Insurance Coverage for Sexual Misconduct Lawsuits
Sexual misconduct claims in the workplace can result in different legal claims against the company itself. These claims usually involve company executives or employees. A sexual harassment claim can occur between a supervisor and an employee when there is unwanted sexual advances or other conduct of a sexual nature. This conduct can form the basis for a sexual harassment claim against the company under Title VII of the Civil Rights Act. If the accuser is not an employee, the company may be liable if the victim can prove negligent hiring or some type of negligent supervision.
These claims can create additional litigation beyond claims initially alleged by the victim. For example, An investor sued a CEO for allegations of sexual harassment and gender discrimation. Based on these allegations, additional claims of fraud, breach of contract, and breach of a fiduciary duty were brought. Additionally, the victim will bring a defamation lawsuit following public allegations of sexual misconduct. In one case, a CEO sued his former company and a hedge fund for defamation, arguing both sought to damage his reputation by publicly announcing to third parties that he had engaged in conduct of a sexual nature. As you can see no single insurance policy can provide coverage for every time of claim. As such the following insurance coverages would be available in these types of cases.
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Employment Practices Liability Insurance (EPLI)
This insurance coverage is the most likely source of recovery for sexual misconduct claims brought by employees. EPLI generally covers claims made by employees as it is based on employment-related misconduct of both supervisors or co-workers. Most of these policies expressly include coverage for sexual harassment, wrongful termination, discrimnation and retaliation. Some of these policies also include defamation or negligent retention and supervision. Finally, these policies may also cover non-employees, such as customers or vendors. Interestingly, while EPLI may cover verbal sexual harassment claims, claims for physical sexualt assault will not be covered. If both are claimed, EPLI will generally only provide partial recovery.
General Liability (GL)
Some alleged sexual misconduct claims may be covered under GL policies. Most of these policies cover claims for “personal injury,” which does include defamation. Additionally, GL policies may cover bodily injury claims. Physical assault would generally be excluded but some courts have found that the exclusion would not apply if the company negligently hired or supervised the person who commits the sexual assault. Employees of the company are also limited unless the conduct occurred outside the workplace or were unrelated to employment.
Directors and Officers (D&O)
This coverage generally provides coverage for “wrongful acts” of the company’s directors and officers. It also covers it’s employees. D&O typically covers claims for fraud or breach of a fiduciary duty. Sexual misconduct claims are usually excluded under the bodily injury standard. This would exclude mental anguish, humiliation and emotional distress, and “ willful or intentional” conduct. Employees’ claims are also excluded under this coverage.
Crisis Management or Reputation Risk Insurance
These types of insurance are relatively new. They are meant to address the risk of negative publicity that affects the company’s bottom line. When an event occurs, this insurance will pay for a public relations firm to handle all the issues surrounding the situation. This insurance also handles actual business loss sustained as the result of the negative publicity event. Coverages and policy forms for these types of coverage vary widely and sexual misconduct claims may or may not be covered, depending on the coverage purchased. Once a claim is made, the company should immediately report the claim to its insurance carrier. It will determine coverage and provide the best defense.
Dennis E. Sawan
Licensed in Ohio and Florida
Dennis P. Sawan
Licensed in Ohio and Georgia
Christopher A. Sawan
Licensed in Ohio and Michigan
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