Sexual misconduct in the workplace has scarcely escaped the headlines in the last eighteen months, indiscriminate of industry or notoriety. Sexual and racial harassment allegations can occur in any industry and in companies of all sizes.
In February 2019, Wynn Resorts was issued an unprecedented USD 20 million fine by the Nevada Gaming Commission for their failure to act on the sexual misconduct allegations made against Steve Wynn, former CEO of Wynn Resorts.
The scandal which was reported in January 2018 led to the resignation of Steve Wynn and had a substantial effect on the company’s share value, despite the billionaire casino mogul denying all allegations.
Since then, Wynn Resorts have added three female directors to the board and introduced improved sexual harassment training for all employees to refresh their company culture. Recognising this transformation, the Nevada Gaming Commission will not be revoking Wynn Resorts licenses.
The Harvey Weinstein allegations acted as a catalyst for the #MeToo movement on social media in October 2017, after the allegations made against him appeared in the New York Times. The response was viral and inescapable.
A defence fund was set up by the Time’s Up organisation; “to help survivors of sexual harassment and retaliation in all industries” and survivors were encouraged to come forward.
Notable individuals in the headlines include:
- Philip Green - Chairman of the Arcadia Group
- Steve Wynn - Founder and Former CEO of Wynn Resorts and the Former Finance Chairman of the Republican National Committee’s fundraising arm
- Larry Nassar - Former Michigan State University and US Olympics Team Physician
- Dov Charney - Founder and Former CEO of American Apparel
- Harvey Weinstein - Co-Founder of The Weinstein Company/Miramax and Film Producer.
Rise in Claims
Traditionally harassment or sexual misconduct in the workplace was regarded as an improper or wrongful employment practice and from an insurance perspective was covered under Employment Practices Liability (EPL) policies.
However, these types of incidents can potentially have wider implications for company directors and officers and as a result, for Directors’ & Officers’ liability insurance policies (D&O).
Claimants are increasingly looking to hold companies and their executives to account for having ‘actual knowledge’ of the misconduct of the alleged wrongdoers and not taking steps to prevent the inappropriate behaviour.
Take for instance the 21st Century Fox shareholder derivative action, where the shareholders alleged that the directors and company allowed a culture of racial and sexual harassment to exist.
- The shareholder claim was settled for USD 90m, making it one of the largest shareholder derivative settlements in the US; the settlement was funded by insurance
- It was alleged that the numerous employment claims that 21st Century Fox paid out discreetly bred a culture of silence and indirect support for the actions of the harassers
- This had a knock on effect, reducing the company’s revenue and share value, which led the shareholders to file a derivative claim against the entertainment firm for the financial and reputational damage that impacted their investment
- The shareholder claim did not concern the alleged wrongful acts committed by individuals like Roger Ailes (Fox News CEO) and Bill O’Reilly (Fox News commentator) who lost their jobs in the fallout from the scandal. It alleged wrongful acts by management in breaching their fiduciary duties by not preventing the misconduct, which would trigger cover under their D&O insurance.
D&O and other liability cover is not always available for individuals who are the alleged or convicted perpetrators of sexual misconduct. Policies can contain exclusions for sexual molestation; such as in the prominent insurance dispute between comedian Bill Cosby and AIG for deliberately criminal conduct.
Notifications under EPL and D&O policies look set to continue to rise given the ongoing social media impact and the encouragement of victims to come forward.
The indirect effect of this is the reputational harm suffered by companies in the wake of claims and allegations against their employees and executives. The public will vote with their feet where reputation is harmed and contracts and clients can be lost. The issue can quickly become far wider than the original EPL issue.
Changing Corporate Cultures
There is no substitute for having an inclusive, transparent and safe business culture in place to prevent costly claims and demonstrate accountability. In fact, one of the provisions included in the 21st Century Fox settlement was the creation of a ‘Workplace Professionalism and Inclusion Council’ comprised of impartial experts to improve the working environment by enhancing the incident reporting, HR training and recruitment processes.
This positive environment can be created through the implementation of policies, procedures, training and diversity-conscious recruitment. This can also include implementing an effective whistleblowing policy.
There could be further ‘preventative’ legislation brought in to combat these issues, which will fall to the directors to implement. In the UK, we have in the recent past seen the following changes:
- The gender pay gap legislation in the UK has recently brought gender equality into the limelight and could lead to further scrutiny of workplace gender relations
- The UK Equality Act 2010 holds both the employer and perpetrator jointly liable for the victim’s compensation, including both financial and non-financial losses, unless they can prove they took all the relevant steps to prevent the misconduct
- The UK government launched a full enquiry into the extent of sexual harassment against women at work in February 2018; its findings will determine how existing laws will be improved.
JLT Specialty advises companies with regards to both EPL and D&O insurances, which can respond to protect the company and its executives, as a result of harassment or sexual misconduct by an individual/s within the company.
D&O and other liability cover are not always available for individuals who are the alleged or convicted perpetrators of sexual misconduct. As mentioned, policies can contain exclusions for sexual molestation. It is therefore important to ensure that the correct cover is in place.
JLT Specialty has also recently launched a Reputation Protect PLUS product, an insurance solution designed to respond to reputational damage a company may face as a result of harassment or sexual misconduct by an individual/s within the organisation.
For example, in the case of Papa John’s founder John Schnatter, loss of profits, crisis management and PR costs would have been covered to deal with the aftermath of the numerous sexual assault allegations.
TALK TO AN EXPERT
If you would like to talk about any of the issues raised in this article, please contact Sophie Robson, Legal & Claims Advocate on +44 (0)20 74595576.