Sun Sentinel Palm Beach Edition
Firms buy coverage for bad behavior
Sex harassment cases spur sales of liability policies
Companies have dramatically increased their insurance coverage against sexual harassment complaints in recent years following high-profile scandals, as corporate America reckons with the growing risks of workplace misconduct.
Employment practices liability insurance (EPLI) plans, which cover sexual harassment, racial discrimination and wrongful-firing claims, have spread rapidly over the past decade from major corporations to midsize and smaller firms, industry experts say.
But lawyers and some women’s groups say the policies, which shield businesses and executives from costly lawsuits and reputational damage, may also help perpetuate abuse by allowing companies to avoid confronting the problem head-on.
“Payouts can provide some monetary help and peace of mind going forward, but they create a stronger culture of silence,” said Kim Churches, chief executive of the American Association of University Women. “It doesn’t only prohibit victims from speaking up. It means we’re not encouraging colleagues to stand up to sexist language or harassment and call it out on the spot.”
Sexual harassment surged to public attention in 1991 when law professor Anita Hill accused her former boss and thenSupreme Court nominee Clarence Thomas of repeatedly asking her out on dates and talking about porn while at work.
Hill’s testimony at Thomas’ confirmation hearing awakened workers to what could qualify as office misconduct, women’s groups say. For Victoria Stone, a Los Angeles insurance broker, Hill’s willingness to go public marked a cultural shift.
At the time, only five insurance companies offered EPLI policies, according to the Betterley Report, which tracks EPLI trends.
Stone said she sensed a business opportunity and mailed out fliers to her clients urging them to adopt those early policies. Few took her up on the offer.
Now, though, practically all of the roughly 200 business leaders she works with have bought a plan, Stone said. As accusations mounted last month against the Hollywood mogul Harvey Weinstein, two more opted in.
“So many people feel like, ‘it’ll never happen to me,’ ” said Stone, senior vice president at Poms and Associates Insurance Brokers. Now, she added, “more people are pulling the trigger” — including one client who reluctantly purchased a plan, she said, and was later hit with a $300,000 sexual harassment and wrongfultermination claim.
U.S. companies spent an estimated $2.2 billion last year on insurance policies covering the legal fallout from sexual harassment, racial discrimination and unfair-dismissal accusations. The market is projected to grow to $2.7 billion by 2019, according to MarketStance, a research firm that tracks insurance trends.
That’s a fraction of what enterprises spend on legal and medical malpractice insurance, but industry experts said EPLI coverage is surging into the mainstream, with the biggest growth coming from small and midsize companies.
About 41 percent of firms with more than 1,000 workers report having some kind of plan to cover sexual harassment and discrimination, said Frederick Yohn, managing director of MarketStance.
Meanwhile, Nationwide, one of the country’s largest insurance companies, recorded a 15 percent increase in EPLI sales from fall 2016 to September 2017 — a stretch that coincided with the ouster of Fox News’ Roger Ailes and Bill O’Reilly.
“We can speculate that it is due to increased awareness in the need for this type of coverage,” said Karen Johnston, casualty technical consultant for Nationwide Insurance Staff Commercial Underwriting.
The cost of such policies varies according to the size of the business and the level of protection. For firms with annual revenue below $25 million, the median coverage purchased is about $1 million, which costs about $4,900 a year, said Jim Blinn, executive vice president of client solutions at Advisen.
Firms with more than $5 billion in annual revenue typically pay about $285,000 a year for a $30 million limit.
But lawyers say the growth of sexual harassment insurance coverage has had uneven results when it comes to providing redress to victims.
Alexis Ronickher, an employment lawyer at Katz, Marshall & Banks in Washington who specializes in sexual harassment law suits, said insurance coverage made it easier for companies to provide some form of remedy to workers who suffer harassment.
Last month, two of her clients — women who held low-paying service jobs — settled sexual harassment claims with a local employer and, through the company’s insurance, were promised checks for about twice their annual wages.
But in Ronickher’s experience, insurance claims adjusters may intervene to try to limit the size of the award. That can significantly prolong negotiations, even if an employer would prefer to offer more money and wrap things up.
“It’s a curse and a benefit,” Ronickher said.
It’s unclear how many complaints are settled with the insurance each year — or the scale of compensation to women who suffer sexual harassment. Nearly all settlements come with nondisclosure agreements, lawyers say.
Workplace fairness advocates said such confidentiality agreements are potentially damaging.
“That might be a rational economic decision for businesses to make — to pay into insurance, to mitigate the risk,” said economist Kate Bahn. “It helps your bottom line, but it’s really terrible for women.”