QBE North America-sponsored Business Insurance Risk Perspective

Gender inequality increases D&O risks

By Carol Zacharias, Senior Vice President and Underwriting Counsel, QBE North America


As global attention to gender inequality grows, organizations need to become more aware of their workplace practices as well as their exposure to directors' and officers' (D&O) liability. In an era of increasing activism by investors and others concerned about the treatment of women, executives and their organizations are targets for lawsuits. 

There are numerous ways in which directors and officers are exposed to gender-based employment inequality claims. Discrimination, for example, may be alleged, based on intentional acts or based on corporate policies that may seem gender-neutral on their face but really have a negative impact on specific segments of the workforce, such as women. These and other types of gender-based employment claims may swiftly and dramatically impact stock price or stakeholders' satisfaction with management. That, in turn, may give rise to securities or breach of fiduciary duty lawsuits against executives and their companies.

Liability allegations are growing

Gender-based workplace claims may give rise to employment litigation. The Equal Employment Opportunity Commission (EEOC) is reporting a surge in workplace sexual harassment cases, and studies show harassment is prevalent at organizations of all sizes, with a correlating increase in private employment practices liability (EPL) litigation in the courts. In fiscal 2018, the EEOC received 7,609 charges alleging sexual harassment, up 14% from 2017.

Today, these gender-based employment complaints may quickly and increasingly impact the reputations of company leadership and the company itself, and, consequently, its stock price. As a result, securities and breach of fiduciary duty lawsuits may follow, suing not only the purported perpetrator, but also fellow directors and officers and the organization itself, lodging a panoply of allegations, including mismanagement, failure to investigate, failure to train, retaliation and more. The 2019 Annual Workplace Class Action Litigation Report, compiled by the law firm Seyfarth Shaw LLP, shows an uptick in class actions related to the #MeToo movement during 2018 and notes a corresponding 24% increase in EEOC suits involving sex-based discrimination. 

Insurance protection

Employment practices liability insurance policies (EPL) are designed to provide coverage for the organization and its employees for employment claims. D&O policies are designed to provide protection for the board and, in some cases, the organization. Both can be triggered by gender-based lawsuits. As a result, organizations are examining both their D&O and EPL policies to find, coordinate and maximize coverage.

Even though gender-related employment lawsuit allegations may trigger coverage under both D&O and EPL policies, there are important differences between these types of coverage. For example, typical EPL policies are duty-to-defend policies, meaning that the insurer will select defense counsel and control the defense. In contrast, most D&O policies are indemnity policies, meaning that the insured can select defense counsel subject to policy terms and conditions including reasonableness, cooperation, and the consent of the insurer. EPL policies usually insure the organization and volunteers. On the other hand, D&O policies for for-profit organizations insure only executives and the entity only if sued in a securities case. Not-for-profit D&O policies typically cover the organization and all employees for covered claims.

Once coverage is triggered under both a D&O and an EPL policy, it is important for organizations to understand how those coverages work with one another. For example:

  • Do the policies provide simultaneous coverage, or does one policy apply only after the other policy is exhausted, in excess of the other? Alternatively, if one policy applies, is the claim completely excluded under the other policy?
  • Do both deductibles or retentions apply?
  • How does the insurer's right to defend and select counsel under the EPL policy work with the indemnity nature of the D&O policy?
  • Does payment under one policy count towards depletion of a deductible or retention required under the other policy?

These and other questions about coordinating coverage can be critical when an organization and its executives are defending themselves against a lawsuit.

Culture can mitigate risk

An organization's culture can be a major determinant in mitigating or exacerbating its liability risk. For example:

  • Is the culture indifferent to or supportive of gender equality?
  • Does the organization have policies and procedures for addressing inequality and other workplace issues?
  • Is the organization tracking and complying with changes in federal, state and local employment laws?

These factors have always been important, but in today's environment they will be placed under an especially bright spotlight during litigation. Accordingly, clearly understanding an organization's culture is a key step in understanding its potential exposure to D&O and EPL liability arising out of gender inequality or other gender-related employment issues.

Benefits of bridging the gap

Reducing gender inequality is important for several reasons. First, it is the right thing to do, bringing wage parity and equality of opportunity to working women.

Second, there are macroeconomic benefits. S&P Global, in an analysis of women in the workplace, concluded that increasing the percentage of women who enter and remain in the workforce could add 5% to 10% to the nominal U.S. gross domestic product (GDP). In dollar terms, if the United States matched the rate of Norway regarding women who enter and stay in the workforce, the nation could add $1.6 trillion to its GDP. According to World Bank data, from 2000 to 2015, the percentage of women in Norway who participated in the workforce exceeded 60%, while the U.S. rate of participation started below 60% and steadily declined.

Third, companies that emphasize gender equality perform better financially than those that have fewer women in leadership. Catalyst cites numerous research studies that show gender-diverse organizations outperform others in nearly every financial metric, from revenue growth to profitability to market capitalization to share price.

These studies show that if a company is culturally committed to gender equality, it will perform better financially while also reducing its risk of D&O and EPL liability.

For more insights on managing specialty and commercial property and casualty risks, please visit www.qbe.com/us

This article is for general informational purposes only and is not legal advice and should not be construed as legal advice. The information in this article is descriptive only. Actual coverage is subject to the language of the policies as issued.

QBE Carol-Zacharias 

Carol Zacharias is Senior Vice President and Underwriting Counsel at QBE North America, based in New York. Her responsibilities include product leadership for QBE's specialty and property and casualty lines. She can be reached at carol.zacharias@us.qbe.com

QBE North America, an integrated specialist insurer, is part of QBE Insurance Group Limited, on of the largest insurers and reinsurers worldwide. QBE NA reported Gross Written Premiums in 2018 of $4.7 billion. QBE Insurance Group's 2018 results can be found at www.qbe.com. Headquartered in Sydney, Australia, QBE operates out of 31 countries around the globe, with a presence in every key insurance market. The North America division, headquartered in New York, conducts business through its property and casualty insurance subsidiaries. The actual terms and coverage for all lines of business are subject to the language of the policies as issued. QBE insurance companies are rated "A" (Excellent) by A.M. Best and "A+" by Standard & Poor's. Additional information can be found at www.qbe.com/us.