How To Protect Your Business From Sexual Misconduct Allegations
Allegations of sexual misconduct against politicians, celebrities and other
public figures have become increasingly common in recent years. In fact,
social movements and a strong public outcry have led to a marked increase
in sexual harassment claims—claims that can be incredibly damaging for
When these claims arise, organizations are expected to handle them quickly
and tactfully, while respecting the weight of the situation and the wishes
of the alleged victim. What’s more, alleged sexual misconduct, regardless
of whether it is against an executive or employee, can result in a wide
variety of claims against a company and lead to serious reputational
As such, companies need to handle these situations with great care and be
prepared with the proper insurance. Because no single insurance policy
provides coverage for every type of claim that may result from misconduct
allegations, policyholders should examine a variety of coverages to ensure
they have protection when they need it most.
Employment Practices Liability (EPL) Insurance
When it comes to protecting your organization against alleged sexual
misconduct claims brought about by employees, EPL insurance is often the
best source of coverage. Specifically, EPL insurance can provide protection
for employment-related misconduct claims.
Most policies cover claims for sexual harassment, wrongful termination,
discrimination and retaliation. In some cases, policies can provide
coverage for additional employment-related claims, including defamation.
EPL insurance can also protect against claims made by non-employees, like
vendors or customers.
It should be noted that EPL insurance often excludes claims that allege
bodily injury. Therefore, in the event that a claimant alleges both verbal
and physical harassment, an EPL policy may only provide partial coverage.
General Liability Insurance
General Liability Insurance policies are designed to protect businesses from claims
related to bodily injury or property damage for which your business is
found to be legally liable. In some situations, general liability policies
can be used in sexual harassment claims. Specifically, general liability
insurance can provide coverage for claims alleging personal injury and
defamation, which is useful in some misconduct lawsuits.
However, general liability policies have their drawbacks when it comes to
defending sexual harassment claims. Often, unfair or discriminatory
employment practices are not covered, which can include claims related to
hiring and termination, demotion, reassignment, employee evaluations,
discipline and harassment.
Essentially, if an employee alleges he or she was treated unfairly or that
you acted illegally, a general liability policy will usually not respond.
Directors and Officers (D&O) Insurance
Most directors and officers are surprised to learn that their own employees
are one of the most common sources of D&O claims. In fact, if employees
are mistreated during any phase of their employment, they may bring their
concerns to the organization’s management team. If employees feel that
their concerns have not been addressed in a satisfactory manner, they may
seek legal action as a means of resolving their grievances.
Some of the most common employment practices claims against directors and
officers include discrimination and sexual harassment.
It’s important to keep in mind that D&O Insurance coverage for sexual misconduct
claims is limited by standard exclusions for bodily injury, which may
extend to claims for mental anguish, humiliation and emotional distress,
and willful or intentional misconduct.
Crisis Management or Reputation Risk Insurance
In some cases, reputational fallout from a sexual harassment allegation can
be more costly than litigation itself. Even if an allegation is handled
gracefully, organizations can lose favor in the public eye, sometimes
Crisis management insurance and reputation risk insurance are two newer
forms of coverage that can address the risks of negative publicity. In a
basic sense, these policies provide the following:
- Crisis management insurance
—When a triggering event occurs, crisis management insurance often
covers the costs of hiring of a public relations firm.
Reputation risk insurance
—Reputation risk insurance generally provides coverage for actual
business losses sustained as the result of a negative publicity event.
It should be noted that policy language for crisis management and
reputation risk management insurance can vary widely. Depending on the type
of coverage purchased, sexual misconduct-related events may or may not be
covered, so it’s important to be specific and ask questions during the
A Layered Approach to Addressing Sexual Misconduct Allegations
Organizations are expected to take sexual misconduct claims seriously and
examine their internal policies. In addition to securing the right
coverage, it’s critical for companies to encourage a positive corporate
culture and address sexual assault, harassment and discrimination claims
Again, no one policy provides organizations with ample protection against
sexual misconduct allegations. In order to remain protected, companies need
to take a layered approach when it comes to insuring their business.
To learn more about the policies mentioned in this Coverage Insights and
other effective risk management strategies, contact Robertson Insurance & Risk Management today at 717-625-3770.