Company Rehires Manager Facing Rape Charges: Who Pays for Its Negligent Hiring?

It is an increasingly common story. An employer knowingly hires or fails to fire an employee—usually someone in a position of authority— even when there are credible allegations of serious sexual misconduct.

Starting in an Illinois Supreme Court decision in 1988, courts have a “tool” for this: Negligent hiring. Essentially, courts reason that if an employer is responsible for negligently maintaining equipment that harms a worker, an employer is also responsible if it hires a known groper (or worse, an alleged or convicted rapist).

Consider the following. Three female employees sued a major vacuum cleaner company. Kristl Thompson, Ashley Raby, and Corbie Leslie filed suit in Missouri alleging that a co-worker, John Fields, sexually harassed and assaulted them. 
The company hired Fields knowing that he had a lengthy criminal history, including crimes with sexually deviant propensities, and was awaiting trial on rape charges. 
As a registered sex offender, he could not sell vacuum cleaners door-to-door.

Eventually, the company settled its cases with the women in excess of $1 million per employee. 
That’s where the insurance company comes into the picture. Zurich American Insurance provided liability insurance, including for workplace torts, for judgments over $ 1 million—the company had to pay the deductible first.

Back to the litigation: the women alleged that because of the company’s HR-negligence, each of them was assaulted under different circumstances, at different locations, at different times, and sometimes in different policy years.

For matters of insurance, the company argued that it made one bad hiring decision—and therefore, the insurance company could not deduct $1 million for claims of two of three women.

Last week, a conservative federal appeals court agreed with the employer. The trial court said that the assaults were separate torts. Thus, for each occurrence, the company had to pay the first $1 million in liability.

Why does this matter? When insurance pays for the “moral hazards” of policy-holders—a nice example includes homeowners who build expensive beachfront estates in hurricane-prone areas— the insured party uses other people’s money to cover their risky behavior. They build a new home with insurance money in the path of the next hurricane.

Here, the insurance company must pay up. That’s good news for the victims. For the company, it avoids most of its liability. 

In my opinion, this company should have been forced to close by paying these damages. The injuries it caused were that egregious.

Big picture? If corporate America is successful in shifting liability for #MeToo to their insurer, they won’t feel much of the pain they cause—and odds are they won’t learn much, or change much, either.