On June 15, 1998 the Supreme Court of New Jersey ruled that workers' compensation insurance carriers must cover damages caused by workplace sexual harassment if the plaintiff can demonstrate that he or she suffered actual physical symptoms of emotional injuries. The decision held that policy provisions which are written to exclude coverage for harassment and discrimination are against public policy and are therefore invalid to the extent they deny coverage for bodily injury. Such bodily injuries could encompass anything from bulimia to insomnia.

While this decision may have widespread ramifications for workers' compensation carriers and employers, its application is limited. It only applies to persons who suffer a compensable bodily injury in the workplace as a result of sexual harassment. The decision does not apply, for example, when sexual advances are made to a secretary, or when a clerk is offended by foul language, absent any physical symptoms.

Initially, as an employer, you may be quite pleased with the court's decision because it means your compensation carrier will now have to pay any damages awarded in harassment cases resulting in bodily injuries. However, there may be a downside. The insurance company will now be making defense decisions such as which attorney will be assigned to handle the matter, how vigorously the case will be defended and what the settlement terms will entail. What would happen if a carrier wants to settle a case with one of the terms being reinstatement and the employer, and even co-workers, believe the plaintiff made false accusations? If the carrier has the unilateral right to determine settlement terms, the accuser will be returned to the workplace.

There is also the possibility of an increase in claims as well as an increase in the monetary damages awarded due to the perception that insurance companies have deep pockets. This may lead to an increase in insurance premiums. One commentator has indicated that workers' compensation insurance is already costly in New Jersey and that this decision is certainly not going to render it less expensive.

Just as this issue of our News Notes was being published, the United States Supreme Court issued two landmark's sexual harassment rulings on June 26, 1998, the final day of the Court's 1997-98 term. The two rulings are intended to provide clearly defined standards and guidelines for determining when employers and businesses can be held accountable for on-the-job harassment and also to reconcile a thicket of confusing and sometimes contradictory lower-court rulings which have developed in recent years, since the Supreme Court first ruled that sexual harassment is a form of sexual discrimination. In the two new rulings, interpreting Title VII of the Civil Rights Act of 1964, which prohibits sex discrimination in the workplace, our highest Court has declared that employers can be held liable for their supervisors' misconduct, even if the company knew nothing about the harassment and misconduct. The Court held that when such harassment results in "a tangible employment action, such as discharge, demotion or undesirable reassignment," the employer's liability is absolute. On the other hand, the Court also held that where there has been no tangible employment action, an employer can defend itself if it can prove two things: first, that it has taken"reasonable care to prevent and correct promptly any sexual, harassing behavior," such as by adopting an effective policy with a complaint procedure, and second, that the employee "unreasonably failed to take advantage of any preventive or corrective opportunities" provided.

These rulings make clear that this is an opportune, and indeed, necessary time for employers to review their policies and procedures relating to sexual harassment to insure specific reporting mechanisms, investigatory processes and enforcement. Management must demonstrate to its employees that it takes all allegations of sexual harassment seriously. This attitude, along with effective policies, may help to reduce or even eliminate the number of claims, thereby also controlling insurance costs. We will be carefully analyzing all three decisions and offering further specific recommendations in subsequent News Notes.