Spotlight on Sexual Abuse

A significant problem faced by organizations offering services to youth, elderly, and the developmentally disabled is that individuals who sexually abuse are not easily identified. The majority of perpetrators involved in these incidents at nonprofit organizations have no prior abuse convictions. Also, they are often highly regarded by their peers and the families of those they are secretly abusing.|

Chuck Hewitt

February 23, 2012

The Risk A significant problem faced by organizations offering services to youth, elderly, and the developmentally disabled is that individuals who sexually abuse are not easily identified. The majority of perpetrators involved in these incidents at nonprofit organizations have no prior abuse convictions. Also, they are often highly regarded by their peers and the families of those they are secretly abusing. Data collected from 227 closed claims files over the past 22 years by the Nonprofits Insurance Alliance Group in Santa Cruz, California (a group with 11,000 members nationwide) reveals some interesting insights: 47% of sexual abuse claims involve agency staff members who have abused clients — mostly children, but also the elderly and mentally disabled; 22% of claims arise from client vs. client contacts — virtually all minors; foster home abuse claims account for another 11%; and claims against agency volunteers account for 4%. The data indicates that most claims are without merit, but can be expensive to defend and costly when there has been actual abuse. Almost 75% of the claims closed with no indemnity paid and at an average defense cost of $4,000. The remaining 25% averaged almost $130,000 in paid indemnity and $40,000 in defense expenses. Those costs can put a serious dent in the budget of a nonprofit agency not insured for this special exposure. Insurance Considerations The standard commercial general liability policy excludes coverage for an intentional act, a central requirement for conviction of sexual abuse. In most states, that exclusion extends to the agency responsible for supervision of the perpetrator. In recent years, many carriers have added specific exclusions for any claim of sexual misconduct, and also added those exclusions to Directors and Officers policies. That leaves agencies and their boards without protection for claims that they negligently hired, trained or supervised their staff or volunteers, negligently certified foster homes, or provided inadequate oversight to the activities of clients in their care. Insurance policies that do provide coverage for improper sexual conduct are written on either an occurrence or claims made basis and it is important to understand the difference. Occurrence based policies provide coverage for claims that occur during the policy period, but not before or after. This can be a problem if a claim is presented that occurred many years before the policy went into effect. An occurrence based policy, subject to certain statutes, allows for claims to be reported after the policy expires. Claims made policies, on the other hand, provide protection for any claim presented during the policy period. However, if a claims made policy is not renewed or is discontinued, claims reported after the policy expires may not be covered. Your broker or insurance professional should be consulted about buying an extended reporting period endorsement to address this important issue. Another solution is to carry an occurrence based policy with a prior wrongful acts endorsement. What To Do A nonprofit can also protect itself by establishing an effective screening process for staff and volunteers, and by training them specifically on their responsibilities regarding sexual misconduct. Many of the claims discussed above that were closed with no indemnity paid were the result of the agency's ability to effectively document its screening and training processes and establish that it could not have known of the perpetrator's proclivities.

Chuck Hewitt

Chuck Hewitt is a veteran claims executive with over 40 years of management experience at both national and regional carriers. He is currently the Claims Technical Director of the Nonprofits Insurance Alliance Group in Santa Cruz, California.