Companies have dramatically increased their insurance coverage against sexual harassment complaints in recent years following high-profile scandals, as corporate America reckons with the growing risks of workplace misconduct.
Employment practices liability insurance (EPLI) plans, which cover sexual harassment, racial discrimination and wrongful-firing claims, have spread rapidly over the past decade from major corporations to midsize and smaller firms, industry experts say.
But lawyers and some women’s groups say the policies, which shield businesses and executives from costly lawsuits and reputational damage, may also help perpetuate abuse by allowing companies to avoid confronting the problem head-on.
“Payouts can provide some monetary help and peace of mind going forward, but they create a stronger culture of silence,” said Kim Churches, chief executive of the American Association of University Women. “It doesn’t only prohibit victims from speaking up. It means we’re not encouraging colleagues to stand up to sexist language or harassment and call it out on the spot.”
Sexual harassment surged to public attention in 1991 when law professor Anita Hill accused her former boss and then-Supreme Court nominee Clarence Thomas of repeatedly asking her out on dates and talking about porn while at work.
Hill’s testimony at Thomas’s confirmation hearing awakened workers to what could qualify as office misconduct, women’s groups say. For Victoria Stone, a Los Angeles insurance broker, Hill’s willingness to go public marked a cultural shift.
At the time, only five insurance companies offered EPLI policies, according to the Betterley Report, which tracks EPLI trends.
Stone said she sensed a business opportunity and mailed out fliers to her clients urging them to adopt those early policies. Few took her up on the offer. Even a decade later, some remained skeptical.
Now, though, practically all of the roughly 200 business leaders she works with have bought a plan, Stone said. As accusations mounted last month against the Hollywood mogul Harvey Weinstein, two more opted in. One of the buyers was a small factory with just 39 employees, most of them men.
"So many people feel like, 'it'll never happen to me,' " said Stone, senior vice president at Poms and Associates Insurance Brokers in Los Angeles. Now, she added, "more people are pulling the trigger" — including one client who reluctantly purchased a plan, she said, and was later hit with a $300,000 sexual harassment and wrongful-termination claim.
“He hasn’t stopped thanking me,” Stone said.
U.S. companies spent an estimated $2.2 billion last year on insurance policies covering the legal fallout from sexual harassment, racial discrimination and unfair-dismissal accusations. The market is projected to grow to $2.7 billion by 2019, according to MarketStance, a research firm that tracks insurance trends.
That’s a fraction of what enterprises spend on legal and medical malpractice insurance, but industry experts said EPLI coverage is surging into the mainstream, with the biggest growth coming from small and midsize companies.
About 41 percent of firms with more than 1,000 workers report having some kind of plan to cover sexual harassment and discrimination, said Frederick Yohn, managing director of MarketStance.
About one-third of companies with at least 500 employees carry such coverage, though it remains unusual for start-ups, Yohn said. Only 3 percent of companies with fewer than 50 carry such coverage.
But since 2011, firms with annual revenue less than $250 million have increased their spending on adding and renewing such plans by 28 percent, according to Advisen, another insurance data firm.
Meanwhile, Nationwide, one of the country’s largest insurance companies, recorded a 15 percent increase in EPLI sales between fall 2016 and September 2017 — a stretch that coincided with the ousters of Fox News’s Roger Ailes and Bill O’Reilly.
“We can speculate that it is due to increased awareness in the need for this type of coverage,” said Karen Johnston, casualty technical consultant for Nationwide Insurance Staff Commercial Underwriting.
The cost of such policies varies according to the size of the business and the level of protection. For firms with annual revenue below $25 million, the median coverage purchased is about $1 million, which costs about $4,900 a year, said Jim Blinn, executive vice president of client solutions at Advisen.
At the other end of the spectrum, firms with more than $5 billion in annual revenue typically pay about $285,000 a year for a $30 million limit.
Before carriers pick up any expenses associated with a claim, such as court fees and damages, companies must pay a retention, which is similar to a deductible. For start-ups, the cost ranges from $1,000 to $10,000 per complaint, Betterley said. For large firms, retentions could reach $1 million.
With the recent sexual harassment scandals, companies were looking to increase their coverage and expand workplace training programs meant to discourage misconduct and resolve complaints before they escalate.
“We will be thinking more about limits,” said Richard Betterley, a risk management consultant in Boston who publishes the annual Betterley EPLI report. “You’re buying X million — should we be thinking about more?”
Ken Daveler, president at Alliance Insurance Services in the District, said companies no longer see such coverage as optional; it’s essential. “Each year, we sell more. You can point to these things in the news and say it’s irresponsible not to have it. It’s getting to the point where it’s not if you get a claim, it’s when,” he said.
His largest client, an education company that had purchased an EPLI plan, had also turned to him for advice on anti-harassment training. “Nobody has ever asked me that before,” he said.
But lawyers say the growth of sexual harassment insurance coverage has had uneven results when it comes to providing redress to victims.
Alexis Ronickher, an employment lawyer at Katz, Marshall & Banks in Washington who specializes in sexual harassment law suits, said insurance coverage made it easier for companies to provide some form of remedy to workers who suffer harassment.
Last month, two of her clients — women who held low-paying service jobs — settled sexual harassment claims with a local employer and, through the company’s insurance, were promised checks for about twice their annual wages.
“In cases against smaller or midsize employers, it can help,” Ronickher said. “Because if you have a significant claim, they might not have the capital or liquidity to pay such a claim without the insurance.”
But in Ronickher’s experience, insurance claims adjusters may intervene to try to limit the size of the award. That can significantly prolong negotiations, even if an employer would prefer to offer more money and wrap things up.
“It’s a curse and a benefit,” Ronickher said.
The knowledge that a harasser may rely on the coverage to lessen the potential financial consequences of a harassment claim can also be toxic, according to a 33-year-old woman who said her male boss shoved her into a wall and stalked her after she rejected his advances.
Shelley, who asked that her last name be withheld because she fears retaliation, said she was outraged to learn that her former employer had such coverage.
“It was infuriating,” she said. “It’s like: You’re treating me as if you hit my bumper when you kind of ruined my life.”
Even so, the existence of EPLI provides an important alternative to the other main avenue for redress: filing a complaint with the Equal Employment Opportunity Commission.
Fewer than one in four sexual harassment complaints made to the agency last year — 1,485 of 6,758 claims — ended with a settlement of some kind, government data show.
With EPLI, a worker who encounters harassment on the job does not have to lodge a formal complaint to the EEOC for a chance to receive compensation. Claims can be triggered when a victim’s lawyer writes a letter to a company.
“It’s often in the best interest of the carrier to simply settle or pay a claim, rather than go through the legal process,” said Yohn, the insurance market researcher. “The insurance company pays them to make them go away.”
It’s unclear how many complaints are settled with the insurance each year — or the scale of compensation to women who suffer sexual harassment. Nearly all settlements come with nondisclosure agreements, lawyers say.
Workplace fairness advocates said such confidentiality agreements are potentially damaging.
Kate Bahn, an economist on the women's initiative at the Center for American Progress, a left-leaning think tank, said companies that prioritize their reputation over their workers' safety risk encouraging harmful behavior.
“That might be a rational economic decision for businesses to make — to pay into insurance, to mitigate the risk,” Bahn said. “It helps your bottom line, but it’s really terrible for women. It upholds existing power structures that are toxic and misogynistic.”