Abuse And Molestation Claims: Insurance Issues For Policyholders (Legal Intelligencer 12/5/11)
Michael Conley and Meghan Finnerty Sexual molestation claims can be devastating to an organization. Often the resulting litigation names not only the perpetrator, but also the organization, board members, trustees and administrators, as well as other individuals in a supervisory role. The recent events at State College will certainly result in extensive litigation, and everyone involved in the events will most likely find themselves as a defendant in the litigation. These difficult claims raise a variety of insurance coverage issues. First, a basic tenet of insurance coverage law is that if one claim or allegation in a complaint is covered under an insurance policy, the insurance company is obligated to provide a defense as to the entire complaint. Sexual molestation can result in claims of not only personal injury, but also negligence against the organization and those in a supervisory capacity, and vicarious liability claims. The claims may also involve allegations of employment discrimination and violations of students’ rights. In the recently filed John Doe A v. The Second Mile, Gerald Sandusky and The Pennsylvania State University , the plaintiff asserts causes of action for sexual abuse and vicarious liability, negligence, negligent supervision, premises liability, negligent misrepresentation, negligent infliction of emotional distress, intentional misrepresentation and civil conspiracy. As such, claims that arise from sexual molestation allegations may trigger a variety of insurance policies. General liability policies typically cover bodily injury. Beginning in the mid-1980s, many, but not all, insurance companies began to exclude sexual molestation from coverage. Subsequently, however, as is often the case in the insurance industry, insurance companies began providing molestation coverage through endorsements, typically for an added premium. While general liability policies may provide coverage, other more specialized types of policies often specifically cover claims that arise from sexual molestation allegations. Some insurance companies sell sexual misconduct liability policies. In addition, educators legal liability policies (often also called educators professional liability policies) provide specific coverage for a variety of claims, such as sexual harassment, sexual misconduct and molestation. Employment practices liability insurance provides a wide range of coverage for employment-related claims, such as harassment and discrimination. Given the often broad nature of claims resulting from allegations of molestation, all potentially applicable policies should be put on notice of a claim or circumstances that could give rise to a claim. Once coverage under a particular policy is triggered, the number of occurrences may also be in dispute. In one case alleging sexual abuse of three children from 1986 to 1988, under a general liability policy, the court found one occurrence per child with the initial date of the occurrence being the initial failure to prevent the abuse. (See the Pennsylvania Supreme Court’s 1998 opinion in General Accident Insurance Co. v. Allen .) The court determined that the negligent failure to supervise the children adequately constituted the single occurrence even though independent negligent acts may have resulted in abuse. An additional concern is allocation or distribution of policy limits between insureds. By way of example, if a lawsuit names the alleged perpetrator and the entity, as well as six members of the board of directors, all may be entitled to coverage. Employment practices liability insurance, educators legal liability policies and sexual misconduct liability policies often have limits that are exhausted by the payment of defense costs. Potentially, under this hypothetical, eight separate attorneys may need to be retained. As you can imagine, this can quickly exhaust the limits of the policy. How the policy limits are allocated between the individuals and entities entitled to coverage under the policy depends on the policy language and applicable state law. Another question that often arises involves the application of an intentional act exclusion, or application of the “expected or intended” definition of “accident,” or similarly, intentional acts exclusions in policies. Insurance policies can contain language that excludes any claims resulting from an intentional act. Citing these type of provisions, an insurance company may take the position that sexual molestation claims can only be based upon an intentional act, and are therefore excluded.With regard to the perpetrator, courts in Pennsylvania typically hold that injury to a child in sexual abuse cases is deemed to be intentional as a matter of law regardless of whether they are characterized in a complaint as resulting from intentional or negligent acts. (See the Pennsylvania Superior Court’s 1996 opinion in Erie Insurance Exchange v. Claypoole .) Some policies, however, particularly for entities such as schools and camps, can contain language that will provide a defense to the alleged perpetrator until the person is convicted of the alleged act, or allow the alleged perpetrator to be reimbursed for defense costs if he or she is proven to be innocent. In contrast, claims against organizations and individuals accused of negligence in the hiring or supervision of the perpetrator are generally covered because Pennsylvania courts evaluate what was expected or intended from the perspective of each insured, and not the perpetrator, and require that the act and the resulting damage be expected or intended. (See the 2007 state Supreme Court case Donegal Mutual Insurance Co. v. Baumhammers .) However, under certain facts and policy language, the intentional acts of the perpetrator might also negate coverage for the organization. For instance, if the policy excludes coverage for occurrences “expected or intended from the standpoint of an insured” or “any insured,” some courts have held that such language will operate to exclude coverage for all insureds if the perpetrator of the intentional act was also an insured under the policy. (See the U.S. District Court for the Eastern District of Pennsylvania’s 2003 opinion in Allstate Insurance Co. v. Kenney.) In addition, in one case, an insurance company established that the organization had knowledge that the likelihood of future incidents of sexual molestation rose to the level of “substantial certainty” — meeting the test for “expected” — and the incidents were therefore excluded from coverage. (See the 2010 Ohio Superior Court case Cincinnati Insurance Co. v. Oblates of St. Francis De Sales Inc. ) In considering the applicability of “expected or intended” language to sexual abuse claims against the Archdiocese of Oklahoma City, the Ohio Superior Court held that where the archdiocese was specifically advised that the perpetrator’s ephebophiliac condition was incurable, that he needed to maintain ongoing counseling, and that it was “important” that he not be in the presence of youth without supervision, the archdiocese “expected” the claim and there was therefore no coverage. For entities that are the most prone to molestation claims, the molestation coverage in the entity’s policy typically addresses the applicability of the coverage to the organization separately from the perpetrator. However, if the policy is silent, the “expected or intended” language can raise coverage issues even for those solely in a supervisory capacity. While trustees, board members, administrators, camp counselors and teachers may be under the impression that insurance coverage will fully protect them from liability arising from their supervisory obligations, even with specific coverage for molestation claims, the following issues can significantly impact coverage:
- Are defense costs paid outside of limits?
- Are the limits per employee or combined?
- Who selects defense counsel and do all insureds get separate counsel?
- Does the policy require you to prove your innocence before you will be reimbursed for defense costs?
- Are prior acts excluded?
- How many deductibles apply?
Because of the serious nature of sexual molestation claims and, as we have seen in State College, the fact that they often include allegations of either complicity or a failure to supervise, obtaining insurance coverage and allocating that insurance coverage often involves numerous and complicated insurance coverage issues. • To see view this article on the Legal Intelligencer’s website, please visit law.com About the Author:
MICHAEL CONLEY is the principal in charge of Offit Kurman’s Philadelphia office and chair of the firm’s insurance recovery practice. Conley is a frequent speaker on policyholder insurance coverage issues. He can be reached at 267-338-1317 or firstname.lastname@example.org.
MEGHAN FINNERTY is an attorney in Offit Kurman’s Philadelphia office. Finnerty devotes her practice to insurance recovery exclusively on behalf of policyholders. She can be reached at 267-338-1322 or email@example.com. Reprinted with permission from the December 5, 2011 edition of the Legal Intelligencer© 2011 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382, firstname.lastname@example.org or visit www.almreprints.com.