November 23, 2018

Sexual harassment in the workplace and why employers need appropriate insurance to protect them

According to a Washington Post Poll, conducted by landline and mobile telephone between October 12-15 2017, nearly half the women surveyed have been subject to sexual harassment, with 23% claiming such sexual advances occurred in their work environment.

In Australia, the Australian Human Rights Commission conducted a ‘Everyone Business: Fourth national survey on Sexual Harassment in Australian Workplaces’ between April and June 2018. This survey was conducted online and by telephone with a sample of over 10,000 Australians. The results of the survey were released in a report in August 2018. Key points from the survey are as follows:

  • 71% of Australians have been sexually harassed at some point in their lifetime;
  • more than four in five (85%) Australia women and over half (56%) of Australian men over the age of 15 have been sexually harassed at some point in their lifetime;
  • only 17% of people make a report or complaint;
  • in the last 12 months, 23% of women in the Australian workforce have experienced some form of workplace sexual harassment compared with 16% of men in the workforce; and
  • 39% of Australian women and 26% of Australian men said they have been sexually harassed at work in the past five years.

Employers need be aware that should one of their employees allege that they have been harassed by another employee at work, the complainant can make a claim not only against the person they allege sexually harassed them, but also against their employer. In the case, Richardson v Oracle Corp (Australia) Pty Ltd (2014) 312 ALR 285, an employer was found to be vicariously liable for the actions of their employee who sexually harassed another employee in the workplace.

Further, employers should bear in mind the amount of damages which can be awarded. In the case, Matthew v Winslow [2015] VSC 728, Ms Kate Matthews was awarded damages of AUD1,360,027 in respect of psychiatric and physical injury and loss of past and future earnings due to significant abuse, bullying and sexual harassment by other employees of and contractors to her employer.

In addition to putting appropriate policies in place to prevent sexual harassment from occurring, employers would be wise to review their insurance cover to ensure that they have appropriate cover in place and are familiar with the cover afforded by those policies and the notification requirements.

Employment Practices Liability Insurance

Employment practices liability insurance, commonly referred to as EPL insurance, is often purchased as part of D&O insurance liability or a management liability insurance package. It provides cover for company directors and officers, employees and their organisation from claims alleging employment wrongful acts including sexual harassment and discrimination.

The scope and cover varies between policies and as such companies and employers should review their policies carefully.

What do you need to be aware about?

  1. Amount of cover
    Companies should review the amount of cover they have. Usually cover is costs inclusive. This means that if you have a $500,000 limit on your EPL policy, that is all you have to defend yourself and pay damages.
  2. Scope of cover
    Policyholders should review the policy to ensure that all entities and persons for whom coverage is intended is in fact in place.

    Policyholders should consider whether the cover extends to independent contractors whom they employ and all their employees. Further, they should consider whether they will be covered in the event they are involved in a merger or a takeover.

    Many policies provide indemnity for public relations expenses. This is an important consideration – for while a policy holder may successfully defend the claim, its reputation may be tarnished if it does not take steps to address a media backlash.
  3. Where did the harassment take place
    The wrongful act must have occurred whilst the Insured Person was acting in the course and scope of his or her employment. If the harassment occurs outside of the workplace then the policy may not respond.
  4. Cover for investigations
    EPL policies will generally provide cover for the legal costs of defending a claim in official investigations or proceedings. However some policies may not provide cover for informal or internal investigations. It is important for an employer to review their policy to see if these costs are included under the policy or if they should be considered an expense to the company.

    Further, when considering whether to commence an internal investigation, companies should consider whether they want those investigations protected by legal professional privilege. The danger being that those investigations become discoverable in any future litigation.
  5. Bodily injury exclusions
    A common exclusion in EPL liability cover is for claims alleging bodily injury. This means that claims for physical assault will not be covered. Employers should review their EPL policy to check whether it contains this exclusion, and if so investigate whether other policies of insurance which they may have - for example their general liability policy - provides cover for this type of claim.

    If a bodily injury exclusion is contained within their EPL cover, companies should check to see whether that exclusion clause contains a write back to provide cover for claims alleging emotional distress, mental anguish and humiliation. Those allegations commonly form part of sexual harassment claims.
  6. Late reporting
    EPL policies are claims made policies. By this we mean that for the policy to respond the claim has to be made against the Insured and notified to the Insurer within the policy period. If policy holders fail to notify their insurers of a claim during the policy period, the insurer may deny cover or assert that they have been prejudiced by the late notification and reduce their liability by the amount of prejudice they allege they have suffered. In order to preserve cover, an employer should inform their insurer as soon as they are aware of facts which might give rise to a claim. Should proceedings be commenced against them, they should notify their insurers immediately.
  7. Changing insurers
    It is not uncommon for companies to find out after changing insurers that they are being sued in respect of events which occurred prior to the inception of their new cover. In those circumstances, depending on the terms of the new and old covers, the policy holder may find itself uninsured for the claim. As such when contemplating changing insurers, companies should discuss with their broker whether all claims which arise from events before inception of the policy will be covered.

    Further, before entering into a new policy it is prudent if companies check with the board of directors and their HR department whether they are aware of any facts or circumstances which might give rise to a claim and if they are aware, notifications should be made to their insurers.

Take outs

Policy holders should review their insurance policies to ensure that they have appropriate cover for sexual harassment claims. They should familiarise themselves with notification requirements and the exclusions of cover. Failure to do so may cause policy holders to have inadequate insurance.