In today’s world, companies are more concerned than ever about being sued for sexual harassment. Workplace sexual harassment allegations have skyrocketed in recent years, resulting in large payouts and reputational harm to many businesses. While different types of business insurance offer an employer some protections against sexual harassment claims, there are gaps in coverage that can leave your company exposed.
Director’s and Officer’s (D&O) Liability
Director’s and officer’s (D&O) liability insurance provides protection for directors and officers who are sued for wrongful acts in their management of the company, while also covering legal fees, settlements and other costs incurred by the company if the officers or directors are sued for a covered event. However, D&O policies have certain limitations and exclusions. They generally have an insured vs. insured exclusion, which precludes coverage for claims brought by one director or officer against another. Allegations of bodily injury are also typically excluded. Therefore, while claims involving verbal harassment might be covered, a sexual assault allegation might not. In cases where both verbal harassment and physical assault are alleged, the policy may provide partial coverage.
Employment Practices Liability Insurance (EPLI)
Generally, employment practices liability insurance (EPLI) offers protections when employees file complaints of employment-related sexual harassment by supervisors or co-workers. This type of policy may provide additional coverage for claims of negligent hiring, retention and supervision, which may arise from sexual harassment claims. EPLI also may cover work-related harassment claims made by non-employees such as clients or vendors. As with D&O insurance, claims alleging bodily injury are typically excluded under EPLI policies.
Commercial General Liability (CGL)
Commercial general liability (GL) policies cover injuries resulting from accidents or negligence, but generally exclude willful or intentional acts. Some CGL policies have a specific exclusion for sexual abuse or misconduct. Whether coverage applies to sexual harassment claims may hinge on whether the court deems there was intent to harm or whether the company was vicariously liable for an employee’s actions.
Intent to Harm
When damage is caused by inherently harmful or illegal acts, most courts infer intent to harm regardless of whether there was a subjective intent. As one court held, “[T]he more likely harm is to result from certain intentional conduct, the more likely intent to harm may be inferred as a matter of law.”1 In the context of sexual harassment claims, courts have inferred an intent to harm and ruled that the intentional acts exclusion applied. As one court stated, “A sexual harassment claim will not prevent the operation of an ‘intentional acts’ exclusion contained in an insurance liability policy.”2 The same court held that since intent will be inferred in sexual harassment cases, negligence claims relating to sexual harassment are also excluded from coverage. However, other courts have found differently with regard to coverage for negligence claims with regard to sexual harassment. As one court found, a negligent hiring claim against an insured employer constitutes an “occurrence” under a CGL policy and therefore warrants coverage.3
Vicarious Liability
In certain cases when an insured company seeks coverage stemming from intentional acts committed by a company supervisor or employee, courts will look at whether an insured company is vicariously liable for the acts of its employees under the particular jurisdiction’s laws, and whether such vicarious liability is insurable under relevant public policy. Different states have different laws concerning vicarious liability in the context of insurance coverage disputes.
Claims-Made vs. Occurrence Coverage
It’s important to be aware of whether your business insurance is an occurrence or claims-made policy. Typically, CGL policies provide occurrence coverage while D&O and EPLI are claims-made policies. With an occurrence policy, if you had coverage in 2022 and an employee brings a claim in 2023 alleging that you committed certain conduct in 2022, this falls within the coverage period, since the alleged event took place in 2022. By contrast, claims-made policies will only cover claims that are made during the policy period. So if you had coverage in 2022 but no longer hold the policy, and you are sued today for alleged conduct that occurred in 2022, coverage will not apply.
If you are involved in a dispute with your business insurance company, contact us. We have the expertise, experience and tenacity to make insurance companies keep their promises to you and your business.
1 K.A.G. v. Stanford, 148 Wis. 2d 158, 165, 434 N.W.2d 790, 793 (Ct. App. 1988), review denied, 439 N.W.2d 142 (Wis. 1989)
2 Smith v. Animal Urgent Care, Inc., 208 W. Va. 664, 669-71, 542 S.E.2d 827, 832-34 (2000)
3 King v. Dallas Fire Ins. Co., 85 S.W.3d 185 (Tex. 2002)