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Monthly Archives: January 2017

Addressing Abuse Liability Through Insurance

The possibility of a costly abuse claim arising is a very real threat for organizations that provide care or services to vulnerable populations, including children, the disabled and the elderly. Abuse can take a variety of forms as it can be physical, emotional, sexual or even financial in nature.

Year after year, sports associations, day cares, schools, camps, churches and other charitable organizations face the staggering financial cost of civil judgements due to the abusive conduct of their employees or volunteers.

While organizations can mitigate their exposure to incidents of abuse through proper risk management, no organization is ever immune to abuse claims. With this in mind, it is imperative for organizations to understand what role insurance can play in relation to liability arising from actual or alleged abuse.

Vicarious Liability

As a starting point, organizations need to be aware of the exposure they assume to claims of abuse through vicarious liability. Vicarious liability is a common law principle that refers to situations where an organization is held responsible for the actions or omissions of one of their employees or volunteers.

In cases of abuse, this form of indirect legal liability can be established against an organization on such grounds as inadequate hiring, screening or supervision of individuals given authority for the care of others.

Through vicarious liability, organizations can face the financial and reputation repercussions of abuse claims even if they think they did nothing wrong.

The Issue of Policy Exclusions

For a period of time, insurance policies did not contain exclusions with respect to vicarious liability arising out of cases of abuse. However, in the 1980s, following a dramatic rise in civil and criminal actions against religious and secular organizations over crimes committed against children in their care, insurance companies began to limit or exclude coverage for vicarious liability, as well as for criminal and intentional acts.

Although the exclusionary language found in abuse or molestation exclusions varies by insurance company, typically insurance coverage does not apply to “bodily injury” arising out of the following:

  1. The actual or threatened abuse or molestation by anyone of any persons
  2. Negligence related to the hiring, employment, placement, training, supervision, investigation, reporting to the proper authorities or failure to report incidents of abuse or molestation

Under most policies, abuse and molestation includes, but is not limited to, any verbal or nonverbal communication, behavior or conduct with sexual connotations, infliction of physical, emotional or psychological injury or harm, whether for gratification, discrimination, intimidation, coercion or other purposes, regardless of whether such action or resulting injury is alleged to be intentionally or negligently caused.

Accordingly, if an organization’s insurance policy contains an exclusion of this type, claims against an organization for abuse are likely not to be insured.

Abuse and Molestation Insurance

With the introduction of the abuse and molestation exclusions, many insurers began to offer express abuse coverage. This coverage, which is subject to underwriting requirements, may be added as an endorsement to a general liability or as a stand-alone product.

Although abuse coverage does not protect the perpetrator, it covers other individuals and organizations for related acts, such as the alleged failure to supervise and/or report the perpetrator.

The nature and amount of coverage provided by an abuse policy is dictated by its treatment of several key issues, including:

  • Occurrence versus claims-made coverage: Many abuse and molestation policies are written on a claims-made basis, which requires a claim to be asserted against the insured and reported to the insurer during the policy period. However, some abuse policies offer coverage on an occurrence basis, meaning that the coverage exists if an incident takes place during the policy period, regardless of when the resulting claim is made.
  • Limitations on the amount of coverage: Abuse coverage often is subject to a lower sublimit of coverage than afforded for non-abuse claims. Additionally, policies also typically require the insured to bear some portion of any loss, through deductibles, self-insured retentions or coinsurance.
  • Aggregating language: Policies typically combine all claims arising out of the same course of conduct, including abuse, into one loss, thereby limiting coverage to one limit. As a condition for purchasing abuse coverage, many insurance companies require organizations to demonstrate that they have implemented a formal abuse prevention plan. When reviewing applications for coverage, underwriters look for certain elements in abuse prevention plans, including, but not limited to:

The Role of Risk Management in Obtaining Coverage

  • A policy statement that confirms the organization’s commitment to providing a safe environment for individuals under their care and declares zero tolerance for abuse, harassment or neglect committed by employee, member or volunteer.
  • Screening procedures to ensure that all employees and volunteers who interact with vulnerable populations are suited for such work.
  • Abuse prevention training that is provided to all staff members and volunteers who regularly work with vulnerable populations.
  • Operational procedures that are clearly outlined in a written manual, which summarizes guidelines for preventing abuse and harassment.
  • Procedures that ensure that any incidents of abuse will be properly reported to the relevant authorities.


More Information

While it should be the goal of every organization to prevent incidents of abuse from occurring in the first place, the reality of operating in today’s world means that organizations need to be prepared for the worst. Should a situation develop that requires an organization to defend itself against claims of abuse, the cost of doing so can be debilitating.

In order to protect your organization’s viability for the long term, it is vital to obtain the proper insurance.  Please contact your broker for additional information.

© Zywave, Inc. All rights reserved.

5 Common Sources of D&O Liability

In today’s business climate of corporate transparency and accountability, an organization’s officers and directors face a myriad of employment-related exposures. Regardless of your company’s size or mission, the legal costs associated with a lawsuit can be crippling for both the organization and your directors and officers.

This Risk Insights explores five of the most common sources of directors and officers (D&O) liability.


