Businesses can cover exposure to sexual harassment claims

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• Provide examples Give examples of sexual harassment that put the definition into concrete terms.
• Enforce sanctions for policy violations Let your employees know what will happen to anyone who breaks the rules
• Give prompt attention Everyone should be aware that a sexual harassment complaint is serious and will receive the appropriate consideration within the company.
• Keep it under wraps Maintain the confidentiality of all parties involved.
• Provide protection against reprisals Without this point in your company’s policy, those suffering from harassment will be even more reluctant to come forward for fear of losing their jobs.
• Investigate thoroughly State clearly that any investigation into the complaint will be done with the utmost respect for all parties involved.
• Define the responsibilities of all parties Outline what each party should do in the case of sexual harassment. This gives all parties a course of action to follow.
• Provide a list of state and federal agencies Distribute a list of state and federal agencies where employees can file a formal complaint of sexual harassment. Doing so many make them feel safer.

Sexual harassment isn’t confined to one industry, or to companies of any one size. It strikes big companies like Mitsubishi, beloved organizations like the New York Mets, small companies like the fast-food franchise on the corner, and everything in between.

Legally, companies are responsible for the actions of all their employees, whether or not top management has knowledge of the offending action.

In 1991, there were 6,883 sexual harassment claims in the U.S. This more than doubled by 1997, with 15,889 claims, according to the Equal Employment Opportunity Commission. In 1997, about 20 percent of those claims ended in judgments for the plaintiffs and paid out almost $50 million. When you factor in the huge expense of litigation, the total costs of sexual harassment quickly skyrocket.

Experts suggest that it’s not incidents that are increasing, but rather the reporting of those incidents — and lawsuits increase accordingly. Nearly 50 percent of all U.S. companies received a sexual harassment claim in 1997 according to a survey by Business and Legal Reports.

While companies need to do everything they can to teach their employees that sexual harassment is unacceptable, they can also start protecting themselves financially. General business liability insurance doesn’t cover these claims in most cases, and insurers started writing exclusions for bias cases when they noticed the explosion in claims.

A special variety of business liability coverage called Employment Practices Liability Insurance (EPLI) can cover financial threats to your business that arise out of sexual harassment suits.

An EPLI policy covers such costs as court fees, defense costs, and, if there’s a settlement or decision in favor of the individual bringing the suit, the cost of the settlement — up to the liability limits of your policy.

As the number of suits has increased, so has the number of insurers offering EPLI. In 1992, only three companies sold the coverage. Fast forward to today, and more than 50 companies sell such policies, according to J&H Marsh & McLennan, one of the sellers.

And because awareness (and fear) of sexual harassment suits has skyrocketed, you can bet that sales of EPLI policies have been brisk. “Sales have increased dramatically in the last 12 to 18 months,” confirms John Wood, spokesperson for Specialty Risks Association, an EPLI underwriter. “Companies are sensitive to what they see in the media, the trade articles they see, and the education they receive from agents. After receiving [EPLI] quotes for a period of time, many companies are coming to the realization that they need this coverage as soon as they can get it.”

So far though, barely 20 percent of all companies in the United States have the coverage, according to David Huss, product manager at Professional Risks Co., an underwriting company.

Buying a policy

Almost any company desiring a sexual-harassment policy can obtain one. Most insurers require you to fill out one or more forms, detailing information such as the number of full-time employees, your turnover ratio (especially the number of involuntary terminations) whether or not your company has a human resources department, and whether your company has had any previous harassment or bias suits brought against it.

These factors, along with your company’s gross income, will determine the premium. Rob Schueler, product manager for Travelers, says the average premium for a policy covering a company of 100 employees, with a liability limit of $1 million, runs about $4,000 per year. Schueler emphasized that regulations, which differ from state to state, affect the premium too.

Larger companies, of course, need higher liability limits. A company with about 5,000 employees and a $10 million liability limit with a $250,000 deductible will pay a premium of about $150,000 annually, according to Schueler.

Since an EPLI policy protects a company financially from a claim, lowering the potential for claims is of the utmost importance. Your insurer will send out a human resources professional to assess your company’s workplace policies. If you have no existing policies, or if your policies are outdated, the human resources professional will help you write them. Properly written guidelines will help lessen your company’s risk of sexual-harassment litigation.

Smaller companies may be at greater risk

Larger corporations often have heightened awareness of their need for sexual-harassment insurance; according to the Insurance Information Institute, 50 percent of Fortune 500 companies already have an EPLI policy. Smaller companies, however, may think they don’t have the resources for such insurance or that they simply aren’t at risk for a lawsuit.

Travelers Property Casualty markets a product called “Under 100” to smaller businesses, which they see as an underserved market for this type of insurance. “We help them examine their exposures and help to keep down their loss potential,” says Schueler. Travelers also offers assistance in establishing sound employment practices because “small companies have special needs,” says Schueler.

“Most small companies just don’t have human resource departments,” says David Huss, vice president at Professional Risk Co. “We’ve found some small companies don’t even have sexual harassment policies in place.”

Lethia Heaton, vice president at Shand Morehand&Co., a seller of EPLI, concurs. “Small companies often won’t have the infrastructure to handle a complaint when one occurs,” she says. “A small company’s primary entrepreneur will have few additional resources to handle the claim, and the business could grind to a halt, even if the claim is just a nuisance suit.”

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