Although the law doesn't prohibit simple teasing, offhand comments, or isolated incidents that are not very serious, harassment is illegal when it is so frequent or severe that it creates a hostile or offensive work environment or when it results in an adverse employment decision (such as the victim being fired or demoted). Harassment is also in the eyes of the victim; while the harasser may have meant no harm, if the victim feels uncomfortable by the joke, statement or action, it is harassment. A group of women discussing their various childbirth experiences can be harassers if another woman in the group is made uncomfortable.

Employment-Related Practices Liability Coverage

ISO released their first edition of the Employment-Related Practices Liability Coverage form EP 00 01 in 04 98, and since that time the form has been updated three times with the current edition being EP 00 01 11 09, ISO Employment-Related Practices Liability Coverage Form. The form provides coverage for wrongful act offenses defined by the policy, and these offenses must be employment-related.

The offenses described as wrongful acts in the policy can be broken into the following groups:

• Offenses related to employment and career – wrongful demotion or failure to promote, negative evaluation, reassignment, or discipline; wrongful denial of training, wrongful deprivation of career opportunity; negligent supervision which results in any other wrongful act offense;
• Offenses related to hiring and firing – wrongful refusal to employ or wrongful termination (including constructive discharge and retaliatory discharge); negligent hiring;
• Violations of law or public policy - terminations in breach of law or public policy; or those terminations that are determined to be in violation of a contract or agreement (except employment contracts or agreements that stipulate financial consideration due as a result of the breach of contract); coercing an employee to commit an unlawful act or omission during the scope of their employment;
• Retaliatory actions against an employee – because the employee refuses to perform an illegal or unethical act, has filed a complaint for damages; has testified against any insured at a legal proceeding; or has notified a proper authority of the insured's illegal business operations;
• Personal offenses - harassment; libel, slander, invasion of privacy, defamation or humiliation; or abuses that are verbal, physical, mental or emotional arising from "discrimination". "Discrimination" means violation of a person's civil rights based on race, color, national origin, religion, gender, marital status, age, sexual orientation or preference, physical or mental condition, or any other protected class or characteristic established by any federal, state or local statutes, rules or regulations.

 Sexual Harassment Case Study

As evidenced by the most recent public sexual harassment claims, often the wrongful acts that constitute sexual harassment claims go back over a period of many years and can involve many claimants. This brings to the forefront the importance of understanding how coverage would be applied for each wrongful act and each claimant, as there typically would be more than one insurer providing coverage over a period of several years.

The ISO form EP 00 01 11 09 provides claims-made coverage. Putting it simply, claims-made coverage is triggered by when the insured first becomes aware of and reports the wrongful act(s) that generated the claim, and this date triggers the policy term that will apply.

Example:

An employee of the company is known for making lewd comments to female coworkers. Some take it as a joke and do not mind. He also keeps pictures of scantily clad women at his desk.  A female co-worker notified the employer that she felt he was harassing her by saying lewd things even though she had told him to stop. She reported this in 1986, and the employer reported the claim to the insurer at that time. The perpetrator apologized to the female employee and no further action was taken. From then on, no other claimants came forth until 2017, when five former employees reported sexual harassment claims to the employer. The victims made their accusations public, stating that the harassments had first taken place while under the insured's employ in 1984 and continued until 1999. After hearing the public accusations on the news, the woman who first reported her claim to the employer in 1986 filed suit against the employer for the earlier sexual harassment. The same perpetrator, no longer employed by the company, committed all of the wrongful acts. The employer reported each claim in writing to their current insurer under form ISO EP 00 01 11 09. Based on this example:

 1.  Is sexual harassment a covered "wrongful act" under the current policy?

Yes, sexual harassment is included in the definition of "discrimination", and the definition of "wrongful act" includes verbal, physical, mental or emotional abuse arising from "discrimination".

2.  When did the employer first become aware of the wrongful acts to trigger coverage?

Barring any applicable exclusions, with respect to the five former employees who reported the sexual harassment from 1984-1999, since the employer did not become aware of these claims until the current policy term, and reported the claims during the current policy term, the current policy will trigger coverage.

With respect to the former employee who first made the claim in 1986 and filed suit during the current policy term, the employer first became aware of the wrongful act in 1986. Since the employer had reported the claim to their insurer in 1986, this claim will be excluded under the Prior Notice exclusion and the 1986 policy will trigger coverage, if any.

3.  I s the perpetrator considered an insured under the current policy?

Yes, Who Is An Insured includes the insured's former employees, as long as they were employed by the insured when the offenses were committed.

4.  How many claims will the insurer be required to defend the insured against, according to the current coverage form?

Barring any applicable exclusions, within the limit of insurance the insurer will defend the insured against each of the five claims from the former employees. Each is a separate claim, even though the same perpetrator committed the wrongful acts.

5.  How many deductibles will apply to the claims covered under the current policy?

Only one deductible will apply. The deductible applies to all claims arising out of a series of incidents, circumstances or behaviors that arise from a common cause, regardless of the number of persons making such claims.

6.  What happens if defense expenses use up the entire limit of insurance?

It is possible for the entire limit of insurance to be used up in the defense of such claims. Under form EP 00 01 11 09, defense expenses are included within the limit of insurance. Therefore, the limit of insurance may be exhausted simply by payment of defense expenses.