February 1998


A jeweler sued for sexual harassment by a former employee finds his insurance doesn't cover such claims; defending himself cost $100,000. Are you covered?

by William H. Donahue Jr., Esq.

Joe and his staff worked hard at his busy jewelry store, with an intensity that made his business a great success. So when those rare moments came to blow off steam, the whole staff traded jokes and humorous comments, some of which involved the kind of sexual banter so common in today's workplace.

The smiles faded when an employee sued him for sexual harassment and its related claim, hostile work environment, though she had participated in the humorous exchanges. Joe was stunned, but quickly reviewed his general liability insurance and his jewelers' block policy for coverage. His heart sank when he realized these kinds of lawsuits weren't covered.

With no insurance coverage, he hired an attorney and began the process of defending against the allegations. Between the costs of the settlement and the legal fees, the experience cost him more than $100,000. Close to half of that was legal fees - and that was with the case settling before trial. If the jeweler had refused to settle and gone to trial, legal fees alone would have surpassed $100,000.

Joe, whose story is real (the terms of the settlement preclude him from identifying himself), candidly admits that before the lawsuit, some of his employment practices were lax and left him vulnerable. What he thought were jokes and humorous comments were, in fact, grounds for the lawsuit. Cases such as Joe's may become more common as courts widen their interpretations of local, state and federal laws that protect employees' rights.

Review Your Policies
The first step in protecting yourself is studying your store's employment practices and making sure you have written employment policies and a company policy handbook. Hire a consultant to make the review and offer recommendations. Institute employee-awareness training on employment practices laws to heighten consciousness.

There's a relatively new kind of insurance to cover such claims called Employment Practices Liability In-surance. Most retail jewelers are insured under their jeweler's block policy, a comprehensive general liability policy, a workers compensation policy and perhaps a directors-and-officers policy. But none of these policies is likely to cover jewelers for the range of legal claims that can be made for employer misconduct, such as sexual harassment, employment discrimination or wrongful termination. EPLI does.

The first EPLI policies specifically covering this kind of liability became available in 1990. Today, more than a dozen major insurance companies offer them. But for small employers, the coverage is expensive and the policies differ in very important ways from one company to another. Joe, who employs under 50 people, was quoted premiums of $5,000 per year with a $25,000 deductible and $2,000 per year with a $50,000 deductible.

Peter Foster, an EPLI specialist with the New York insurance broker J&H Marsh, McLenan Inc., says these figures are normal for the industry. Underwriters of these policies are looking for volume, so an employer who has 10 to 50 employees is going to pay a high premium for coverage.

Only a few insurance companies will even write policies for smaller employers. Jewelers can obtain insurance directly from a company named Hanover Insurance Co., a member of the New Hampshire Group. National Union Insurance Co. offers policies to employers with fewer employees; its coverage can be obtained through brokers. To find other companies writing coverage for employers in this size range, speak with a knowledgeable broker. But, says Foster, obtaining EPLI on your own through the open market will be far more expensive and may not result in the most comprehensive coverage. He suggests jewelers pool insurance needs through local, regional or national associations. That way, you'll get more comprehensive coverage at dramatically lower prices.

Next Month: Questions to Ask About EPLI Policies

William H. Donahue, Jr. is an attorney practicing in New Jersey. With this column, he begins a series of articles on employment law, starting with this two-part guide to insuring yourself against employment practice lawsuits.

Copyright © 1998 by Bond Communications.


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