It’s often said that art and film imitate life. While the sexual harassment scandal rocking Hollywood is (sadly) no film, it is shining a light on important employment liability issues that often fly under the radar. While the claims and media storm against Harvey Weinstein may have taken center stage, a look at the list of accused actors and affected organizations reads like a list of invitees to the red carpet. And that growing list shows no signs of slowing. But Hollywood is not the only “bad actor”.

Employment practice liability insurance has been a critical coverage component for companies of all sizes. Often purchased as part of a public or private D&O insurance package, it provides protection for corporate executives, employees and their organizations, from claims alleging employment related wrongful acts. Among those wrongful acts: sexual harassment and discrimination. For companies that have no EPLI insurance in place, or fail to understand the urgency, this month should have served as a fairly large wake up call. For companies unfamiliar with EPLI insurance we also have a brief guide here.

According to a Washington Post Poll, nearly half women surveyed have been subject to sexual harassment, with 23% claiming such sexual advances occurred in their work environment. And according to a 2015 study conducted by Hiscox which surveyed almost 500 discrimination claims against small and mid sized companies, the average damage of a discrimination claim is roughly 125,000 (inclusive of defense costs), with a quarter of those cases resulting in judgements that exceeded 500,000. Larger organizations however will likely encounter even greater damages. Larger companies may be pursued more aggressively by matter of being deemed a “deep pocket” and may also sustain considerable reputational damage as a result of negative PR following publicized allegations. Such damage can be difficult to quantify and equally difficult (if not entirely impossible) to insure against. Additionally, accusations of harassment against brands and larger organizations may also attract hacktivists resulting in follow up cyber attacks. For this reason, larger organizations, brands and companies with considerable media attention, should include cyber insurance within their insurance portfolios.

While we obviously do not promote the purchasing of insurance in an attempt to shield “bad actors” these policies are particularly important for the purposes of protecting against frivolous accusations as well as protecting innocent parties (and the entity) against potential vicarious liability.

There are a number of factors and recent trends that continue to fuel both sexual harassment and discrimination claims.
 

• C-Suites and certain industries continue to be male dominated with considerable pay discrepancies, to which the female workforce is becoming increasingly proactive against.
• Tech startups, often comprised of male executives, younger employees and wealthy investors, has created a bubbling pot which continues to generate claims of harassment and discrimination (including age-discrimination).
• The growing transgender and LBGT communities continue to encounter discrimination and harassment in the workplace as most recently demonstrated by 2 EEOC lawsuits against Sam’s Club and Applebees.
• Social media platforms have made it easier to connect with co-workers. Unfortunately it has also made it easier to engage in activity that can border harassment, discrimination, or cyber bullying. Many companies still struggle with the legalities of making employment decisions that involve activity on social media. Additionally, these platforms also continue to serve as a motivating voice, encouraging others to come forward. Alyssa Milano’s recent #metoo viral twitter movement is a great example of the success such campaigns can have.
• Technology and digital platforms are creating unique challenges in the form of discrimination claims alleging ADA violations arising from inadequate accessibility to corporate websites and services. Such claims allege websites, applications or services are not accommodating to the vision or hearing impaired.

When purchasing employment practice liability insurance, there are some terms and policy verbiage that should be critiqued.
 

• BI Carve-back For Mental Anguish & Distress: Most D&O and EPLI insurance policies contain some form of bodily injury exclusion. Generally a very broad one at that. Due to the fact that many harassment and discrimination claims may claim compensatory damages related to mental anguish and emotional distress, it is important that any policy purchased contains an appropriate carveback (to the bodily injury exclusion) for mental anguish and emotional distress.
   
• Coverage For Retaliation: According to the EEOC “Retaliation is the most frequently alleged basis of discrimination” accounting for ~ 46% of all charges in 2016, followed by discrimination based on race, sex and disabilities (statistics available here). While most policies do include retaliation as a covered claim, policyholders should verify its inclusion. When it comes to defining “retaliation”, language can also differ. Policies can leave retaliation undefined or can limit its definition. Definitions of retaliation should include: Retaliatory acts of insureds (against employees), in response to any of the following activities:
   
  • The actual or attempted exercising of employment laws, or employment rights
  • Refusing to violate or oppose unlawful practices. Or having assisted, testified in, or cooperated with, a proceeding or investigation regarding alleged violations of law by the Insured
  • Disclosing or threatening to disclose to a superior or any governmental agency any alleged violations of any federal, state, local or foreign law
  • Filing any claim against the Company under the Federal False Claims Act, Section 806 of the Sarbanes Oxley Act or any other federal, state, local or foreign whistleblower law.
  • Employee strikes or slowdowns
     
• Definition of Harassment: The definition of harassment is equally important. Some policies simply state; “sexual or workplace harassment of any kind”, leaving the term itself undefined, whereas others will maintain narrower definition. Any definition of harassment however should include unwelcome sexual requests, advances, favors other verbal/physical conduct of a sexual nature, that is: 1) made a condition of employment with, 2) used as a basis for employment decisions, 3) interferes with performance or 4) creates an intimidating or hostile work environment. Some policies may also restrict sexual harassment coverage to “only such acts or allegations based upon vicarious liability”. This is most often seen in states such as NY where insurers are restricted by the courts. For companies located in states without such restrictions, and companies that maintain multi-state operations, policyholders should seek out policies without such a limitation. Lastly, buyers should also ensure that 3^rd party coverage has been included for claims asserted by non-employees such as clients, vendors, attendees at trade shows, etc.
   
• Insured Persons & Organizations: When coordinating coverage, policyholders should review the policy terms carefully to ensure that all parties for whom coverage is intended, is in fact in place. This includes subsidiaries, foreign equivalents and independent contractors.
   
• Coverage for EEOC Actions & Investigations: Since many discrimination claims are pursued through the EEOC, it’s critical that any EPLI policy purchased includes, within its definition of “claim”, coverage for regulatory, administrative and investigative proceedings, as well as coverage for formal investigations. Many policies will also provide further clarifying language, specifying that such proceedings must be “commenced by receipt of a service of a complaint, notice of charges, subpoena or formal investigative order”
   
• Hammer Clause: When innocent persons are falsely accused of sexual harassment, it is understandable that most prefer to fight the charges as hard as possible, both for vindication and in order to prevent becoming perceived as a “soft target” for future claims. For this reason, policies with “hard hammers” (consent to settle) clauses should be avoided. Should the insured withhold its consent for the carrier to settle at an agreed amount, and instead wish to continue litigating (in order to prove innocence), such clauses hold the insured responsible for generally 50% of any additional defense costs and settlement incurred after the initial agreed settlement. Many insurers will soften that “hammer” by decreasing that percentage to 20%, while some carriers take a more preferred approach, containing no hammer clause at all.