Coverage and Liability Issues in Sexual Misconduct Claims

Part II.Sexual Misconduct Coverage FormsIn recent years, the news of sexual misconduct cases has been overwhelming, particularly the crisis facedby the Catholic Church. These types of claims are increasingly being brought against churches of alldenominations, social service providers in the business of residential and foster home placements, schools,camps and scouting organizations. Along with the surge in claim activity and litigation, the need forinsurance, claim costs and settlements have risen drastically.Historically, the need for sexual misconduct insurance coverage did not become apparent until the 1980s.At that time, insureds sought coverage for these types of claims under occurrence-based general liability,professional liability, homeowners and umbrella policies. The benefits to insureds of these types of coverageforms were also detriments because the insuring agreement was broad and there were few exclusions,however the potentially ambiguous terms gave rise to litigation. The greatest area of uncertainty concernedthe number and timing of occurrences when claims involved multiple victims who were abused duringseveral policy periods.By the mid 1980s, insurers started endorsing sexual misconduct exclusions to their policies. Beginning inthe late 1980s and continuing into the 1990s, insurers began offering 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 addressing the number and the timing ofclaims.Most sexual misconduct coverage forms provide coverage only to non-perpetrators, although some doprovide a defense (but not indemnity) to those accused of sexual misconduct unless and until convicted.Sexual misconduct coverage can be included within the policy’s general liability or professional liabilitycoverage insuring agreements or it can be excluded there and added back through an endorsement;including the coverage within the general insuring agreements would typically mean that the other policyterms, conditions and exclusions would apply unless there are specific exceptions. Conversely, adding thecoverage through an endorsement could result in specific limits and other terms and conditions that areadded to apply only to the misconduct coverage.A typical sexual misconduct coverage insuring agreement provides:“We will pay those sums that the insured becomes legally obligated to pay as damages because ofinjury arising out of an act of ‘sexual misconduct’ to which this insurance applies.”Another form of sexual misconduct coverage agrees to:“Pay those sums the insured becomes legally obligated to pay because of “bodily injury” arisingout of:(1) The actual or threatened sexual abuse, molestation or harassment of any person by, or withthe consent or acquiescence of, any insured, any employee of the insured, or any person forwhose acts the insured may be held legally liable; or– ii –