In this newsletter, I'm highlighting the devastating impact Abuse and Molestation claims can have on an organization's financial health and reputation.

Fortunately, the presence of deliberate risk management strategies coupled with a robust insurance program can help mitigate the impact damaging lawsuits can have on the organization.

As always, if you have questions or would like more insights on these risk management topics, please don't hesitate to reach out to me directly.

Sean

Insurance Implications for Sexual Misconduct Claims 

By Sean F. Conaboy, MSW, MPA, Risk Manager, NSM Insurance Brokers

A single incident of abuse can cause a lifetime of pain and suffering for a child or vulnerable adult, as well as cause irreparable damage to your organization's reputation, financial stability and insurability. 

Any organization that provides care or services to particular populations, including children, substance abusers, the elderly and more, is subject to the possibility of a costly abuse claim. And because abuse can take many forms including physical, emotional or sexual in nature, the magnitude of these claims can have a profound impact. Year after year, social services and nonprofit groups face the staggering financial and reputational damage of civil judgments due to the abusive conduct of their employees or volunteers. In fact, according to a recent Advisen loss report, child sexual abuse cases are the most expensive types of loss faced by schools, religious institutions and nonprofits. The number of victims that have come forward and the severity of these claims has forced some organizations to file for bankruptcy. 

Impact on Organizations

Organizations in which sexual abuse and molestation typically occur experience financial loss, damaged reputation and low morale. Entire programs are left shaken by incidents of abuse wondering what they could have done to prevent the incident from occurring in the first place. 

Here are some staggering statistics about the potential risks and pitfalls:

• Plaintiff's attorney firms have become increasingly sophisticated and aggressive in pursuing Abuse & Molestation cases prevailing in more than 90% of sexual abuse cases against an organization
• Average compensatory awards in a molestation case have significantly increased typically exceeding $750,000. A single claim can erode all underlying insurance limits and erase an organization's Excess/Umbrella coverage.
• Unfortunately, predators and molesters can pass your organization's background check process, as evidenced by the fact that less than 5% actually have a known criminal record

Source Credit: Praesidium

Private Areas: Places such as restrooms, locker rooms, or other areas that are off-limits to the program.

Common Areas: Recreation areas, pools, or other program areas that are more public.

Off-site: Buses, overnight activities, other “off campus locations.

Social Media: The incident involved improper use of social media or other electronic communications.

Implications for Insurance Coverage

The insurance industry has reached a watershed moment in their awareness of organizational sexual abuse and assault resulting in demands for accountability and best practices for vulnerable populations.

With the surge in historical claims over the last few years, experts refer to the current insurance market as hardening, thus becoming more difficult and expensive to obtain adequate insurance coverage for Abuse and Molestation.

While insurance carriers explore individualized approaches to control their own exposures, current trends occurring in the marketplace include:

• Reduction in the Limits of Liability
• Overall caps on the availability of coverage or sub-limiting Abuse & Molestation limits
• Changes to the type of event that triggers coverage with many carriers moving from a preferential Occurrence Based Form to a more complicated Claims Made Form
• Revisions to the policy definitions and scope of abuse  
• Introduction of new or expanded coverage exclusions

While it should be the goal of every organization to prevent incidents of abuse from occurring in the first place, operating a business in today's world requires being prepared for the unexpected. If a situation should develop that requires your organization to defend itself against these claims, the cost of doing so can be debilitating.  

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