Wall Street calls it the ‘Weinstein clause’. Named after Hollywood producer Harvey Weinstein who was accused of alleged sexual misconduct, this clause provides for companies to pay damages to other parties and business partners if such allegations come to light at the time of deals or M&A transactions. Considering the number #MeToo cases cropping up across Indian companies, it is imperative that they have adequate cover against financial liabilities.
Several individuals in the advertising, stand-up comedy, media and entertainment sectors have been accused of sexual harassment. Companies have suspended the accused and ordered a detailed investigation thereafter.
A separate clause to deal with the issue could help minimise the liabilities arising out of such cases. For instance, if a listed entity has senior management involved in sexual harassment cases, there are chances of court cases being filed by the victims.
Any lawsuit leads to financial and reputational damage. Insurers can minimise the damages, provided a separate clause is added to the policy document. In the past, a sexual harassment lawsuit involving Infosys, its former employee Reka Maximovitch and Phaneesh Murthy was settled for $3 million. The insurer paid half the amount and Infosys the other half.
In the West, insurance companies have started incorporating the ‘Weinstein clause’ in covers like Directors & Officers (D&O) liabilities to provide protection against liabilities. However, there are explicit exclusions for serious crimes like rape and the accused also have to bear some damages.
Considering the liabilities involved in such cases, it is imperative that Indian insurers also offer policies with such a clause. Co-payment of damages by offenders would also dissuade immoral behaviour.
A smaller company could potentially go bankrupt if a billion-dollar case is filed against them, either by victims, shareholders or partners for erosion of share value. At present, D&O policies are mostly silent on the issue of sexual harassment. It is a grey area. Only after a specific harassment-related claim is filed does an insurer take a decision.
Having an outright policy outlining whether insurance will cover sexual harassment will be a good start. Further, clearly specifying what cases are covered and up to what extent will be the next step to be taken. For companies who spend several crores on hiring top talent for senior positions, the insurance premium will only be a fraction of the cost. And this could save them the millions of dollars of potential legal expenses.
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