Today's sizable workforce means that people from all walks of life interact with one another in the course of a workday. As a result of this interaction, people on many different levels develop working relationships. From employees to vendors and salespersons to customers, these relationships for the most part tend to be friendly, cordial, and professional. In many instances, once the people have had a chance to become more acquainted with each other, they might feel comfortable enough to share personal stories and experiences, tell some jokes, or just have some general conversation.
From an employer's perspective this interaction might seem innocent enough, and in most situations there's no need to be concerned. However, under certain circumstances, this socializing might have a negative effect, which could spell trouble for the unsuspecting employer.
To help illustrate what might go awry, consider these employment-related claim scenarios. The daily letter carrier has been making suggestive remarks or unwanted sexual advances to your receptionist. One of your salespersons told ethnic or racial jokes that offended a number of your customers at a golf outing. One of your customers humiliated or belittled your department manager at an industry convention. One of your employees made offensive or disparaging remarks to your most important vendor.
These aren't easy issues to address, and there are no definitive solutions to help alleviate them. This is a more challenging situation for employers today, especially because a vendor, customer, or other third party might report claims or allegations. The more compelling question is how an employer can prevent and control the conduct or actions of these third parties who aren't their employees. While the employer can't necessarily prevent their behavior or actions, the injured parties can hold the employer accountable and liable. As is often the case with such suits, the employer might be found as guilty as the perpetrator of such conduct if they do nothing to help mitigate the problem once they become aware that a problem exists.
Examine the claim scenarios described above, and you'll see that they all involve employees and a third party. In the case of the sexually harassed receptionist, the perpetrator is the letter carrier - a third party, not an employee. If the employer was informed of these incidents and didn't take immediate corrective measures, the receptionist could bring a sexual harassment suit against the employer.
In a 1992 sexual harassment case, a casino worker alleged that a hostile environment existed when customers told her that she had a 'nice body,' stared at her, and made other suggestive remarks. The courts agreed with the worker and held the employer liable. If an employer takes no action after they're made aware of a hostile environment, they've violated the employee's right to a safe work environment.
Often an entire class of third-party claimants makes a claim alleging numerous offenses, as was the case when the salesperson made ethnic or racial jokes at the golf outing. This type of claim could have severe implications, because a number of people might allege different causes of action, such as humiliation and discrimination. Again, if the employer doesn't take quick and decisive action, they can be liable. In today's litigious environment, even if steps are taken, it might be too late because in the eyes of the victims the damage has already been done.
Third-party claim exposures have always existed; however, over the past few years the potential to be involved in such a suit has dramatically increased. Yet most employers haven't recognized the risk and taken precautionary steps to minimize their exposure. How can employers protect themselves from these types of work-related claims and allegations?
In most situations, the best method for prevention might be education. Providing written guidelines outlining expected conduct can help to avoid potential risks from employees and third parties, such as customers and vendors. Personnel should be made aware that this conduct won't be tolerated either inside or outside of the office and that a 'zero tolerance' policy is in effect. In addition, employers should implement a written complaint procedure for reporting and documenting incidents when they first occur, with assurances that all reports and complaints will remain confidential.
When a claim or suit is made against an employer, the organization's first inclination might be to present the claim to its Commercial General Liability (CGL) insurer. However, most current CGL policies specifically exclude employment-related claims, so an employer shouldn't rely on this approach. If the allegation is purported to be an intentional act, the CGL policy won't respond, because it specifically excludes intentional acts from coverage. The CGL policy doesn't cover damages or awards and in the best-case scenario will only advance defense costs until a final determination of coverage is made.
The Employment Practices Liability insurance policy addresses these types of claim exposures. However, the basic policy isn't enough to provide protection for third-party claims.
Most insurance companies now offer a Third Party Coverage endorsement, which you must specifically request when negotiating the coverage. As with any coverage, there are types of businesses, such as airlines and entertainment risks, that underwriters will avoid. However, this enhancement can provide a great benefit to any organization's Employment Practices Liability policy, so consider adding it if the insurer grants it.
This endorsement doesn't amend the definition of the 'named insured.' Instead, the insurer generally modifies the language of 'wrongful acts' to broaden coverage with wording such as 'customers, clients or other natural persons, other than the employee of the insured entity.' In a third-party, or 'vicarious liability,' claim, it's very likely that the named insured didn't cause the claim, but might be liable for the damages resulting from it, which is the reasoning for broadening the wrongful acts definition.
All things considered, a Third Party Coverage endorsement can be a worthwhile investment for any employer, because the stakes can be very high.