Recent attention surrounding sexual harassment claims in the entertainment industry highlight the exposure. Though cases rarely go to trial, a thorough investigation can aid in limiting damages, according to two insurance defense lawyers.
In employment practices liability insurance (EPLI) claims, a review of insurance policies and the nature and scope of the investigation conducted by the employer will be key, said Timm Schowalter, a shareholder with Sandberg Phoenix who practices in Illinois and Missouri.
“I want to see how the investigation was conducted, because typically what plaintiffs’ attorneys will do is try to poke holes in the process,” said Schowalter. “A lot of times companies will get a third party investigator to do these investigations.”
Sage Knauft, a partner at Walsworth WFBM, who practices law in California, explained that EPLI policies typically cover sexual harassment in the workplace and provide a defense to the employer and the alleged harasser.
“Unless the employer has an EPLI policy, they generally don’t have coverage for a sexual harassment claim in California,” said Knauft.
When a sexual harassment claim or lawsuit is filed, Knauft said he gets a copy of the firm’s employee handbook and anti harassment policies and determines if any kind of an investigation was completed internally by the employer before the claim was made.
“If there wasn’t, which is often the case, obviously you want to talk to any alleged witnesses and the alleged harasser as soon as possible and get their statements and determine if there’s any corroborating evidence,” said Knauft.
He also considers whether there were witnesses to the alleged harassment or others that made claims against the alleged perpetrator.
“If there are other people who have made claims to the HR [human resources] department about that specific person, what, if anything, was done by the company when they received those other claims? Was there any discipline?” said Knauft. “If you’ve got a situation where you’ve got more than one person complaining and the company is turning a blind eye, it’s not going to be a very pretty case to defend.”
It is often the claimant’s word against the alleged harasser’s word when there is no other evidence available.
“That’s why a lot of the investigations come out inconclusive, and that’s ultimately why cases go to a jury,” said Schowalter. “If there are truly fact disputes, then you’re destined for a jury trial, and most EPLI carriers do not want to, nor have I seen them…take a sex harassment case to jury. Ninety-nine percent of the cases ultimately settle, but in sex harassment cases, it’s not a favorable defense before a jury, because it’s difficult to explain.”
EPLI and CGL Coverage
While CGL policies excludes intentional acts, sexual harassment and workplace-type claims, there may be situations where coverage could apply under the policy.
“There are a number of exceptions. The claim of negligent supervision or negligent hiring against the employer if they knew or they had reason to know that they were hiring a sexual predator,” explained Knauft. “I think about the Roman Catholic archdiocese cases where those were general liability. When you cross the line and someone is actually physically assaulted, then you might trigger other claims under a CGL policy.”
Schowalter explained the exclusion in CGL policies are the reason EPLI riders exist.
“Because most policies exclude intentional conduct and by its very nature it has to be intentional to state a claim for discrimination,” he said. “I’ve never seen any discrimination lawsuit fall under a general liability policy. Typically, they are all under the EPLI rider or separate policies.”
Typically, an insurer isn’t notified until a charge of discrimination has been filed and federal or state agencies begin investigating or attempt early dispute resolution. That’s when an insurer is notified and retains counsel, he said. Defense counsel will come in and conduct a separate investigation to assess the facts of the case.
According to Schowalter, every state will have its own human rights or civil rights act, with certain states offering more favorable standards and laws and additional protected classes than the federal law provides.
“You’re going to want to take a look at the nature of the complaint. If the nature of the complaint is a hostile work environment on account of sexual orientation, you want to make sure that sexual orientation is a protected class in the jurisdiction to where it derived from,” said Schowalter. “In Missouri state law it is not. Now, we have city ordinances where it is. You need to figure out is there even a claim to be made, either under a federal or state law. In federal law, sexual orientation is not a protected class. They get there through a different way, through stereotyping in another manner, but it’s not identified in Title 7 as a protected class.”
According to Knauft, California has its own unique procedures if a current or terminated employee wants to file a discrimination claim. He explained those claiming sexual harassment can file an administrative claim with the DFEH, the Department of Fair Employment and Housing.
“It’s the same procedure that someone at the federal level would follow with filing a claim with the EEOC [Equal Employment Opportunity Commission] but if that person is represented, often you’ll just get a demand letter setting forth the nature of the claims,” said Knauft. “They may have already filed that claim with the DFEH and received a right to sue letter, and they may be inviting a discussion about resolution before actually filing a lawsuit. Probably 50 percent of the time they’ve done all of that, they don’t bother with the demand letter and they just go ahead and file a suit.”
In California, most sexual harassment claims are brought under the Fair Employment and Housing Act. That’s likely due to the one sided attorney’s fees provision allowing the claimant or the plaintiff to get all of their attorney’s fees if they succeed in proving any of their claims, said Knauft.
“Because of that, it’s a more favorable mechanism for plaintiffs than a federal suit to the EEOC,” said Knauft. “There’s basically a two year statute in place where they have to file that administrative claim with the DFEH within a year of the wrongful conduct when they were terminated or when they were subjected to the sexual harassment. After they get the right to sue letter. Even if they get nominal damages, they’re entitled to their fees. That often becomes a big driver in settlement discussions where you want to try and resolve them as early as possible before there is a huge six figure attorney’s fees racked up on the other side. They do go to trial occasionally, but most of these claims are resolved short of trial.”
