Sexual misconduct has been an increasingly prevalent topic in courtrooms and the media in recent years. Hundreds of powerful men, most notably movie mogul Harvey Weinstein, have been brought down as the #MeToo movement emboldened survivors to report sex crimes.
More than 82,000 people have come forward with sexual abuse claims against the Boy Scouts of America, driving the organization into bankruptcy. And the Roman Catholic Church has been dealing with a new wave of lawsuits since 15 states extended or suspended the statute of limitations, allowing for decades-old abuse claims to come forward. All of this litigation has implications for business insurance coverage for sexual misconduct.
Insurance policies that offer some protection
Different types of business insurance may offer an organization or company some protection when sexual misconduct claims are made against its officers or other employees. Director’s and officer’s (D&O) insurance generally provides indemnification coverage for “wrongful acts” by the company’s directors and officers. Employment practices liability insurance (EPLI) generally covers claims made by employees against superiors or co-workers of employment-related misconduct, including sexual harassment, wrongful termination and retaliation, and may provide additional coverage for claims of negligent hiring, retention and supervision that may arise out of workplace sexual misconduct claims.
EPLI may also provide coverage for claims made by third parties like customers or vendors. Both D&O and EPLI policies typically contain exclusions for claims alleging bodily injury, however, so while claims of verbal sexual harassment may be covered, claims of physical sexual assault typically may not. In cases where both verbal harassment and physical assault are alleged, a policy may provide partial coverage.
General liability (GL) policies cover injuries resulting from accidents or negligence, but generally exclude willful or intentional acts. But GL policies typically cover claims alleging personal injury, which includes libel, slander and publication of material that violates a person’s right of privacy and may arise from sexual harassment allegations. GL policies may also contain a sexual abuse or misconduct exclusion or actually contain coverage for the employer of the alleged sexual harasser/abuser.
D&O coverage typically excludes claims covered by EPLI coverage, and vice-versa – if you want the other type of coverage you need to buy that policy..
Claims-made vs. occurrence coverage
It’s important to note whether you hold an occurrence policy or a claims-made policy. An occurrence policy covers claims resulting from an event that occurred during the policy term. If you had coverage during 2019 only, and an employee brings a claim in 2020 that she was sexually assaulted in 2019, it falls within the coverage dates because that’s when the alleged event or events took place. But a claims-made policy only covers claims made during the policy period. Typically, D&O and EPLI are claims-made policies and GL policies provide occurrence coverage.
The big picture
Savvy plaintiffs’ attorneys know that big payouts come not from suing the alleged individual perpetrator, but from going after the business or organization. Employers can be charged with negligent hiring, retention and supervision in connection with the misconduct of employees, and depending on the policy, these allegations may be covered by insurance.
For example, the California Supreme Court ruled in Liberty Surplus Insurance Corp. v. Ledesma & Meyer Construction Co., Inc. that the insurance company must provide liability coverage to the policyholder against claims of negligent hiring, retention and supervision of an employee who allegedly sexually assaulted a 13-year-old girl at a middle school where the company had been contracted to do a construction project.
The insurance company contended it was not responsible because its policy covered bodily injury caused by an “occurrence,” which is defined as an accident, and that the conduct of the employee was unmistakably willful and therefore not accidental. The California Supreme Court ruled that under state law, “the word ‘accident’ in the coverage clause of a liability policy refers to the conduct of the insured for which liability is sought to be imposed.” The court stated that “the relevant perspective is that of [the construction company],” and that from its “point of view the event could have been ‘an unexpected, unforeseen, or undesigned happening or consequence.’” This was true, the court said, despite the fact that the employee’s conduct in perpetrating the assault was willful.” In other words, the claim against the insured – negligent hiring, retention and supervision – was an unintentional act and therefore covered.
If you are involved in a dispute with your insurance company over a business insurance claim, contact us today for a free consultation. We make sure insurance companies keep their promises.
Evan S. Schwartz
Founder of Schwartz, Conroy & Hack