You don’t need to be Harvey Feinstein or Al Franken to understand a paradigm shift has occurred within our national culture. Sexual harassment now is “high profile” as accusations emerge from all directions.
Risks to organizations include reputation damage, negative publicity, legal costs and expanded jury awards to punish those perceived to have failed to prevent harassment.
The solution is a sound “risk management” system.
It’s no wonder liability insurance sales to protect employers from these awards are spiking. Conventional liability insurance doesn’t apply, so “Employment Practices Liability Insurance” was introduced in 1992.
But this is getting the “cart before the horse.” In risk management, alternatives to commercial insurance are thoroughly explored before the word “insurance” is even uttered!
Let’s start at the beginning of this three-process system:
Risk Identification and Measurement; followed by
Risk Reduction and Control; and finally
Risk Transfer and Finance, of which insurance is a part but the very last step in these processes.
The challenge to business owners is to be proactive and control harassment to the point that it is virtually eliminated throughout their overall organization.
Risk Identification and Measurement
Risk identification is an easy step now that the “cat is out of the bag.” Yet sexual harassment comes in a variety of forms. Here are but a few:
Threats or bribes — express or implied — for an unwanted sexual relationship.
Sexual comments or suggestive hints.
Touching, patting, stroking, squeezing or other seemingly accidental contact with another person.
An uninvited neck or shoulder massage.
And the list goes on. And on. And on.
Like most liability risks, measurement of this risk is automatically construed to be “unlimited.”
Risk Reduction and Control
Before the “Me Too” movement, the principal risk control measure was a nondisclosure agreement. “Whistle blowing” was discouraged and sometimes punished. Now transparency is the norm. It is perhaps the most effective “risk control” method for future risks — but too late for those already in litigation.
The use of NDAs is now declared void by certain states when applied to this risk. These are legal issues a business owner will want to discuss with legal and HR counsel before taking any action.
An essential risk reduction tool is for employers to adopt a formal corporate policy statement. It not only should define “harassment” but also should include specific examples, as partially listed above.
The policy should unequivocally state that such behavior is strictly prohibited and retaliatory action is never condoned. Each employee — plus new employees as they are hired — should sign a statement attesting to their having received and read the policy statement.
Most states, including California, require training on this topic for both private and public entities.
Many other steps can be taken, such as creating a clear line of communication to report harassment, to assure all complaints are promptly investigated. Windows placed in (unlockable) doors of private offices and other rooms is an optional step to consider.
Risk Transfer and Finance
Risk transfer by contract is rarely, if ever, appropriate for this risk. Conventional indemnification (hold harmless) clauses are worded to avoid any vicarious liability being imputed to the other party to the agreement.
Employment practices liability risks can be included in alternative risk transfer programs such as formal self-insurance, captive plans, high-deductible plans, etc.
More common is the separate EPLI policy described above. It also can be written as an extension of Directors & Officers Liability — usually called “management liability” — and priced with a “package” discount.
Such policies cover allegations of sexual harassment and retaliation, plus defense costs, of course. They also cover other HR risks such as wrongful termination, hostile workplace, negligent evaluation, etc.
Coverage is typically written on a “claims made” form rather than the more traditional “occurrence” form. Its policy limits are applicable to any settlement or jury award plus defense costs as well. Traditional policies provide unlimited defense costs outside policy limits. There are other differences any broker will be quick to explain.
Managing harassment risks also encourages an organization to chart (and lower) its total cost of risk each year. This concept includes insurance costs, of course, but much more — e.g., deductibles paid plus costs incurred for training, legal fees, HR consultant fees, administrative expense, etc.
Taking these steps to create a risk management system will effectively manage this significant risk, plus other risks, of course, and provide the traditional benefit of risk management: a quiet night’s sleep!
John Pryor is a risk management consultant and author of “Quality Risk Management Fieldbook” published by International Risk Management Institute in Dallas.