On Aug. 14, 2019, a provision of New York’s new Child Victim Act went into effect that lifted the statute of limitations on childhood sexual abuse claims for a one-year period (until Aug. 14, 2020). Thereafter, child sex abuse victims will have until age 55 to file lawsuits. The Child Victim Act has reportedly already resulted in a flood of new lawsuits for sexual abuse and related claims. Additionally, legislatures in multiple other states have already enacted, or are actively considering, similar laws.
Consequently, sexual abuse-related claims against companies, such as negligent hiring, negligent supervision, negligent retention and negligent failure to warn, will likely become more frequent. Companies should consider taking the time now to understand how their insurance policies (including legacy policies) may respond to such claims, and they should be prepared to notify their carriers immediately of any claims or potential claims that they become aware of, pursuant to the notice provisions in those policies.
When a company receives a demand or complaint alleging that one of its employees has committed sexual abuse, it may mistakenly believe that due to the intentional and abhorrent nature of the alleged act, no coverage exists for the victim’s claims against the company. While it is generally true that no coverage exists for the abuser because public policy bars coverage for intentional infliction of an injury, companies often have coverage for claims related to sexual abuse that allege negligent – rather than intentional – supervision, hiring or other conduct that does not amount to complicity in the abuse. Companies should consider it a best practice not to leave policy benefits on the table that could pay defense expenses and be used to pay settlements or judgments (money that can protect innocent shareholders and compensate victims). An Ohio court described the scope of coverage in Doe v. Shaffer, 90 Ohio St. 3d 388, 393 (2000), holding that “the intentions of the molester are immaterial to determining whether the allegedly negligent party has coverage.”
Different kinds of businesses will have different potentially applicable insurance policies depending on the context of the claim. For example, directors and officers liability policies may cover claims for economic losses by investors relating to a drop in company value due to an abuse claim, but for most companies, coverage for negligence claims related to sexual abuse are most likely to be covered under commercial general liability policies. Claims related to sexual abuse typically fall within the bodily injury and/or personal injury coverage grants of those policies.
Commercial general liability policies are “occurrence-based” policies, meaning that the policy in effect during the policy period in which the occurrence giving rise to the claim took place – rather than the policy in effect when the claim was made or suit was filed – will be the policy that applies. Many of the lawsuits brought under the Child Victims Act and similar laws will pertain to conduct that occurred many years ago. Companies likely will need to locate legacy policies to determine which carriers may respond to these claims, then notify those carriers appropriately.
To the extent that a legacy policy cannot be located, courts generally permit insureds to use secondary evidence of an insurance policy (i.e., documents referring to the policy) to prove the existence of coverage. Courts have set the precedent for establishing that coverage existed. In Burroughs Wellcome Co. v. Commercial Union Ins. Co., 632 F. Supp. 1213, 1222 (S.D.N.Y. 1986), the U.S. District Court for the Southern District of New York held that the insurer had a duty to defend after the insured used secondary evidence, including policies from other years, certificates of insurance, letters discussing coverage, letters discussing renewal of coverage, portions of policies, letters referring to other claims and excess policies that referred to the lost policies, to prove the potential for coverage under pre-1967 policies. To avoid the expense of having to litigate the existence of coverage, every effort should be made to retain applicable policies in an easily accessible place.
What’s in a Number…of Occurrences?
An “occurrence-based” policy covers bodily injury resulting from something done accidentally, and has one policy limit for a single occurrence (the per-occurrence limit) and another, usually higher limit applicable to a series of occurrences (the aggregate limit). In cases involving multiple instances of abuse or multiple victims, the carrier and the insured may dispute the number of occurrences that took place. The number of occurrences is important because it determines how many per-occurrence policy limits may be available to the insured within the aggregate limit to pay a settlement or judgment. But the number of occurrences may also determine how many deductibles or self-insured retentions the insured must pay. Additionally, occurrences taking place over multiple policy years may trigger coverage under multiple policies, such as in Interstate Fire & Cas. Co. v. Archdiocese of Portland in Oregon, 35 F.3d 1325, 1331 (9th Cir. 1994), where the court held that “because the parties do not contest that [the victim] was exposed to the negligently supervised priest in each of the four policy periods, we conclude that [the victim’s] claim implicates four occurrences.”
Courts are split on how the number of occurrences that are triggered in a sexual abuse case involving multiple acts of abuse to a single victim or multiple victims. While different policies have different definitions of “occurrence,” the term “occurrence” is often defined as “an accident neither expected nor intended, including continuous or repeated exposure to substantially the same general harmful conditions.” In Roman Catholic Diocese of Brooklyn v. National Union Fire Insurance Co. of Pittsburgh, Pa., 991 N.E. 2d 666 (2013), the diocese argued that it should not have to pay multiple self-insured retentions because the “continuous or repeated exposure” language in the definition of “occurrence” required that the separate instances of abuse (which occurred at different times and in different locations) be aggregated into a single claim.
In rejecting the diocese’s argument, the New York Court of Appeals stated, “In our view, sexual abuse does not fit neatly into the policies’ definition of ‘continuous or repeated exposure’ to ‘conditions.’ This sounds like language designed to deal with asbestos fibers in the air, or lead-based paint on the walls, rather than with priests and choirboys.” Instead, the court determined the number of occurrences by applying the “unfortunate event test”: it considered “whether there is a close temporal and spatial relationship between the incidents giving rise to injury or loss, and whether the incidents can be viewed as part of the same causal continuum, without intervening agents or factors.”
