Scope and breadth of coverage varies by policy and specific details
Allegations of sexual misconduct in both the private and public sector are dominating headlines. These sexual harassment claims can impact not only a company's reputation but also its bottom line. Marie-France Gelot, senior vice president and insurance and claims counsel in Lockton's Northeast operation, explains that this risk is typically covered under an employment practices liability insurance policy (EPLI) or a hybrid private company directors and officers liability (D&O) policy.
"As with any claim, the specific factual circumstances surrounding the matter will be critical in determining whether coverage is ultimately triggered," Gelot writes in her white paper "Sexual Harassment: Is Your Company Exposed?"
The term sexual harassment is used widely today, but Gelot reminds companies that the Equal Employment Opportunity Commission (EEOC) has a legal definition for this phrase. She outlines the legal procedures for filing a sexual harassment claim under Title VII of the Civil Rights Act and explains specific claim scenarios where the line between insured versus uninsured acts can be confusing.
For example, a customer of a retail chain alleges that he or she was sexually harassed by a store employee while in the store and that he or she suffered damages. This would likely constitute a covered claim under the company's EPLI policy, assuming that policy had third-party coverage. Many, but not all, EPLI policies cover claims brought by third parties, like clients, customers or vendors. Such a policy would provide defense costs coverage and indemnity coverage for the company and employee.
Insurers also look at where the sexual harassment took place and if the employee was acting in the course and scope of their employment. For example an employee alleges that her manager sexually harassed her in a bar on a Saturday evening during a social event. The insurance carrier would undoubtedly question whether the manager was "on the job" during the social event to determine whether coverage applied.
Employers should also be aware of frequent exclusions like the conduct exclusions for intentional acts and the bodily injury exclusion, which may broadly exclude coverage for assault and battery. Since the definition of battery means unwanted or unpermitted touching, this limits sexual harassment coverage to nonphysical sexual harassment only, even if that is not explicitly stated in the policy wording. However, EPLI policies that do exclude bodily injury typically contain an exception for claims alleging emotional distress, mental anguish and humiliation.
Due to the coverage of recent sexual harassment cases, employees and employers are paying more attention to such claims. For now, corporations should examine their own policies to ensure they have the right coverage. Read Gelot's white paper "Sexual Harassment: Is Your Company Exposed?" to understand coverage should such a claim arise.