Coverage and Liability Issues in Sexual Misconduct Claims
Coverage and Liability Issues in Sexual Misconduct Claims
Coverage and Liability Issues in Sexual Misconduct Claims
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Part II.<strong>Sexual</strong> <strong>Misconduct</strong> <strong>Coverage</strong> FormsIn recent years, the news of sexual misconduct cases has been overwhelm<strong>in</strong>g, particularly the crisis facedby the Catholic Church. These types of claims are <strong>in</strong>creas<strong>in</strong>gly be<strong>in</strong>g brought aga<strong>in</strong>st churches of alldenom<strong>in</strong>ations, social service providers <strong>in</strong> the bus<strong>in</strong>ess of residential <strong>and</strong> foster home placements, schools,camps <strong>and</strong> scout<strong>in</strong>g organizations. Along with the surge <strong>in</strong> claim activity <strong>and</strong> litigation, the need for<strong>in</strong>surance, claim costs <strong>and</strong> settlements have risen drastically.Historically, the need for sexual misconduct <strong>in</strong>surance coverage did not become apparent until the 1980s.At that time, <strong>in</strong>sureds sought coverage for these types of claims under occurrence-based general liability,professional liability, homeowners <strong>and</strong> umbrella policies. The benefits to <strong>in</strong>sureds of these types of coverageforms were also detriments because the <strong>in</strong>sur<strong>in</strong>g agreement was broad <strong>and</strong> there were few exclusions,however the potentially ambiguous terms gave rise to litigation. The greatest area of uncerta<strong>in</strong>ty concernedthe number <strong>and</strong> tim<strong>in</strong>g of occurrences when claims <strong>in</strong>volved multiple victims who were abused dur<strong>in</strong>gseveral policy periods.By the mid 1980s, <strong>in</strong>surers started endors<strong>in</strong>g sexual misconduct exclusions to their policies. Beg<strong>in</strong>n<strong>in</strong>g <strong>in</strong>the late 1980s <strong>and</strong> cont<strong>in</strong>u<strong>in</strong>g <strong>in</strong>to the 1990s, <strong>in</strong>surers began offer<strong>in</strong>g sexual misconduct coverage. Whilesome of this coverage is still written on an occurrence basis, most of the policy forms are written on aclaims-made basis. The policies tend to have specific provisions address<strong>in</strong>g the number <strong>and</strong> the tim<strong>in</strong>g ofclaims.Most sexual misconduct coverage forms provide coverage only to non-perpetrators, although some doprovide a defense (but not <strong>in</strong>demnity) to those accused of sexual misconduct unless <strong>and</strong> until convicted.<strong>Sexual</strong> misconduct coverage can be <strong>in</strong>cluded with<strong>in</strong> the policy’s general liability or professional liabilitycoverage <strong>in</strong>sur<strong>in</strong>g agreements or it can be excluded there <strong>and</strong> added back through an endorsement;<strong>in</strong>clud<strong>in</strong>g the coverage with<strong>in</strong> the general <strong>in</strong>sur<strong>in</strong>g agreements would typically mean that the other policyterms, conditions <strong>and</strong> exclusions would apply unless there are specific exceptions. Conversely, add<strong>in</strong>g thecoverage through an endorsement could result <strong>in</strong> specific limits <strong>and</strong> other terms <strong>and</strong> conditions that areadded to apply only to the misconduct coverage.A typical sexual misconduct coverage <strong>in</strong>sur<strong>in</strong>g agreement provides:“We will pay those sums that the <strong>in</strong>sured becomes legally obligated to pay as damages because of<strong>in</strong>jury aris<strong>in</strong>g out of an act of ‘sexual misconduct’ to which this <strong>in</strong>surance applies.”Another form of sexual misconduct coverage agrees to:“Pay those sums the <strong>in</strong>sured becomes legally obligated to pay because of “bodily <strong>in</strong>jury” aris<strong>in</strong>gout of:(1) The actual or threatened sexual abuse, molestation or harassment of any person by, or withthe consent or acquiescence of, any <strong>in</strong>sured, any employee of the <strong>in</strong>sured, or any person forwhose acts the <strong>in</strong>sured may be held legally liable; or– ii –