Experts in best practices for anti-harassment policies or an economist can be useful in these types of claims.
“Sometimes, the employer’s best defense is, ‘Hey, we had this policy in place, it was clearly communicated to all of our employees. This was never brought to our attention. If it had been, we would have done a reasonable investigation.’ That doesn’t completely cut off a claim in California, but it can serve to limit the damages against the employer,” said Knauft. “Sometimes you can get an expert to talk about the reasonableness of that policy and how it was communicated to employees. Whether or not something is unwelcome or objectively creates a hostile work environment, that’s typically going to be a question of fact for the jury that you’re not really going to have expert opinion on.”
Multiple policy terms could apply if the harassment occurred over a number of years, said Schowalter, who indicated that it depends on what type of policy is in place. He also referred to the continuing violation doctrine.
“You can try to go back and incorporate prior acts to substantiate the current hostile work environment, because a hostile work environment is a legal term of art,” explained Schowalter. “Plaintiff attorneys will try to go back beyond the 300 days on the continuing violation theory to further support their claim of a hostile environment, but typically only those actions within the last 300 days should be actionable. You could certainly have one or two, at least maybe two, policies if one was not renewed and then the other one came on board, but most of the policies are claims made, and therefore the policyholder at the time is usually on the hook. That’s been my experience.”
There is no requirement that a criminal case be pursued.
“I have a case right now where I am defending a supervisor in a sex harassment case on an individual capacity. This isn’t a discrimination case. It’s not an assault and battery case, but he’s actually sitting in jail right now, for the person he had a consensual relationship with was, unbeknownst to him, under age,” said Schowalter. “Parents find out, boom, now he’s in jail with statutory rape. Those situations do arise, but to state a claim for sex harassment there’s not a legal requirement to contact legal authorities.”
Schowalter described one particular defense argument in these types of cases.
“There is a requirement in almost every sex harassment…policy to immediately report the conduct to the employer, so they can then conduct their investigation and do what they have to do to satisfy their obligations under the law, to figure out what happened, and then take the necessary measures to prevent it from happening in the future. When a manager or supervisor harasses a subordinate, there’s what we call the Faragher Ellerth affirmative defense,” said Schowalter. “In order to establish that defense, you have to have policies that are effectively implemented, and the person did not take advantage of the policy. If the person did not complain, then you have a full defense and the case goes away.”
Employers Should Tread Carefully
Schowalter said it’s important for employers to understand what their obligations are.
Some people in the entertainment industry have been fired over recent sexual harassment allegations. Knauft said that there could be repercussions for an employer if someone is fired without a thorough investigation.
“I do think there’s some danger in, just because an allegation is made, immediately firing someone without doing any kind of investigation,” said Knauft. “You certainly could open yourself up to a claim of wrongful termination. The alleged harasser, if it’s basically someone has just filed a complaint and there’s no further investigation, there’s probably a good argument that that’s not reasonable.”
Schowalter explained that to establish an affirmative defense, an employer must show that you’re effectively implementing your policy. Part of that effective implementation is routine training.
If an employer just includes a harassment policy in their handbook, distributes it once and forgets about it, that’s not an affirmative defense. Many things are necessary to establish an affirmative defense, said the experts. Plaintiff attorneys will utilize the defense to show that while a company may have a policy place, it doesn’t care about it that much.
Schowalter outlined some common questions an employer may face during deposition: How often do you train? When’s the last time you were trained on this? What type of training? Who did it? How long was it?
At a minimum, training should be conducted at least once a year, he added.
“What I usually recommend for clients is the on boarding process, when the employee goes to their orientation, you’ll want to highlight your EEO compliance. You want to create from day one with every employee within your entire organization a zero tolerance culture. You got to set down the ground rules at the very inception of their employment. You want to make sure at the orientation process that you go over your EEO policies, you go over what it means, and do some training on basic EEO, and then also do a little training on harassment. You…want to go through your policy, your handbook, the reporting procedure. Identify that you have this culture of zero tolerance, and that it’s incumbent upon the employee if they witness, see, or if they’ve been a victim, that they immediately report,” said Schowalter.
Internal investigations are important.
“When I’m counseling employers about their anti-harassment policies, I think it’s always a good idea to have a very well defined claim investigation, whether it’s the head of HR, or a separate sexual harassment committee, but something that clearly is set out and explained to employees as what will happen if a complaint is filed,” said Knauft.
At a minimum, he said, there should be an investigation.
“That can be fairly quick but where the alleged harasser is at least spoken to, both sides are asked whether there are any potential witnesses or documentary evidence. Once all of that information is reviewed, a decision is rendered on discipline, which obviously, in more egregious situations, could be immediate termination,” he added.
In light of all the news related to these allegations, both lawyers expect they will see an influx of cases related to sexual harassment.
“The fact that it’s now become such a part of the national discussion, those that up to now may have been discouraged or wary about bringing a claim, they may be more likely to do so, and I am expecting that we’re going to see an increase in these claims,” said Knauft.
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