New California Sexual Harassment Law and What It Could Mean for your EPL Policy

If your business is in California or if you have employees in California you need to be aware of the new law that was recently signed into law regarding sexual harassment settlements.  I know most companies will never engage in this type of activity but it does not mean that you can’t be accused of this type of behavior.  So what is the new law?  Essentially, confidential settlements will no longer be allowed beginning January 1, 2019.  For more depth on the law I suggest you check out this article from Sheppard Mullin’s Labor Employment Law Blog that can be found here.

I would be shocked if this does not have implications on the Employment Practices Liability (EPL) insurance marketplace in California.  California is already the toughest state for procuring EPL insurance.  Insurance companies typically charge a higher rate in California and mandate higher deductibles for claims brought in the state.  I suspect this will continue if not accelerate.

Why do I think this?  I believe this law will disincentivize companies that believe a case is without merit from settling. If more cases go to trial it will result in higher legal expenses and higher claim costs for insurance companies.  Yes, companies will still want to save money and time by settling, but once your claim hits the deductible what incentive will a company have to not fight the claim?  The caveat is that your insurance policy might have a “duty to defend” and/or “hammer clause” which gives the insurance company a disproportionate say on how to proceed on these lawsuits/claims.  I think best case scenario is we see premiums stay flat but a spike in deductibles or stronger hammer clause wording.

I could very well be wrong and would love to hear why am wrong?  Leave a comment or send me email telling me what I got wrong.  That being said, I am not taking a position on whether law is just or unjust, I am simply stating what impact it will have on the insurance market.

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