Sexual Misconduct

Sexual misconduct is a type of violence encompassing any unwelcome act or behavior of a sexual nature that is committed without consent or by force, intimidation, coercion or manipulation. Sexual misconduct varies in range of behavior and includes acts of sexual assault, sexual harassment, exploitation, intimidation, domestic violence and stalking. Assessment of and punishment for acts of sexual misconduct differ from state-to-state, with no federal legislation standardizing the way in which these cases are handled.

The frequency in sexual misconduct allegations has skyrocketed over the past few years, with new accusations coming out every day against CEOs, Hollywood celebrities, and politicians. With this number rising, more businesses are buying insurance policies that either inadvertently or specifically cover claims of sexual misconduct. Cases of sexual misconduct are being revealed to the public more often, posing a series of unanswered questions for insurers and businesses at large.

Background

Sexual misconduct is a category of sex crimes that includes acts undertaken for sexual gratification against the will of another person. Such misconduct can include harassment, non-consensual sexual touching, exposing oneself, performing sexual acts in public, non-consensual sexual penetration, and sexual exploitation. The cost and impact of sexual misconduct are quite substantial. It is estimated that an American is assaulted every 68 seconds. Around 1 in 2 women and 1 in 6 men experience some form of sexual violence in their lifetime. In 8 out of 10 sexual assault cases and sixty percent of rape cases, the perpetrator is someone known by the victim. At least 8 percent of assaults occur while the survivor is at work. Each rape costs approximately $151,423 and rape costs the U.S. more than any other crime, at $127 billion annually. Both the legal and health care costs of sexual misconduct are of particular interest to business owners and insurers

Over the past decade, a surge in claims of sexual misconduct has occurred in all facets of society with the rise of the #metoo movement. Actors, producers, politicians, CEOs and more have been accused of sexual assault or harassment in the workplace. Some of these claims have resulted in firings, class action suits, resignations, and even criminal investigations. The accused range from Harvey Weinstein to Senator Al Franken, NBC’s Matt Lauer, Fox News’ Bill O’Reilly, Sean “Diddy” Combs, House of Cards’ Kevin Spacey, Judge Roy Moore of Alabama, Louis C.K., and Donald Trump.

In some states, laws prohibit sexual interactions between people in a skewed balance of power, such as doctors and patients, caretakers and children, and teachers and students. Thus, sexual misconduct arises if a boss engages in sexual relations with an employee. In some states, regardless of whether or not the conduct is consensual, it is viewed as an abuse of power for a managing individual to engage in sexual acts with an employee. Consequently, these cases show an exploitation of trust, authority, and are thereby punishable as a criminal act.

In most states, sexual misconduct is considered a misdemeanor offense that may result in jail time, probation, or fines. If the defendant is a repeat offender, felony charges may arise. However, most instances of sexual misconduct are settled in civil, rather than criminal, courts. The criminal conviction rates for those accused of sexual misconduct are incredibly low compared to the number of charges filed each year.

In 2017, 40 percent of firms with 1,000+ or more employees reported having some kind of insurance plan to cover claims relating to sexual misconduct and discrimination. About one third of companies with 500+ employees report carrying such coverage. Though, only three percent of companies with fewer than 50 employees carry similar coverage.

Injuries and Damages

Sexual misconduct by a company executive or employee can result in a wide variety of legal claims against the company itself. If the victim is a company employee facing unwanted sexual advances from a colleague or supervisor, a claim can be filed against the employer under Title VII of the Civil Rights Act. However, Title VII of the Civil Rights Act does not expressly prohibit harassment or even define harassment. If the accuser is not an employee, then the company may be subject to liability for the accused’s conduct under claims of negligent hiring or supervision practices.

Legislation and Regulation

Title VII of the Civil Rights Act of 1964 is a federal statute that prohibits employers from discriminating against employees on the basis of sex, race, color, national origin, and religion. This law generally applies to employers with fifteen or more employees, including federal, state, and local governments. Under Title VII of the Civil Rights Act, allegations of sexual misconduct often relate to gender discrimination. Over the years, the Supreme Court interpreted Title VII to prohibit harassment and discrimination in terms of race, color, religion, sex, or national origin. The Supreme Court also developed a “severe or pervasive standard” necessary for survivors to show to get protection. Allegations of sexual misconduct can give rise to claims for fraud, breach of contract, breach of fiduciary duty, bad actor’s conduct, and negligent hiring or supervision. Title IX of the Education Amendments prohibits discrimination based on sex, including sexual assault and rape, in educational programs and facilities. Following the overturning of Biden’s 2024 regulations, Title IX enforcement will revert to the 2020 Trump-era regulations, which define sex based on biological distinctions.

Liability and Insurance

Given the recent social movement shedding light on issues of sexual misconduct in the workplace, more businesses are considering insurance policies that may protect them from claims associated with sexual misconduct. In addition to regular-operating companies, businesses dealing with non-profit service to youth, developmentally disabled individuals, or senior citizens are often advised to secure coverage for improper sexual conduct.

In 2024, over 8400 charges alleging sexual harassment were made to the Equal Employment Opportunity Commission, and record-high monetary recovery was achieved, with over 20000 victims securing over $700 million. Because no single insurance policy will provide coverage for every type of claim that may result from sexual misconduct allegations, policyholders should look carefully at the following coverages:

Employment Practices Liability Insurance (EPLI)
EPLI is a type of liability insurance that provides coverage for wrongful acts arising from the employment process or general workplace misconduct. It covers employers against employee claims of legal violations. Claims under such policies often include:

- Negligent evaluation
- Deprivation of career opportunity
- Failure to promote
- Wrongful termination
- Invasion of privacy
- Defamation (most often retaliation of the accused)
- Retaliation
- Sexual harassment
- Discrimination

EPLI insurance is the most likely source of coverage for claims of sexual misconduct asserted by employees, specifically addressing the misconduct of superiors or co-workers. EPLI is frequently sold as a part of a management liability package policy. Some EPLI policies also cover claims resulting from allegations made by non-employees such as customers or vendors. However, common exclusions from EPLI coverage include bodily injury, property damage, and intentional or dishonest acts. In this case, if a claim alleges physical harassment and verbal harassment, EPLI may only provide partial coverage.

