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.
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:
- The actual or threatened abuse or molestation by anyone of any persons
- 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.
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.
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