The US-based #MeToo movement has led to an increase in allegations and claims related to sexual harassment in several countries and an increased awareness of gender pay gaps in all sectors of the economy, media and political life.
#MeToo is a hashtag that has been spread on social networks since mid-October 2017 in the wake of the “Weinstein Scandal”. The Hashtag was made popular by actress Alyssa Milano, who encouraged affected women to draw attention to sexual harassment through its use. Since then, this hashtag has been used millions of times.
Compensation claims by victims can have a wide range and can also lead to claims against board members and companies that have made the alleged misconduct possible, concealed it or not prevented it. Particular economic risks for companies, board members and their insurers exist in those countries where there is the possibility of fi ling class actions.
Current #MeToo cases
In the Canadian province of Quebec, police complaints rose 61 percent in the fi rst three months after the #MeToo movement began. In the United States, a major insurer reported a 50 percent increase in sexual malpractice claims since October 2017.
The extent of cases of alleged sexual harassment can be seen in the following current cases from the USA and Great Britain.
According to press reports, former fi lm producer Harvey Weinstein reached a preliminary agreement in May 2019 to avert legal proceedings in the USA for sexual harassment of numerous women. Apparently, Weinstein has agreed to pay compensation to alleged victims in the total amount of USD 44 million. Several insurers are said to have been involved in the Weinstein scandal.
A US lawsuit fi led by shareholders against the board of directors of Google’s parent company Alphabet has also received broad media attention because of the company’s handling of sexual harassment. The company is accused of practicing a “culture of concealment”. It is said to have protected executives who have been accused of sexual harassment or coercion. Board members are accused of having played a direct role in these cover-ups in 2014 and 2016. Among other things, the damage was due to severance payments in the millions paid to managers accused of sexual harassment of employees.
Another spectacular case became known in the USA in 2018. Nike shareholders have submitted a derivative action against board members following a sexual harassment scandal. The shareholders claim that the board members are responsible for the loss in value of the company’s shares by promoting a culture of sexual harassment and bullying. This lawsuit was preceded by a lawsuit fi led by two former female employees alleging wage inequality and gender discrimination. Among other things, the plaintiffs complained about the corporate culture, which they found humiliating. Nike has also been accused of maintaining gender pay gaps for years.
The #MeToo movement is linked to another case in the UK that has been covered in the media. Sir Philip Green, CEO of the Arcadia Group, which includes the well-known fashion chains Topshop and Miss Selfridge, is accused of sexual harassment, racism and bullying. According to a report in the British daily Guardian, Green paid sevenfi gure sums for silence agreements. The headline of an article in the Guardian reads: “Is it time to stop shopping at Green’s Topshop or Topman?” This case also shows the potential reputational damage that can be caused by allegations of misconduct.
Affected insurance lines
The multiple claims related to sexual harassment incidents can affect different insurance products.
The Employment Practice Liability Insurance (“EPL insurance”) can be regularly triggered. An EPL insurance policy generally provides insurance cover for claims for damages by former, present and future employees in connection with discrimination, sexual harassment, unlawful dismissal and other claims arising during the employment or application process. EPL policies signed in Germany primarily offer protection in connection with claims arising from the General Equal Treatment Act (Allgemeines Gleichbehandlungsgesetz - AGG), which came into force in 2006. The extent to which risks abroad, such as Canada and the USA, are covered depends on the structure of the policies in the individual case.
As some of the above examples show, cases of sexual harassment and discrimination often involve claims (for damages) made by potential victims against the company or its agent. Since such claims are usually not aimed at compensation of financial loss, the majority of cases will not be covered by D&O policies.
However, a risk for D&O insurers may arise in particular from internal recourse cases in which companies claim damages from the acting board members, e.g. for breach of organisational or supervisory duties, with regard to payments to injured employees or fines. In individual cases, the question may then arise as to whether such cases are covered under the extended concept of pecuniary loss. Furthermore, the scope of coverage exclusions, for example with regard to claims in the USA or under US law, or of coverage exclusions in connection with penalties and fines may become an issue From the perspective of D&O insurers, further risks are associated with shareholder lawsuits against companies and their board members in which it is alleged that the share price has fallen as a result of negative publicity following a scandal about sexual misconduct. If a so-called “Side-Ccoverage” (coverage for the company) has been agreed upon in the individual case in connection with securities lawsuits, board members as well as companies will approach the D&O insurer. Individual extensions of coverage which have found their way into D&O wordings in recent years may also be affected. For example, D&O insurers could receive requests for compensation for PR costs in order to minimize damage to their reputation.
The above examples show that D&O insurers should bear the possibility of claims arising from sexual harassment and discrimination in mind when drafting conditions and assessing risks.