Along with the headlines of misconduct, there is also news of new laws and rules being proposed and passed in response. Gretchen Carlson, the Fox News Anchor that was one of the earliest to come forward, supports a bill in Congress called the Ending Forced Arbitration of Sexual Harassment Act, and similar legislation has been introduced or passed in states such as California and New York. How has the continued stream of allegations, and pending and enacted rules and laws, impacted the insurance marketplace for Employment Practices Liability (EPL)?
One trend is an increase in the frequency of retaliation claims. Retaliation occurs when an organization treats people negatively in response to legally protected activity. Negative treatment can include reducing work responsibilities, less access to opportunities, hostile environment and even termination. A recent Dow Jones Service article reports that the EEOC data demonstrates that more than two-thirds of workers who filed sexual harassment claims with the EEOC have alleged retaliation.1 Another article by Philly.com describes the climate on Wall Street where the form retaliation takes is more general – to exclude all women from activities to avoid being wrongfully accused of sexual harassment.2 The top EPL insurers, such as Chubb, AIG, Travelers and Zurich, are also seeing increased incidence of harassment and retaliation claims, and this increase hastens impacts in premium and retention.
Initially, the industry did not see significant changes to premium or retentions resulting from #Metoo. The very large losses, publicly noted to have been paid by insurance in such cases as Fox News, Weinstein Company and Wynn Corporation, were generally paid under a Directors and Officers (D&O) Liability policy. These claims have been brought by shareholders either derivatively or as a class action, alleging mismanagement, a type of claim generally covered by D&O policies, versus the actual sexual harassment allegation generally covered by EPL. The EPL insurers had not yet seen a notable increase in loss payments. In late 2018, however, insurers such as AIG relayed that typical, single-plaintiff sexual harassment claims had begun to settle for higher amounts than in previous years – a trend they believe to be due to the changing sentiment of judges and juries and voraciousness of plaintiffs’ attorneys. As a result, carriers are more commonly increasing retentions and premiums, especially in higher risk states such as California, New York, Michigan, Texas, Florida and Massachusetts.
While we are starting to see more significant premium and retention increases, coverage is generally stable in EPL policies. However, recent allegations have spotlighted existing policy provisions and prompted review and possibly amendment.
First, the EPL policy has always contained an exclusion for bodily injury allegations, which are generally covered under a General Liability (GL) policy. However, GL policies do not cover employment-related harassment. And it is not uncommon for a sexual harassment allegation to contain unwanted touching or sexual molestation. Generally, unwanted touching alleged with sexual harassment should be covered under a standard EPL policy with a bodily injury exclusion, although we have seen some insurers attempt to apply the exclusion to the scenario. However, there are products being offered, that explicitly cover allegations of sexual molestation, which can be purchased by itself or as an excess placement over traditional EPL insurance.
The second typical coverage provision to come into play is the Pending and Prior Litigation Exclusion, and the concept of Interrelated Wrongful Acts. One of the pillars of #Metoo is to embolden women to speak out now about past harassment that may or may not have been subject to a confidential settlement or other “prior litigation.” Insurers will exclude claims that are made when they arise out of prior settlements. Or even if there was no prior formal confidential settlement, the policy may exclude coverage based on the notice requirements that generally require notice of a “claim” first made during the policy period. Some insurers have been willing to amend these provisions to capture future litigation arising out of past harassment, but often times amending these provisions is not possible.
Years after the #metoo movement began, the EPL insurance industry is evolving right along with the rest of the country, and as there are more lawsuits, and more expensive lawsuits, the desire for broad insurance coverage escalates. Reassuringly, the marketplace for EPL insurance continues to be robust, with thirty-plus insurers writing coverage, generally with no unusual harassment-related restrictions. Even as retentions and premium increase, EPL insurance continues to provide sensible risk transfer to companies seeking to reduce exposure to sexual harassment allegations.
Emily Loupee is a Senior Vice President in Gallagher’s Management Liability Practice. This group focuses on providing insurance and risk management solutions related to executive and management liabilities. For additional information, please visit www.ajg.com/mlp.
Important Note: This publication of Advisor is not intended to offer legal advice. Any descriptions of coverage provided herein are not intended as an interpretation of coverage. Policy descriptions do not include all the policy terms and conditions contained in an actual policy, and should not be relied on for coverage interpretations. An actual insurance policy must always be consulted for full coverage details.