The UK Worker Protection (Amendment of Equality Act 2010) Act 2023 which came into force on 26 October 2024, introduced a new duty on employers to take reasonable steps to prevent sexual harassment of employees in the course of their employment. The new duty is a shift from a historically reactive approach to instances of sexual harassment, to a proactive approach whereby employers must now identify risks of sexual harassment and take steps to mitigate those risks.
While there is no guidance in the legislation on what would constitute “reasonable steps”, the Equality and Human Rights Commission (EHRC) has published an update to its guidance on sexual harassment for employers to reflect the new duty. According to the guidance, while “reasonable steps” is an objective test, what is reasonable will depend on factors such as the organisation’s size and resources.
While an employee cannot bring a claim against their employer for breach of the preventative duty itself, if an employee brings a claim against their employer for sexual harassment and the claim is successful, the employment tribunal will then automatically examine whether there was any breach of the employment duty. If the tribunal finds that the employer failed to discharge their duty, they can award an uplift of up to 25% to any compensatory award, the amount reflecting the gravity of the breach. There is no statutory cap on discrimination compensation, so the uplift could be significant.
The EHRC can also use existing powers to issue an “unlawful act notice” against an employer if it suspects a breach of the preventative duty.
Non-financial misconduct, including sexual harassment, continues to be a topical area of increasing regulatory scrutiny in the UK. New rules and guidance on how firms should tackle bullying and sexual harassment in the workplace are anticipated from the Financial Conduct Authority (FCA) following the publication of consultation paper CP23/20 on proposals to increase diversity and inclusion in financial services. The consultation paper was published in September 2023, the consultation closed on 18 December 2023 and the final new rules are expected to be published in a policy statement in 2024, and to come into force 12 months thereafter.
Meanwhile, stories of sexual misconduct in financial institutions continue to be reported in the news, the most recent high profile case regarding Crispin Odey, founder of Odey Asset Management LLP, which closed five months after allegations of sexual assault and harassment against Mr Odey plunged the hedge fund group into crisis. The FCA recently published a written warning indicating that it intends to take steps against Mr Odey over his response to an internal disciplinary process that was considering allegations of sexual misconduct levied against him.
In a recent press release[1], Anneliese Dodds, Minister for Women and Equalities stated:
As well as considering what steps you may need to take to meet the new requirements, including (but not limited to) conducting a risk assessment, developing an anti-harassment policy and managing a robust reporting system, this change in legislation serves as a useful reminder to review your insurance protection in place. In particular, your Employment Practices Liability (EPL) policy and your Directors’ and Officers’ Liability (D&O) policy.
EPL insurance
covers employers for claims brought by employees alleging sexual harassment. Claims may be brought against the company or against individuals at the company. A policy will cover defence costs, compensation and / or any settlements agreed with insurer consent. If you have a policy, key things to check are that the limits are adequate for your exposure, the retention aligns to your risk appetite and the coverage is broad and without onerous exclusions. If you do not purchase an EPL policy (and note this is distinct from an Employers’ Liability policy which covers employees’ work-related injuries or illnesses), it is advisable to validate this decision with your insurance broker. EPL insurance can be more challenging to procure than the traditional financial lines policies (D&O, Professional Indemnity and Crime insurance) as it is outside the core appetite of many UK insurers, and so often has to be procured as part of a multiline deal, but nevertheless can be an important element of a risk transfer strategy.
D&O insurance
will provide cover for individuals facing allegations of sexual harassment, if the individuals fall within the definition of an insured person, which is often broadly defined in the policy. The policy covers claims and also investigations brought by regulators and other bodies. This can be an important element of cover given the potential for increased regulatory scrutiny and enforcement (in the UK) around sexual harassment, and the potential for allegations that the company has not put appropriate systems and controls in place to prevent sexual harassment. Publicly listed companies which purchase Side C cover, which provides protection against securities claims brought against the company, will also be protected in the event sexual harassment allegations become a securities claim if they lead to a stock drop. Again, key things to check are that the limits are adequate for your exposure, and that coverage is sufficiently broad to respond to employment related claims. Where Side C cover is purchased, there is a risk of the limit being eroded or exhausted by a securities claim which may leave individuals personally exposed and can be addressed by structuring the programme with excess Side A only or Side A and B layers. You may also wish to consider the extent to which public relations costs associated with responding to a potential scandal could also be covered.
It is possible for insurance cover to co-exist for individuals under an EPL policy and a D&O policy concurrently. The policies should be designed to pre-empt this eventuality with a mechanism to determine which policy should respond in the first instance, often the “Other Insurance” clause.
It is difficult to know what impact this change in legislation will have in terms of frequency of claims against FIs or the quantum of those claims. Sources[2] indicate a rise in sexual harassment claims year on year which may be attributed to some extent to the #metoo movement which shone a light on sexual harassment and empowered people to raise grievances that they may not have done in years gone by. At WTW, our specialist team of FI claims analysts has been monitoring and analysing claims which our clients notify to their insurance policies.
This includes sexual harassment claims made to EPL and D&O policies. Of the global sample of sexual harassment claims analysed, the largest losses have been USD 10m for an EPL claim, and USD 1.35m for a D&O claim, the average loss across both polices being just over USD 0.5m. The distribution of losses, divided between costs and compensation/damages, is reflected in the table below:
