The facts
Two female employees of a small non-profit association filed a sexual harassment complaint against the association claiming they were sexually harassed by their male supervisor.
A few weeks later, the two female employees were fired. They filed suit against the non-profit association claiming they were fired because of the sexual harassment complaint. The employees sought damages for wrongful termination.
The result
Due to the lack of employment practices liability coverage, the association was responsible for defending themselves. The non-profit association and the former employees entered into a binding arbitration resulting in an award in favor of the plaintiffs in the amount of $2 million.
Eight months later, the association and former employees reached a settlement agreement. The association agreed to make structured payments over the next seven years to the former employees totaling just over $3 million.
The non-profit association’s insurance carrier did not pay the claim because the association did not have employment practices liability coverage at the time of the lawsuit. Additionally, the carrier declined the association’s account renewal.
Risk factors
Risk factor #1
Details of the employees behavior should have been documented and addressed immediately. Had the insured kept records and had an in house human resources (HR) department, the HR manager would have been able to guide the insured on how to proceed with such an allegation to avoid or, at the very least, minimize the outcome of a lawsuit. Additionally, the association could have hired an outside HR firm to assist with such allegations.
Risk factor #2
Without coverage, the association was not able to use the carrier’s choice of counsel, who are experienced in defending these types of allegations. Because the association hired their own defense counsel, it is likely they paid a considerably higher hourly rate, which could have impacted the settlement amount.
*The claim scenario is strictly documented for illustrative purposes only and provides an example of what a policy could cover. It is intended to provide a general overview of the program described. Please remember only the insurance policy can give actual terms, coverage, amounts, conditions and exclusions. Program availability and coverage are subject to individual underwriting criteria.
