Sexual abuse and molestation is certainly a sensitive subject matter; however, when dealing with insurance, it is a topic that must be addressed. Any company or organization can be exposed to claims for sexual abuse and molestation; particularly ones with exposure to minors, the mentally disabled or the physically infirm. Lack of attentiveness to potential claims for sexual abuse and molestation can significantly impact a company’s ability to function and survive.
Given the nature of our clientele here at Lamb and the industries in which we serve, almost all of our clients purchase dedicated coverage for sexual abuse and molestation, save for a select few that deem their risk to be so minute to be not worth the cost. Nevertheless, it is our overriding recommendation to all of our clients to purchase the coverage. Claims of this nature tend to be magnified and are often quite costly. If not adequately insured against, an organization can create such a hole for itself, should a claim of this nature arise, that it may render it inoperable.
As with purchasing any product, it is recommended to be as well-informed on the product that you intend to purchase as you can be. Having said that, there are a number of aspects to sexual abuse and molestation coverage that you should be aware of in order that you can be an educated consumer and make an informed decision on. Although, to my knowledge, there is no official nomenclature in the insurance industry of different aspects of sexual abuse and molestation coverage, here at Lamb we break it down into three categories: first party, second party and third party.
First party abuse refers to coverage for a claim brought by a non-employee for an act allegedly committed by an employee. Second party abuse refers to coverage for a claim brought by a consumer for an act allegedly committed by a third-party. Third party abuse refers to coverage for a claim brought by a consumer for an act allegedly committed by another consumer. Understanding these three elements of coverage is critical as oftentimes, depending on the particular policy forms, not all of the elements of coverage are adequately addressed.
Another often overlooked element of coverage is defense of the alleged perpetrator. Sexual abuse and molestation coverage generally affords coverage to the named insured entity, which can be referred to as vicarious liability coverage. Many policies will not extend the coverage to the alleged perpetrator. In other words, an employee of the named insured may not be afforded defense coverage for such allegations. Now you may question why an organization would want to provide coverage for an alleged perpetrator and many may agree with that sentiment; however, keep in mind that a person is innocent until proven guilty and an organization may want to extend coverage based on that legal principle. Additionally, an informed job applicant, may inquire whether an organization has coverage for an alleged individual perpetrator and if not, an organization may be impairing its ability to hire the best candidates for a particular position.
Having said that, not all insurance policies are equal when it comes to sexual abuse and molestation coverage. Forms can vary significantly, by carrier as well as by region. Even for carriers that do provide coverage for the alleged perpetrator, you need to be mindful of the potential restrictions in their coverage forms. For example, some carriers will only reimburse the costs of defense if the alleged perpetrator is adjudged not guilty, others may only offer a sublimit, while others may offer a sublimit only if insured had a written agreement with the defendant to defend them and may include a stipulation that the costs have to be repaid by the defendant in case of an adverse judgement. Another point of note is that very few carriers offer coverage for an alleged perpetrator in New York State and of those that do, some will specifically not offer the coverage in parts of the State i.e. the five boroughs of New York City or Long Island.
As you can see, sexual abuse and molestation coverage can be complicated and without the right broker working on your behalf, coverage you expect to have may at the time of a claim, may not be there when called upon. Here at Lamb, we pay particular attention to this coverage and always strive for the optimal available coverage in the market for a particular risk and we will identify any limitations in coverage in order that our clients fully understand their exposures to risk.