As sexual harassment in the workplace continues to make headlines, businesses need to be aware that allegations can not only damage reputations that have taken years to establish, but also have significant financial implications. Employers should review their policies, procedures, and employee handbooks to ensure they have best practices in place. Additionally, it is important to understand the role of insurance in sexual harassment claims.
Coverage of such claims may vary widely from policy to policy and is generally covered under employment practices liability insurance (EPLI), or a hybrid private company directors and officers liability (D&O) policy. Whether or not coverage kicks in will depend on the specific facts of each case.
As defined by the Equal Employment Opportunity Commission (EEOC), sexual harassment comprises any “unwelcome sexual advances, requests for sexual favors, and other verbal or physical conduct of a sexual nature when this conduct explicitly or implicitly affects an individual’s employment, unreasonably interferes with an individual’s work performance, or creates an intimidating, hostile, or offensive work environment.”
Workplace sexual harassment is prohibited under Title VII of the Civil Rights Act, and claimants have 180 days from the date of an alleged incident to file a charge with the EEOC. After the EEOC evaluates and approves the claim, a lawsuit may be filed.
As to liability for the employer, the greatest factor is the cost associated with litigation, regardless of the outcome of the case. In other words, perceived harassment can generate six-figure liability for a business, even before and irrespective of whether a claimant can actually make a case proving that sexual harassment occurred.
While many claims never see the inside of a courtroom, costs to the employer can still be substantial.
EPLI policies cover companies and their employees, including directors, officers and senior management, against claims alleging wrongful employment acts and decisions initiated by past, present, and future employees. Coverage usually provides for defense costs and indemnity for the company and employee. There are EPLI policies that also cover claims brought by third parties such as vendors, customers, or clients.
Whether a claim is covered will depend on specific circumstances of the alleged incident, such as if the employee was acting in the course of employment, and where the incident took place. For example, if the harassment involved an employee and a supervisor, but took place at a social event, the insurer would likely question if the participants were on the job at the time.
Policies frequently exclude intentional criminal acts and deliberate fraud, as well as bodily injury. The exclusion for bodily injury means that any coverage for sexual harassment will be limited to nonphysical types, although the policy may not contain language that explicitly states this. Claims that allege emotional distress, humiliation, and mental anguish are generally covered under EPLI policies.
Employers must examine their insurance policies, so that they understand what coverage they already have, and can make changes if they feel they lack coverage. It will also be important to monitor any changes EPLI insurers make as the national discussion around workplace sexual harassment continues.