Will Herman Cain scandal spark boom in sexual harassment insurance?

Mark Henricks

After declining steadily for more than a decade, sexual harassment claims against employers may see a spike, thanks to the scandal involving Republican presidential candidate Herman Cain. That scandal is focusing attention on sexual harassment insurance as one of an employer’s strongest defenses against these potentially devastating claims.

Sexual harassment claims can be expensive for an employer to defend. According to Tony Alessandra, president and CEO of Mission Viejo, Calif., insurance agency Insurance Solutions, the average jury verdict for a sexual harassment plaintiff is $350,000. Defense costs, meanwhile, average $150,000 per plaintiff, Alessandra says.

Insurance is available to help cover the legal costs, but while most large businesses carry sexual harassment insurance, most small businesses don’t. Nearly 90 percent of small business owners are uninsured or underinsured when it comes to sexual harassment coverage, according to BOLT Insurance, an insurance agency in Farmington, Conn.

The Herman Cain sexual harassment scandal has some employers thinking about employment practices liability insurance.

However, small businesses can be targeted for sexual harassment accusations as well as big businesses. Although the federal anti-harassment law does not apply to employers with fewer than 15 workers, state laws may be much broader. In California, for instance, having a single employee brings an employer under that state’s sexual harassment laws, says Scott Barer, an employment law attorney in Woodland Hills, Calif., who has represented employers and employees in harassment cases.

Employment practices liability insurance

The best coverage against sexual harassment claims is found in stand-alone employment practices liability insurance, known as EPLI. These policies cover not only sexual harassment, but discrimination, retaliation and other types of claims against employers. EPLI policies also may include risk management services such as employee training and dispute resolution that can reduce claims to begin with.

Premiums for insurance against sexual harassment are based on the number of workers an employer has. Annual premiums start in the vicinity of $1,000 for employers with 20 or so workers and can reach into the millions of dollars for huge employers, Alessandra says.

A common coverage amount is $1 million. However, deductibles and exclusions may raise out-of-pocket costs and even cause some claims to not be covered at all. For instance, if sexual harassment is alleged by a non-employee, such as a vendor or customer, that may not be covered.

“Sexual harassment is definitely a topic of intense interest right now as a result of the Cain affair,” Alessandra says. However, since the Cain scandal surfaced, Alessandra hasn’t seen a jump in business involving sexual harassment insurance.

Sexual harassment and Clarence Thomas

Sexual harassment insurance did become more popular following the Clarence Thomas controversy, when sexual harassment claims rose by about 50 percent during the 1990s. During his confirmation hearings for his U.S. Supreme Court seat, former employee Anita Hill alleged that Thomas had sexually harassed her. Thomas vehemently denied the accusation.

In the Cain case, several woman have alleged that he made unwanted sexual advances toward them when he led the National Restaurant Association. Cain repeatedly has denied the allegations.

Caren Goldberg, a professor at American University, says some victims of sexual harassment may be reluctant to come forward in the midst of an economic slump.

Caren Goldberg is a management professor at American University’s Kogod School of Business in Washington, D.C. Her research focuses on workforce diversity and discrimination; she’s been an expert witness in numerous sexual harassment cases. Goldberg says there may not be too many parallels between the Thomas and Cain cases, at least in terms of sexual harassment insurance and claims.

Goldberg says that while media attention tends to boost the number of sexual harassment claims filed, high unemployment tends to reduce them.

“In our current economic environment, even if somebody does realize that they’re being harassed, they may not feel like they have many alternatives,” she says. Translation: Some sexual harassment victims may fear losing their jobs if they report the accusations.

Since Hill leveled her groundbreaking accusations against Thomas, most employers and employees are aware that sexual harassment is something to be avoided. However, knowledge about sexual harassment insurance is less widespread.

Awareness and action

Many business owners and executives mistakenly think they’re protected against sexual harassment claims because they have commercial general liability coverage. However, such policies usually exclude sexual harassment. In addition, general liability insurance usually does not cover employment-related claims, including those involving sexual harassment.

“I think that people are so aware of sexual harassment issues now, there will be little or no increase in claims resulting from the allegations leveled at Herman Cain,” says Barer, the California attorney.

The federal Equal Employment Opportunity Commission, which is charged with policing sexual harassment barred by federal law, reports the number of sexual harassment cases filed fell from 15,889 in 1997 to 11,717 in 2010. The number of cases settled through the agency, however, actually has climbed during that period, from 1,178 to 1,417, largely because fewer cases today are thrown out.

If a sexual harassment claim does arise, an employer enhances the chances of resolving it without going to court or facing an official investigation by responding quickly and investigating it fully, with the review preferably handled by a high-profile person, according to Goldberg.

“I’ve seen the gamut where there’s nothing done at all to when they have a C-suite executive fly in to investigate,” Goldberg says. “It really boils down to how seriously the company takes the complaint.”