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August 14, 2023

Is A Company Liable If an Employee Harasses a Customer?

Employers are generally aware of the risks associated with harassment and discrimination claims. If one of your employees believes he or she has been treated unacceptably on the basis of race, sex, or another protected class, expensive litigation can follow. It’s why many employers invest in employment practices liability insurance. But what if a lawsuit accuses an employee of harassing a customer?

Claims involving harassment or discrimination against customers, clients, vendors, and other nonemployees are called third-party liability claims. Increased societal awareness of harassment and discrimination issues has meant these lawsuits are a growing concern. It’s important to review your third-party liability insurance coverage to ensure you’re protected.

Third-Party Liability Claim Scenarios

Third-party liability claims can impact employers in any industry. Consider the following scenarios:

  • A woman delivers raw ingredients to a food manufacturing company every Tuesday. The man who signs for the delivery frequently comments on her appearance. These comments become ever more inappropriate, even though she makes it clear she does not appreciate the remarks and would like to keep things professional. She complains to the receptionist, but the receptionist doesn’t pass on the message. When the inappropriate behavior does not stop, she files a lawsuit against the company.
  • A Black man goes to a jewelry store to buy an anniversary present for his wife. The store is not understaffed, but no one offers to help him. Then, a white man enters the store and receives help immediately. When the Black man complains, the store employees accuse him of causing trouble on purpose and ask him to leave. He files a lawsuit alleging racial discrimination.
  • A woman goes to the grocery store. Since she can’t find her membership card, she uses her phone number. The next day, the clerk texts her to ask her out on a date. As the woman did not give the clerk permission to contact her, she sues the company for misuse of his personal information and harassment.

Insurance Coverage for Third-Party Liability Claims

According to IRMI, commercial general liability insurance policies do NOT provide coverage for harassment and discriminations claims filed by third parties (such as customers, clients, and vendors) because policies do not cover harassment or discrimination losses. However, employment practices liability insurance may provide this coverage. When included, it is typically under the Insuring Agreement B. As it is a separate coverage, it may be subject to a separate limit.

Customer Lawsuits Alleging Harassment and Discrimination

Real-life examples of third-party liability claims show that these lawsuits are a real threat.

According to Chron, a customer filed a lawsuit against Target seeking $100,000 in actual damages and $500,000 in punitive damages. The lawsuit claimed the store workers racially discriminated against him and falsely accused him of theft.

Third-party liability lawsuits can be even more expensive. According to NPR, a man has been awarded $4.4 million to settle a lawsuit alleging racial discrimination. The lawsuit, which occurred in Oregon, alleged that the customer was racially profiled and harassed while shopping.

Check Your Third-Party Liability Coverage

Don’t wait until you’re hit with a lawsuit – check your employment practices liability insurance policy to verify you have sufficient coverage in place.

  • Does your employment practices liability insurance policy provide coverage for third-party liability claims filed by customers, clients, or vendors? Not all policies contain this provision, although many do. Check under Insuring Agreement B. If you don’t see anything there, it may be in another part of the policy terms or you may not have coverage.
  • What are your limits for third-party liability claims? If you have a $1 million limit for employment practices liability claims, you do not necessarily have this limit for third-party liability claims. Separate sublimits are common – find out what yours are.
  • What exactly does your policy cover? Your policy may exclude certain types of losses. Identify the types of claims it covers as well as any exclusions.
  • Do you need more coverage? Any company can face a third-party liability claim. Even if your workers do not interact directly with customers on a regular basis, they probably work with vendors, janitorial staff, and other individuals who are not employees of your company. You may trust your workers to avoid discrimination and harassment, but it’s always possible that a third-party could misinterpret a situation or bring an unfounded claim against your company. Whether you win or lose, litigation can be expensive.

Will you have the coverage you need if an employee harasses or discriminates against a customer or if someone accuses one of your employees of doing so? Heffernan can help you review your coverage. Contact us.

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