As more and more sexual harassment and sexual assault claims come to light in all realms, including Hollywood, the judiciary and Congress, it is important to ensure that your business is prepared to manage any such allegations with adequate insurance coverage. This includes ensuring you have the proper insurance policies in place and that the exclusions of these policies do not bar coverage for these types of allegations.

These claims can arise in a number of ways. If your business is subject to the Florida Civil Rights Act of 1992 or Title VII of the Civil Rights Act of 1964, it could face a sexual harassment claim filed by an employee, alleging quid pro quo harassment, such as demanding a raise in exchange for a sexual act, or that there is a hostile work environment that interferes with the employee's performance, including the making of constant, unwanted sexual comments. An employee may also bring a lawsuit directly against the alleged perpetrator or a director or officer of the company for a tort claim arising from the harassment or assault. Or alternatively, a customer or other third party may bring suit alleging negligent hiring or negligent retention if an employee sexually assaults or harasses him or her.

A commercial general liability policy, which covers a business' liability for bodily injury and property damage arising out of an occurrence, may not cover these types of claims. The plaintiff's damages will likely be solely for emotional distress and will not constitute “bodily injury,” or the insurer will argue that no accidental “occurrence” has been alleged because the harassment was intentional. And even so, most commercial general liability policies exclude coverage for bodily injury to an employee arising out of his employment with the insured (employer's liability exclusion) or include an exclusion for employment-related practices, including wrongful termination or harassment. This is likely because this coverage is provided under separate insurance policies.

It is thus important to ensure that you have these additional policies in place, including a separate policy for employment practices liability insurance (EPLI), if your business faces these risks. EPLI policies cover an insured's liability for wrongful acts in the employment process. This includes coverage for wrongful termination, sexual harassment, retaliation and employment-related defamation, among other things. An EPLI policy will usually also cover directors and officers, management, and employees as insureds. However, it should be noted that claims of harassment brought by third parties that are not employees are not typically covered under EPLI policies. Thus, an insured will need to secure an endorsement providing this additional coverage for third parties. Or alternatively, this additional coverage may be provided as an add-on under a directors and officers liability insurance (D&O) policy. D&O policies cover the wrongful acts of directors and officers and potentially the organization for wrongful acts committed in their scope of their duties as directors and officers. Another source of potential coverage for an individual is under a personal homeowner's policy. While these policies typically exclude losses arising out of an insured's business pursuits, these policies should still be reviewed to determine whether coverage is available.

And even if you secure these additional coverages, it is important to review the provisions closely. Many policies are subject to an intentional acts exclusion providing that there is no coverage for intentional or willful acts or alternatively for the willful, intentional violation of a legal duty. This is problematic if the exclusion is interpreted broadly because most allegations of sexual assault or harassment are for willful, intentional behavior. Thus, any intentional acts exclusion should be removed or significantly narrowed. And lastly, it is important that policy periods and retroactive dates account for the applicable statute of limitation for these types of claims, particularly given how many years have passed since some of the alleged misconduct first occurred before they are reported.

In sum, it is important to review your insurance coverages carefully to ensure your business is prepared in the event of sexual assault or harassment claim, including ensuring you have adequate EPLI coverage and that no exclusions will bar coverage otherwise.

Walter J. Andrews, a partner at Hunton & Williams, focuses his practice on complex insurance litigation, counseling and reinsurance arbitrations and expert witness testimony.

Katherine Miller, an associate at the firm, focuses her practice on complex business litigation with an emphasis on insurance coverage counseling and litigation. ​