The benefits of EPLI coverage provide an alternative to the other main avenue for redress of sexual misconduct, which is filing a charge with the Equal Employment Opportunity Commission. The U.S. has seen a huge spike in businesses purchasing EPLI policy coverage. In fact, Nationwide reports a large increase in EPLI policy coverage holders since the rise of the #metoo movement.

Though EPLI policies do cover some instances of sexual misconduct, many have questioned the ethics behind purchasing such coverage. Kate Bahn, an economist at the Center for American Progress noted this spike in the purchase of EPLI coverage saying, “That might be a rational economic decision for businesses to make- to pay into insurance, to mitigate the risk. It helps your bottom line, but it’s really terrible for women. It upholds existing power structures that are toxic and misogynistic.”

General Liability Coverage (GL)
General liability coverage is an insurance policy issued to business organizations to protect against liability claims for bodily injury and property damage arising out of premises, operations, products, completed operations, and advertising and personal injury. Most GL policies cover claims for personal injury, including claims for defamation of character. For example, in 2015 the former CEO of American Apparel, Dov Charney, sued his former company for defamation of character. The suit followed Charney’s suspension by the board of directors for allegations of sexual misconduct and misuse of company funds.

Unlike EPLI coverage, GL covers claims for bodily injury. Thus, direct claims for physical assault might be subject to the standard policy exclusions for on-the-job injuries that are “expected or intended.” However, in recent cases, some courts have found that this exclusion does not apply to a claim against a company for negligent hiring and supervision of an employee who has perpetrated acts of sexual misconduct.

Directors and Officers Insurance (D&O)
D&O coverage, a type of liability insurance covering directors and officers for claims made against them while serving on a board of directors and/or as an officer, serves as another potential source of coverage for claims of sexual misconduct. D&O liability insurance can be written to cover the directors and officers of for-profit businesses, privately held firms, not-for-profit organizations, and educational institutions. In effect, the policies function as "management errors and omissions liability insurance," covering claims resulting from managerial decisions that have adverse financial consequences for the company.

D&O policies typically cover claims for fraud, breach of contract, or breach of fiduciary duty. For example, former Uber CEO Travis Kalanick was sued by an early investor in the company for fraud and breach of fiduciary duty after allegations of sexual harassment and gender discrimination against Kalanick were made public. One possible exception to this coverage is that D&O policies often contain an “insured vs. insured” exclusion, which may bar coverage for claims made by employees against the company.

Crisis Management or Reputation Risk
A final type of coverage concerning the issues of sexual misconduct in the workplace includes crisis management or reputation risk insurance. These newer forms of coverage seek to address the risk negative publicity poses to a company’s bottom line. Claims under this sort of policy would typically pay for the hiring of a public relations firm to respond to a triggering event. Reputation risk insurance generally provides coverage for actual business loss sustained as the result of a negative publicity event.

Litigation

Litigation in this arena has involved the prosecution of several high-profile individuals. Several industries have also been the subject of litigation surrounding several sexual misconduct cases. Insurance companies typically cover these scandals, however the details of the policies can be critical in determination of the liability.

Darlington School Crisis
Earlier March 2026, an appeals court made a monumental decision impacting victims of a sexual misconduct scandal and liability for insurance companies reaching upwards of $345 million. In the Darlington School of Room, 20 students alleged that a teacher and parent of the school sexually abused these students in several locations for a 20-year period. The court ultimately ruled that despite the affirmative ruling on the truth of the allegations, insurance companies did not have to pay the $345 million of the $351 million settlement because the actual abuse occurred before the school had been obtained coverage by these insurance policies. The decision is currently pending to be appealed in Georgia Supreme Court.

Larry Nassar Scandal
Larry Nassar, a former gymnastics coach, was reported to have sexually abused hundreds of girls and was part of a major scandal. Nassar used medical reasons as a guise to engage in sexual abuse of more than 300 victims, The settlement amounted to a value of $380 million being paid by US Gymnastics and Paralympic Committees and their associated insurance companies. A majority of this amount will be covered by insurance companies, with the US Olympics and Paralympic committees covering the remaining $40 million; 6 million of this amount will be loaned to the US Gymnastics team to cover their share of the settlement.

Future Outlook

U.S. companies spend billions of dollars on insurance policies covering claims of sexual harassment, racial discrimination, and unfair-dismissal accusations. The expanding market to cover claims of sexual misconduct is projected to keep growing according to data pulled from recent insurance trends.

There remains a very legitimate concern that companies may rely on their insurance coverage to lessen the potential financial consequences of a claim. Thus, those in positions of power could feel emboldened to engage in sexual misconduct and protected from its consequences. In consequence, this concern must be closely monitored as the insurance market expands to cover sexual misconduct and more cases of repudiation arise.

In the future, workplaces should establish proactive sexual misconduct prevention procedures, including a zero tolerance policy for harassment. Further, workplaces should create anonymous complaint sources for harassment claims, develop sexual misconduct prevention training, and promote social norms that cultivate respect for survivors of harassment and for protection against violence.