In the wake of the Kristy Fraser-Kirk sexual harassment claim against David Jones and Mark McInnes, insurers and insureds alike should be conducting a review of their Employment Practices Liability Insurance Policies (EPL Policies). Ms Fraser-Kirk’s claim, rather than being brought under the Sexual Discrimination Act, was for, inter alia, breaches of her employment contract, the Trade Practices Act and duty of care and sought $37 million in damages, although reportedly settled for $800,000.
EPL Policies generally cover loss arising out of or resulting from Claims (generally written demand for compensation, civil or criminal proceedings) based on an employment related wrongful act such as sexual harassment.
Although these policies general exclude claims in relation to personal injury, this exclusion usually does not apply to any form of mental injury resulting from these employment related wrongful acts.
If the EPL cover is contained in a management liability policy, these policies generally contain an Insured v Insured exclusion, but, as with the personal injury exclusion, this exclusion generally does not apply to employment related wrongful acts.
However, some EPL Policies contain an exclusion for claims arising directly or indirectly from a breach of an implied or express term of an employment contract requiring the insured to treat an employee in good faith, fairly and with trust and confidence.
Care needs to be taken by professional service organizations where their policies exclude EPL claims by directors where all of the principals of the firm are directors of the insured or some of its subsidiaries. It is likely these claims will be by the most senior people leaving the organisation and the ones for which cover is most needed.
Another factor to consider is the amount of cover obtained. The amount sought by Ms Fraser-Kirk would probably greatly exceed the limit of liability generally obtained. Fortunately, sexual harassment cases generally do not result in awards of damages any where near the settlement amount, let alone the amount sought, in Ms Fraser-Kirk’s case.i