(Note: This is the last of a three-part series on insurance coverage in the #MeToo era. Read Part One here. Read Part Two here.)
Navigating the claims process for sex abuse claims can be challenging for even seasoned litigators, especially now that the increase in sex abuse claims will likely result in an equally strong resistance from insurers on whether coverage exists in the first place.
Institutions, however, can get ahead of the common disputes in these claims by approaching policy negotiations with clear terms in mind that favor broad coverage for a variety of claims.
Whether negotiating new coverage or a renewal, educational institutions should keep in mind the following objectives: separate limits, low deductibles, broad definitions and narrow exclusions.
1. Limits. Negotiate for a policy that has separate coverage limits for abuse and molestation that do not reduce the available limits for other, far more common professional or commercial general liability losses.
The institution should also purchase a policy that affords payment or reimbursement of defense costs “outside” limits to ensure that payment of those costs does not otherwise reduce the available limits for settlement of claims.
2. Deductibles. Because when sex abuse claims are alleged there are often many of them at one time, it is not unusual to end up in a dispute with the insurance company over the number of occurrences and, thus, the number of deductibles the institution must pay in order to access insurance.
Institutions should therefore aim to keep their self-insured retentions or deductibles as low as possible. They should also consider obtaining a separate policy to cover deductibles over and above a certain amount in the event there are multiple claims in a given coverage period which give rise to multiple deductibles.
3. Broad Definitions. When it comes to policy interpretation, definitions are critical to resolving coverage disputes, especially in the area of sex abuse claims. Negotiating where possible for certain broadly defined terms can be particularly helpful for these types of cases.
The definition of “insured” and/or “employee” should be expansive and include former and current tenured and adjunct faculty, staff, board members, directors and officers, coaches, volunteers, and other persons under the institution’s direction and control.
The definition of “abuse” should include both physical and emotional/verbal abuse, actual or threatened acts, as well as errors, omissions or misconduct.
The term “injury” should include both physical and emotional injuries, including mental distress and defamation.
The term “suit” or “claim” should be defined to include civil claims for damages asserted on a pre-suit basis.
Oftentimes victims of abuse prefer to obtain a confidential settlement through alternative dispute resolution in lieu of public litigation. These pre-suit legal costs can be significant and institutions should look for policies that will provide coverage for defense costs even in the absence of a civil lawsuit.
Making clear up front that coverage will respond even before a suit is filed can also save an institution from finding itself in the position where even though a confidential, private settlement with the victim is possible, public litigation with the insurance company is unavoidable.
4. Narrow Exclusions. Most CGL policies exclude coverage for acts that were “expected or intended” from the standpoint of the insured. Depending on the jurisdiction, insurers will claim that coverage is excluded altogether on the basis that sexual abuse is an intentional act.
Institutions should select policies that except or “carve out” from this common policy exclusion coverage for third party claims of vicarious liability for the negligent hiring or supervision of an individual who commits a sexual assault.
5. Additional Insurance. In addition to general liability insurance, education institutions should consider obtaining crisis management and reputation risk insurance, which are two newer forms of coverage that seek to address the significant risks that negative publicity poses in the age of the instant, 24-hour news cycle.
Crisis management insurance typically pays for the hiring of a public relations firm and reputation risk insurance generally provides coverage for actual business loss sustained as the result of a negative publicity event.
Because the forms of this insurance vary widely, and historically have been used to respond to catastrophic events like campus shootings, suicides, natural disasters, or riots, the insured should take care that sexual misconduct-related activities are not excluded.
Although it is not possible to prepare for all of the future risks that come with operating an educational intuitions, having sufficient, favorable insurance coverage in place in advance of any contingency is a simple but significant first step that all institutions can undertake today to eliminate uncertainty.
Natasha Romagnoli is a principal, and Anna Milunas and JoÁ£o Santa-Rita are associates, with the firm of McKool Smith P.C.
