Roadblocks to securing coverage for sexual abuse claims
(Note: This is part two of a three part series on insurance coverage in the #MeToo era. Read Part one here.)
An often troubling reality of sex abuse cases is that more often than not, the abuse occurs over an extended period of time, involves multiple victims, offenders and repeat offenses, and has effects that linger, or only first appear, long after the abuse takes place.
Additionally, claimants, for a variety of reasons, are often unable to recall with specificity when periods of abuse began or ended.
Consequently, one of the more common disputes with carriers that institutions should be prepared to face is whether the alleged abuse occurred during a given policy period, how many successive policies may be triggered in response to an abuse claim, and whether in addition to the abusive act, a later resulting injury can be a “trigger” for coverage.
Although resolution of these disputes largely comes down to the terms of the policy as interpreted under state law, some courts across the country are now treating each act of abuse as a separate triggering event and, if included in the terms of the policy, permitting subsequently manifested injuries to constitute a separate coverage-triggering event.
Taking the initiative
Institutions can best position themselves to deal with these issues by confronting coverage issues early on and taking initiative on ascertaining the as many facts as possible concerning the circumstances surrounding the claim.
First, institutions should consult their policies in advance to resolve whether their coverage contains “first touch” or “first encounter” clauses which declare that all injuries arising from a sexual abuse claim are attributable to the first incident of abuse only, or other similar language about acts constituting a “single” occurrence.
Institutions should also review their policies to determine how those policies deal with multiple-occurrence claims, which is normally one of three ways: one occurrence for each policy period during which any abuse occurred; one occurrence per claimant regardless of the number of perpetrators or acts; or one occurrence per perpetrator, regardless of the number of claimants or acts of abuse.
Policies should also be reviewed to determine whether they allow for only abuse acts, or injuries, or both to constitute a triggering event, and whether a triggering abuse act can result from pre-abuse grooming behaviors as well.
Institutions should review state law on how courts interpret the number of occurrences, joint and several liabilities among insurers, and pro-rata versus all sums allocation.
Finally, in the event a claim is asserted, institutions should get ahead of the facts and work with claimants and their counsel to ascertain all facts in as much detail as possible to ascertain all of the available policy years and limits that might be triggered.
Confronting these issues in advance will help risk managers better understand the reach of their coverage limits across multiple years and afford intuitions more reasoned judgment in setting proper reserves for paying potential deductibles.
A further roadblock that insureds often face in sex abuse claims is coverage for defense costs. Typical CGL (commercial general liability) policies afford insurers the “right and duty” to defend the insured, including the duty to pay or reimburse defense costs and control the defense, but only in the event of a suit (which is often defined as a civil action at law).
Many sex abuse claims are first presented as demands for damages on a pre-suit basis and state law varies greatly on what types of pre-suit claims can trigger the duty to defend. Retaining counsel without the insurers consent can lead to a host of issues and potential breaches of the policy.
To ensure the best prospect for early retention of defense counsel of the insured’s choosing, insureds should pre-select defense counsel in advance of any claim, give prompt notice of any potential claims as soon as possible, demand a defense, and be prepared to present the insurer with defense counsel options that have demonstrable institutional and subject matter expertise and who charge reasonable rates.
Timely notice will also afford the insured valuable insight from experienced insurers on appropriate defense strategy for your particular claim.
Finally, institutions should be mindful that proper, timely notice in the claims process is critical, and depending on the jurisdiction, can potentially eliminate coverage if not executed according to the terms of the policy.
Most often, insurers claim that notice is untimely because the institution knew of a claim or potential claim sooner but did not report it. Institutions can eliminate potential pitfalls of untimely notice by
- reviewing their policy to determine if notice is required in response to a formal claim or any reported act,
- establishing clear reporting protocols to ensure that information is escalated to risk management as soon as possible, and
- having form notice letters prepared in advance that are vetted by coverage counsel so that notice sent by the institution without delay.
In short, a little preparation goes a long way toward eliminating the many uncertainties that come with the insurance claims process.
Next: Securing insurance coverage for sexual abuse claims
Natasha Romagnoli is a principal, and Anna Milunas and João Santa-Rita are associates, with the firm of McKool Smith P.C.