles office, moderator of a panel on the directors and officers market.

Little wonder. Premiums continue to be ''soft'' because of increasing competition, as they are throughout the property/casualty market. Consequently, customers are willing to buy more insurance at a time of increasing awareness of harassment. Mr. Kelly noted that a volatile stock market also has investors ready to sue if stock prices plunge.

Stanley D. Bernstein, partner at Bernstein Liebhard & Lifshitz in New York, said plaintiffs attorney can't wait to go to work.

When Texaco settled with employees for $175 million, the case got the attention of a lot of people, including attorneys. Suddenly, Mr. Bernstein said, young lawyers want to study employment liability, and their elders are looking for cases they can plead.


''We are gearing up to do more than securities class actions. Employment litigation has crept up,'' he said. So has interest in environmental impairment actions and consumer class actions involving defective products. If a corporation is sued, chances are its individual directors and officers will be, too, Mr. Bernstein warned.

''Where there's a will, there's a way. Plaintiffs attorneys want the money, and companies want the coverage in these cases,'' he said. ''We are going to be out there to get the funds somewhere.''

That makes a lot of risk managers very nervous, said Gerald L. Maatman, Jr., a partner at Baker & McKenzie in Chicago.

''I rarely got calls from risk managers about the pros and cons of buying employment practices liability coverage,'' he said. ''I get those calls every day now.''

Calls aren't just from U.S. risk managers, he said.

''Those who think the laws of the United States are employee-friendly haven't looked overseas,'' he said. ''The laws in the U.K. are even more generous than California in the protection of workers in sexual harassment cases. Overseas exposures are as great, if not greater, than in the U.S.''


He advises risk managers to buy a lot of liability coverage for directors and officers while the price of coverage - and the number of major lawsuits against firms - are still low.

Most important, he said, is to create a protocol for handling all types of employment-related complaints. Denying the problem won't make it go away, he said, and those companies without a complaint protocol are ''behind the curve.''

Karen Reardon, partner at Reardon & Sherman in Chicago, said the insurers she advises are in a bind, too. The market for stand-alone employment practices liability D&O has grown, often sold by the same insurers that cut the coverage from their general liability policies.

And at a time of low pricing, she said she is concerned that in the rush to offer the coverage, underwriters might not have figured out what the future claims costs will be.


The panel agreed that of all the potential risks, one of the worst is the ''Y2K'' bug that could shut down computerized systems if they cannot read ''00'' as 2000.

Ms. Reardon said insurance companies want to know about potential customer Y2K problems when they underwrite coverage. Sample Y2K liability coverage language has been filed by Insurance Services Office in most U.S. states.

Mr. Bernstein said that a recent bulletin issued by the Securities & Exchange Commission provides limitless opportunities for lawsuits. Companies have to disclose if they have a possible Y2K problem, even whether they think they can fix it. If they are not sure, that has to be disclosed too.

''I suspect we'll all be very busy in the years to come,'' Mr. Bernstein said.