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