Risk Management in the #MeToo Era

By Christina Sardone from

Over the past year, the #MeToo movement has significantly increased awareness of sexual harassment in the workplace and its often devastating impact. And as the movement continues to bring light to more instances of sexual harassment, organizations of all kinds are seeking new ways to protect their employees and their businesses.

While there are no easy solutions, many companies are focusing much of their efforts through their human resources department. But even the best efforts of the most robust HR teams are not a foolproof deterrent to the worst of human behavior. Witness the surge in #MeToo-related lawsuits and insurance claims from companies with top-notch HR teams. That’s why, in our recent discussions with clients around this issue, we keep returning to the tried and true approach to risk management: develop a game plan to prevent the situation from happening in the first place and protect your company in the event a problem emerges nonetheless. Based on what we’ve seen since the movement first began, here’s how that plays out in today’s climate.

Developing A Game Plan: Education and Resources

Obviously, there’s no better way to combat workplace sexual harassment than to do whatever is required to foster an environment in which such behavior simply is not tolerated and therefore cannot thrive. For this reason, many of our clients, even those that have not experienced a problem, are investing in relevant employee education. Some now require higher-salaried and/or more senior employees to undergo individual and personalized sexual harassment training on a regular basis.

In many cases, moreover, an ongoing focus on regular sexual harassment education means the educators need their own refresher courses, too. Clients are also seeking the assistance of consultants who can help review and refine the channels for reporting allegations of harassment and handling accusations. In our experience, early and earnest action is critical.

Likewise, organizations should also consider protection from fallout related to false or unfounded claims. Employers who act too quickly without investigating all aspects of the alleged misconduct can potentially open themselves up to wrongful termination and defamation suits from the accused. HR employees and other leaders will also want to ensure they are up-to-date on all sexual harassment laws. This knowledge should also be disseminated throughout the organization.

Any sound risk management protocol should also involve a call to the organization’s insurance broker at the earliest hint of legal trouble. This is especially crucial before defense counsel is hired. Employment practices liability (EPL) insurance—the policies under which sexual harassment claims are typically covered—very often include a list of law firms that have been prepared by the insurer issuing the policy. Even a failure to go through proper channels with an approved firm can result in higher out-of-pocket fees. Which leads us to Step Two.

Protecting Your Company: Understanding EPL Insurance

Just as sexual harassment claims and lawsuits are on the rise, so too are client requests for maximum risk-mitigation. Not surprisingly, many small employers are purchasing EPL policies for the first time, while larger organizations are increasing coverage amounts. Spending on EPL policies is expected to increase by more than 25% by 2019. These policies vary in scope, but at a minimum they not only cover the cost of defense but also judgments or settlements that are handed down. In our estimation, however, ideal policies also provide third-party coverage, e.g., coverage extensions for allegations of discrimination or harassment against the employees and/or the employer from “Third Parties” with whom the employees come in contact with during the course of conducting business on behalf of the organization.

EPL policies also vary in pricing. Some carriers have lowered EPL rates in a bid for market share. But in states like California, Texas, New Jersey, and Florida payouts are high in relation to premiums, which has caused many insurers to raise rates and seek higher retention structures. Across the board, underwriters are exercising greater scrutiny for certain high-risk industry classes. For example, some carriers are removing sexual harassment coverage from EPL policies for clients in the entertainment industry, while others are imposing higher self-insured retentions based on employee compensation levels—or enforcing co-insurance agreements based on loss history.

All of which means that procuring EPL insurance has become less transactional than it had become in recent years. In many cases, we have found that engaging a client’s risk management team in the policy-acquisition or renewal process matters more than ever. The optimal pricing and retention structure may well depend on a business’s ability to highlight its anti-harassment practices (e.g., training, reporting processes), as well as its investigation and mitigation protocols to the satisfaction of potential carriers. And while such efforts may seem arduous, it is worth it: The first wave of seven- and eight-figure sexual harassment settlements are in the books, including a $90 million settlement against 21st Century Fox. We can’t imagine any pre-crisis preparation that’s not worth avoiding those kinds of damages.

Although proscriptive efforts to lessen the likelihood of workplace sexual harassment–and the damage should it nonetheless occur—is both delicate and challenging, the failure to address it can be disastrous. That’s why the smartest organizations know that tackling these issues aggressively is the only way to truly mitigate the risk.

Christina Sardone is a senior account executive at the New York City-based insurance brokerage firm Crystal & Company.

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