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The subject of sexual harassment in the workplace is much in the news right now, but while a rash of revelations and charges against high profile individuals may be bringing much attention to the issue, it’s a problem that has simmered along quietly for years.
These days employers of any size will carry employment practices liability (EPL) insurance as part of their general insurance portfolio, and any well written EPL insurance contract will cover sexual or workplace harassment claims. In fact, it was a highly publicized sexual harassment case that drove the initial spurt of interest in EPL insurance as far back as the early 1990’s.
In Harris vs. Forklift Systems, Teresa Harris, a manager at a Tennessee forklift dealer, alleged that she was subjected to persistent and unwanted sexual innuendos and advances at work. She sued…and lost in district court. She appealed, and lost again at the appeals level. The case was ultimately taken up by the U.S. Supreme Court, where in 1993 she won, in a unanimous decision. The court’s clarification of the definition of the terms “hostile” or “abusive” work environment was a shot across the bow for employers, and a clear warning that there were financial consequences for ignoring this issue. Another consequence was that EPL insurance, which from the beginning always covered these types of claims, gained increased visibility as an important part of employers insurance portfolios.
Claims of this type have percolated along for years. The EEOC reports that of the 91,500 complaints it received in 2016 almost 30% included an accusation of sex-based workplace harassment. They also note that those numbers may barely scratch the surface; the EEOC estimates that three-fourths of people who are sexually harassed on the job don’t tell anyone. With all the recent publicity given to this subject, one might reasonably surmise that these numbers might change in the future, and not for the better.
Obviously the victims of such conduct may suffer significant emotional, psychological and economic harm, but there are also substantial legal and financial costs for businesses. EPL insurance can cover many of these costs, but the current crop of highly publicized cases raises other serious risk management issues as well. EPL insurance is most effective and worthwhile for lower level harassment cases. Think of common and obvious cases of lower level managers or line supervisors, seeking to extort sexual favors in exchange for better hours, overtime, promotions and such. These are, if you will, routine cases of harassment, and insurance can adequately cover most costs from them; a business suffers little in the way of other effects.
Recent cases making the headlines illustrate different problems. What happens when the harasser is a high level executive, a creative leader, a top talent or major producer or dealmaker? When the offender is someone who contributes in significant ways to the top or bottom line of an enterprise, the stakes change. Contracts, deals, even employment are abruptly terminated, projects shelved, ongoing business relationships damaged or destroyed, all with significant financial consequences to the business and owners. The Weinstein case is a prime example; recent news reports indicate that the company is about to be sold, for a price that, after debt assumption and other obligations, will leave equity holders with nothing. A few months ago they owned a piece of a thriving and successful company; in the blink of an eye, they are wiped out. There is no insurance to cover that, and as current headlines have shown, such financial hits can be immediate and often devastating.
For these reasons the risks of sexual harassment claims pose one of the most difficult and vexing risk management challenges faced by any enterprise. The closer to the top of the organizational chart an offender is, the more severe the risk faced by an organization. Not only will any judgement or settlement be bigger, significant uninsured financial consequences can also be expected.
While a well written EPL insurance policy is obviously necessary, these are the types of claims any employer will particularly want to avoid. Businesses are familiar with the concept of loss prevention and there is lots of good advice and information on how to minimize and mitigate risks of sexual harassment claims available from other sources, so we won’t belabor details here. Just remember that while a well written EPL policy is an important part of any modern commercial insurance portfolio, insurance can only cover part of the costs of such claims, and the higher up the perpetrator is, the greater the likelihood that uninsured costs will be the bigger part of any fallout from such incidents. Preventing and minimizing them is the preferred strategy to avoid significant uninsured loss.
The risks of sexual harassment claims pose one of the most difficult and vexing risk management challenges faced by any enterprise. The closer to the top of the organizational chart an offender is, the more severe the risk faced by an organization.