The Role of Insurance in #MeToo Movement

In 2017, Forbes magazine named #MeToo movement as the “person of the year.” This is because the #MeToo movement has shaken the corporate world to its very core. It is a sad fact that sexual harassment still remains a reality in the workplace. For instance, it is estimated that at least one in three women who work in a full-time job will face some sort of sexual misconduct during the course of their lives.

These numbers are alarming. What is even more alarming is that high flying corporate executives and media personnel were caught up in this #MeToo storm. In some cases, the alleged sexual harassment did actually take place whereas, in others, the women involved were looking to make a quick buck.

Regardless of the final verdict, it needs to be understood that allegations made under the #MeToo movement can have serious financial consequences. In this article, we will have a closer look to understand how insurance can be used to mitigate some of the losses that may arise because of such claims.

Are Sexual Harassment Claims Covered Under Insurance Policies?

In most cases, sexual harassment claims are indeed covered by an insurance policy. This is because it is standard practice for most companies to have directors and officers insurance policy. This policy is meant to protect the key personnel of a company against any claims including claims of sexual misconduct.

However, in many cases, expenses arising as a result of sexual harassment claims may not be covered. Typical examples of these cases are as follows:

• The directors and officers policy only applies if the alleged incident has happened in the workplace or the extended workplace. Extended workplace means any place where the key personnel are supposed to be present in relation to their work. This includes places such as airports, hotels, etc. Hence, if the alleged sexual misconduct incident happened off business hours and in a place not connected to the business, insurance companies may deny making any claim payments
• In many cases, directors and officers insurance policy is bought only by the parent company. In such cases, sexual harassment claims arising from the misconduct done by any employee of a subsidiary company are not covered
• Only senior management executives are generally covered under such insurance policies. If the alleged sexual misconduct has been done by a person at the junior position, the company itself will be liable to pay the damages that arise because of such an event

Which Executives are Liable to Pay Damages?

A wide variety of company executives may become a party to sexual harassment claims. Some of the common roles are listed below.

• The alleged aggressor or the person who is willfully indulging in sexual misconduct is obviously liable to pay damages that may arise because of it.
• Any executive who is a willing participant in such misconduct is also liable to pay damages. For instance, supervisors and other senior executives who threaten to punish the complainant if they do not comply with unjust demands are also liable to pay damages
• Company executives such as HR personnel who have turned a blind eye to these events can also be made liable. It does not matter if the action was intentional or not. Failure to protect an employee could be construed to be an act of negligence if it was not intentional
• Lastly, members of the internal complaints committee may also be affected if they have not discharged their duties effectively. The actions taken by the members of the complaints committee must be fair and unbiased

What Kind of Damages do These Insurance Policies Cover?

Sexual harassment claims lead to a wide variety of financial losses for the company. Any expense which can be directly attributed to the sexual harassment claim is usually covered by the insurance policy.

• When officers, directors or other senior personnel of a company are accused of misconduct, they have to defend themselves. There might be considerable expenses that need to be incurred in order to defend the reputation of the person as well as the company. Insurance companies usually cover the fees associated with such defense cases. This may include payments related to lawyers’ fees as well as money charged by private investigators (if any)
• In many cases, directors and executives may be guilty of the crime. Or alternatively, it might not be a good time to go to trial, for instance just before an IPO is scheduled. In such cases, companies may be forced to settle with the plaintiff by paying a hefty sum of money in the form of a settlement. These expenses are also covered under the D&O policy<
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• Sexual harassment claims cause a lot of damage to the reputation of the firm and the person involved. This reputation may have to rebuilt. The services of public relations firms may have to be deployed in order to rebuild this reputation. These costs may also be covered by the insurance company

It is important to understand that insurance companies are required to help protect the clients regardless of whether sexual misconduct has actually taken place. Hence, insurance payouts will be applicable regardless of whether the defendant is found guilty or not. However, it also needs to be understood that most insurance companies levy a cap on the amount which they will pay under the directors’ and officers’ policy. Once this amount is exhausted, the insurance company will not be liable to make