By Dr. David Epstein, in2vate content manager
Every nine minutes a child is molested in the United States, with 66% of youth victims falling between the ages of 12-17. One in nine girls and one in six boys will experience sexual abuse by the age of 18, and only 7% of the perpetrators will be strangers. These frightening statistics punctuate the need for better organizational efforts to prevent child sexual abuse. in2vate is proud to have been leading this charge with the Smarter Adults-Safer Children® program for years. Verdict, a legal analysis magazine, states that the best prevention is a state-of-the-art child sex abuse prevention program. Fred Church Insurance notes that when analyzing incidents of Sexual Abuse and Molestation (SAM), most organizations had procedures in place to prevent abuse, and managers were confident – but the systems failed anyway. Procedures are not enough – a comprehensive sexual abuse prevention program that includes policies, procedures, training materials, and detailed screening and background checks is necessary to prevent SAM occurrences. Additionally, in the unfortunate instance where these occurrences do occur, having detailed screening records, training records, and documentation of all steps will show good faith and best practice efforts and help reduce verdict severity.
Due to over 22 states removing or extending age limits to file sex abuse claims (called revival statues) in the last several years, thousands of new claims have come forward and the standard for judging them has changed as well. Additionally, changes to Title IX have increased liability exposure by making it easier for the accused to bring claims of their own for failing to follow due process. In the six months after New York enacted its revival statute, over 1,400 lawsuits were filed, and several major organizations declared bankruptcy. Such as schools and nonprofits have also faced increased insurance costs, and some have lost coverage for sexual abuse altogether. In California particularly, the law is extremely broad for insurance carriers to defend even with the “merest potential for coverage.”
The market trends show that the frequency and severity of SAM claims have been rising sharply for several years. In addition, there is a proliferation of nuclear verdicts such as the $500m against MSU for the actions of Larry Nassar (whose carrier subsequently was forced to raise its premium so drastically that MSU didn’t renew). These Nuclear Verdicts are seen as Social Inflation, or juries punishing companies and delivering social justice through large verdicts.
One West Coast Pool Manager cited a 53% increase in SAM cases from 2014-2018. SAM occurrences account for 40% of claim losses over $1 million even though SAM claims themselves only account for less than 2% of claims. There were thirty-seven SAM occurrences in this study involving 96 claimants, each of whom received approximately $1.5 million. In 2018, a study of a dozen K-12 schools pools in California showed that 113 of 14,000 claims were SAM-related yet accounted for 50% or $389 million in damages.
Sexual misconduct was the #8 top risk for higher education in 2019-2020, but it effects all K-12 education as well. The Los Angeles Unified School District spent over $300m on SAM claim settlements alone between 2012-2016 – not including legal fees. The excess and umbrella markets have now seen a loss of over $500m in capacity in 2020 with the largest coverage tower available dropping from $1.2b to $500-600m. The average rate increase for one large insurance carrier was 30%, but some high-risk clients saw triple-digit increases for renewals. With increasing retentions, underwriting limits, and attachment points the market for SAM insurance has hardened considerably.
One general rule that is of importance for risk management of SAM claims is: “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. “From a practical standpoint, sexual assault allegations potentially expose an organization to negligent supervision claims. That is, victims typically claim they would not have been injured by a perpetrator if the organization had properly supervised the situation”. This tells us that a key component of mitigating claims severity and possibly being able to exclude coverage for a claim lies in proof of proper hiring and supervision – a good SAM prevention program.