The court found a lack of temporal and spatial closeness (based on the different times and locations) and that the instances of abuse lacked a singular causal continuum. Therefore, it found that each instance of abuse constituted a separate occurrence. In contrast, courts in other jurisdictions have applied a “causal approach” to determining the number of occurrences and have held that separate instances of molestation – even involving separate victims – may be considered one “occurrence” when premised on an entity’s negligence. In a Nevada case, Washoe Cty. v. Transcon. Ins. Co., 110 Nev. 110 Nev. 798, 801 (1994), the court found “each of the separate instances of molestation arises from the same proximate cause vis-a-vis the County: namely, the County’s alleged negligence in the process of licensing Papoose. We conclude that the County’s negligence... constitutes a single occurrence for purposes of liability.” Thus, how the number of “occurrences” is determined differ from jurisdiction to jurisdiction.
Insurance carriers have also sought to use the definition of “occurrence” to avoid coverage for claims related to sexual abuse by arguing that abuse cannot be an “occurrence” because it cannot be “neither expected nor intended” or “an unexpected, unforeseen, or undesigned happening or consequence from either a known or an unknown cause,” as policy definitions of “occurrence” typically require. That argument was made in Liberty Surplus Ins. Corp. v. Ledesma & Meyer Constr. Co., 5 Cal. 5th 216, 221–22 (2018). However, a number of courts have held that whether the occurrence or accident is expected, intended, foreseen or designed must be evaluated from the standpoint of the insured, including in a California case, Minkler v. Safeco Ins. Co. of America, 49 Cal. 4th 315 (2010). That court ruled that insureds that have not committed intentional acts have a reasonable expectation of coverage, even when another insured has committed intentional acts for which the non-complicit insured is alleged to be responsible. The court in Liberty Surplus also held that “a policy providing a defense and indemnification for bodily injury caused by an accident promises coverage for liability resulting from the insured’s negligent acts.”
Policy Language Revisions
Not surprisingly, a number of insurance carriers have revised their policies to attempt to preclude coverage for all insureds when any of the insureds commits an intentional act. For example, they have revised language precluding coverage for injuries “expected or intended by the insured” to say “expected or intended by an insured” and changed exclusions for claims arising from illegal acts committed by “the insured” to claims arising from illegal acts committed by “an insured.” A split of authority exists among courts as to the effectiveness of such revisions, particularly when a policy also contains a “severability provision” or “separate insurance” provision. Such clauses, which are common in liability policies, require that the insurance apply separately to each insured. Thus, coverage for one insured may be preserved by the severability provision despite an exclusion for intentional acts that precludes coverage for another insured.
For example, in Minkler, a plaintiff sued his baseball coach for sexual abuse and the coach’s mother for negligent supervision. Some of the abuse had occurred in the mother’s home, and the coach was listed as an additional insured on his mother’s homeowners insurance policies. The policies contained an exclusion for bodily injury “expected or intended by an insured or which is the forseeable result of an act or omission intended by an insured.” However, the policies also included severability provisions that stated, “This insurance applies separately to each insured.” After obtaining a $5 million default judgment against the mother, the plaintiff sued the carrier, alleging that it had wrongfully denied coverage for the mother based on the exclusion.
The carrier removed the case to federal court, where it prevailed on a motion to dismiss. On appeal, the Ninth Circuit directed the following question to the California Supreme Court:
Where a contract of liability insurance covering multiple insureds contains a severability clause, does an exclusion barring coverage for injuries arising out of the intentional acts of ‘an insured’ bar coverage for claims that one insured negligently failed to prevent the intentional acts of another insured?
The California Supreme Court answered that it did not, and held that because of the severability provision, the mother’s coverage must be analyzed “on the basis of whether she herself committed an act or acts that fell within the intentional act exclusion.” Thus, coverage may exist for a negligence claim related to sexual abuse regardless of the “an insured” language and the intentional acts of another insured.
Courts have reached the opposite result in other jurisdictions. For example, in Am. Family Mut. Ins. Co. v. Wheeler, 287 Neb. 250, 259 (2014), the Supreme Court of Nebraska declined to follow Minkler and affirmed summary judgment in favor of the carrier when an insured was sued for negligence in connection with a sexual assault committed by his son, who was also an insured under his policies. While the policies contained severability provisions, the court held that “applying the insurance separately to each insured, as the severability clause requires, does not change that the exclusions reference 'an insured’ or ‘any insured.’” Further, a growing number of policies now contain broad exclusions for claims arising out of sexual abuse regardless of who committed the abuse. The extent to which such exclusions apply to preclude coverage will depend on how they are worded and how broadly courts interpret them.
Claims related to sexual abuse raise complex issues, the outcomes of which may differ by jurisdiction and policy language. The general rule remains, however, that “an insurer must provide coverage and a legal defense to an insured where a complaint alleges that an employer was negligent in hiring and supervision of an employee who subsequently committed an intentional tort,” such as sexual abuse, as stated in Silverball Amusement, Inc. v. Utah Home Fire Ins. Co., 842 F. Supp. 1151, 1165 (W.D. Ark.), aff’d, 33 F.3d 1476 (8th Cir. 1994). The court in Liberty Surplus said, “Absent an applicable exclusion, employers may legitimately expect coverage for such claims under comprehensive general liability insurance policies, just as they do for other claims of negligence.”
The ruling in Liberty Surplus went on to espouse that despite the egregious and destructive nature of sexual abuse and “society’s interest in providing an incentive for employers to take precautions against sexual abuse by their employees,” insurance coverage is generally available to companies for claims related to sexual abuse because “the threat of liability for negligent hiring, retention, and supervision is a significant deterrent even when insurance coverage is available.” With this admonition in mind, companies facing claims related to sexual abuse should immediately provide notice to their carriers in the knowledge that depending on which state’s law applies, an insured not complicit in the abuse, sued for negligence in allowing it to happen, should be covered.
This article was originally published in the Fall 2019 edition of Corporate Policyholder Magazine.
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