Most directors and officers are surprised to learn that their own employees are one of the most common sources of a D&O claim against their organization. In fact, for private businesses and non-profit organizations, employees are the most common source of D&O claims.

If employees are mistreated during any phase of their employment, they may bring their concerns to the organization’s management team. If employees feel that their concerns have been not been addressed in a sufficient manner, they may see legal action as a means of rectifying their grievances.

Common employment practices claims against directors and officers include the following allegations:

  • Wrongful dismissal
  • Discrimination, including workplace and sexual harassment
  • Breach of employment contract
  • Failure to address health and safety concerns

Government and Regulatory Authorities

Governmental and regulatory authorities exist to monitor the environment in which organizations operate. These bodies help ensure that directors and officers and the organizations they control conduct their activities in a fair and lawful manner.

Government and regulatory bodies monitor compliance with a broad range of laws, including the following:

  • Corporations law: Governs the ownership and management of organizations
  • Securities law: Governs the administration of publicly listed companies
  • Consumer protection law: Governs the way in which organizations distribute products and services to consumers
  • Occupational health and safety law: Ensures that organizations maintain a safe workplace
  • Taxation law: Governs the taxation of organizations and individuals
  • Environmental law: Ensures that industry participants adhere to environmental restrictions

For directors and officers, the enforcement power held by these bodies presents a significant exposure to D&O claims. If regulators discover that wrongful conduct has occurred, they may pursue legal action against the organization and the executives involved.


As organizations attempt to grow their market share, management teams must ensure that growth is achieved through fair business practices. If an organization’s competitors believe that they have been unfairly disadvantaged by dishonest or illegal behaviour, they may seek recourse through legal action.

Directors and officers can be brought into legal actions for a range of perceived wrongdoings, including the following allegations:

  • Breaches of intellectual property
  • Misappropriation of trade secrets
  • Collusion
  • Anti-competitive behaviour

What’s more, directors and officers may also be held liable for actions that are perceived as misleading or defamatory, with claimants seeking damages for their perceived losses.


The management team of an organization has the responsibility of monitoring the organization’s financial position and its ability to meet debt obligations as they become due. If an organization becomes insolvent, creditors will often scrutinize the decisions of directors and officers to see if they can be held personally responsible.

If debts are left unpaid when an organization goes into liquidation, creditors can pursue executives personally in an attempt to recover outstanding funds. Common allegations by creditors against directors and officers include the following allegations:

  • Breach of fiduciary duty
  • Breach of duty of due care
  • Negligence
  • Deliberate misconduct


Due to their financial investment, shareholders have an incentive to monitor an organization’s ongoing performance and ensure that directors and officers are acting with the organization’s best interests in mind. With potentially large sums of money at stake, if shareholders are not pleased with an organization’s direction, they may take measures to protect their investment.

If it appears that management has breached their duties to the detriment of an organization, shareholders may bring a claim against those directors and officers.

Ask Your Broker for Help

Whether you’re a non-profit, privately held or a public company, it is likely that your business can benefit from a D&O policy. Since there is no such thing as a “standard” policy, a professional broker is invaluable when you go to purchase D&O coverage.

© Zywave, Inc. All rights reserved


88 Per cent of Employees Lack Knowledge to Prevent Cyber Incidents

According to a recent report, 88 per cent of employees lack the understanding necessary to prevent common cyber incidents.

That report was designed to test the level of knowledge and awareness of cyber security among employees by asking them to name proper behaviours in given circumstances. The survey covered eight risk domains and assigned three risk profiles—Risk, Novice and Hero—to indicate an employee’s privacy and security awareness IQ.

Key findings from the report include the following:

  • Only 12 per cent of respondents earned a “Hero” profile, while 72 per cent were given a “Novice” profile and 16 per cent were given a “Risk” profile.
  • Almost 40 per cent of respondents disposed of a password hint using unsecure means.
  • About 25 per cent of respondents failed to recognize a sample phishing email, even though it came from a questionable sender and included an attachment.

Educating Employees

This report highlights one of the key vulnerabilities of any organization—employees’ lack of basic cyber security knowledge. Regardless of other hardware or network protections, employees can and will allow cyber criminals into an organization, often without even realizing it.

Fortunately, employee cyber training can help reduce this risk to your organization.

© Zywave, Inc. All rights reserved.

Government of Canada Endorses G7 Guidelines

The government of Canada recently announced its endorsement of the Group of Seven’s (G7) Fundamental Elements of Cybersecurity for the Financial Sector guidelines. These guidelines are designed to assist organizations, particularly in the financial sector, in designing and implementing a cyber security framework.

The non-binding guidelines identify eight basic building blocks for establishing a strong focus on cyber security:

  1. Implement a cyber security strategy
  2. Governance
  3. Risk assessments
  4. Monitoring
  5. Response
  6. Recovery
  7. Information sharing
  8. Continuous learning

While the G7 guidelines are aimed at business that operate in the financial sector, they are useful in summarizing basic cyber risk management practices. To learn more about these guidelines, click here.

© Zywave, Inc. All rights reserved.



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