Insurance Coverage for Sexual Harassment
In light of the #metoo movement, insurance carriers are bracing themselves for a wave of sexual harassment claims across every industry—and that includes nonprofits. Here’s an overview of the type of coverage a nonprofit needs in order to be well covered.
Employment Practice Liability (EPL). These policies focus mainly on claims arising from the mental anguish and emotional distress caused by sexual harassment, bullying, or other problematic behavior. They also cover financial damages that arise when the victim is penalized at work—such as being demoted or fired for reporting the behavior.
These policies can extend to acts of harassment or discrimination committed by non-employees toward employees of a nonprofit—but only when the nonprofit knew these actions were happening and did not take steps to prevent them.
It’s important to consider whether an EPL policy provides defense cost reimbursement inside or outside policy limits. When a policy covers the cost of defense against a claim inside the limit of liability, this can erode the limit available to pay other losses.
For instance, let’s say a nonprofit policyholder with a $1 million liability limit is hit with a sexual harassment suit—and they have to pay $200,000 to defend themselves in court. That will leave only $800,000 on the policy to pay for the settlement or judgment.
By contrast, when the cost of defense is paid outside of the policy limits, the full $1 million is preserved to pay for settlements, judgments, and other costs.
General Liability. This part of coverage generally applies to damages that arise from physical misconduct such as inappropriate touching and more egregious acts. Not all general liability policies include this coverage; look for a sexual abuse and molestation endorsement that will not erode liability limits for other claims.
Specific wording in the policy can make a big difference in whether a claim is accepted—and some insurance experts predict that insurers will be careful to closely monitor policy language and limit their exposure as claims in this area continue to climb. That’s why it’s essential for insurance agents in this space to carefully review coverage language to make sure their nonprofit clients are adequately protected.
Sexual harassment insurance is a mature market—but in light of recent cultural and societal shifts, it’s an increasingly changing one. That’s why it’s so essential to rely on the help of a wholesaler that specializes in EPL and the special challenges faced by nonprofits in this area.