Schools, religious organizations, and similar institutions (think childcare providers, summer camps, and any other businesses or nonprofits that provide services to children historically) now have less than a month to brace against an oncoming flood of claims under New York’s Child Victims Act. Although insurance typically covers revived claims under the NY Child Victims Act and similar laws, policyholders need a comprehensive approach to securing coverage. This post identifies some of the key issues that policyholders should consider to secure coverage.
The Child Victims Act revives claims for childhood sexual abuse or molestation that might otherwise be barred by statutes of limitation. N.Y. C.P.L.R. 214-g (McKinney 2019). Specifically, the Act creates a one-year window for claimants to file claims against their alleged abusers. Id. The statute went into effect on February 14, 2019 and created a mandatory six-month waiting period in which claimants may not file (presumably, to give defendants time to prepare their defense). Id. That six-month moratorium lifts on Wednesday, August 14, 2019—or in a little less than a month. See id. Claimants will then have a full year to file any such revived claims, or until August 14, 2020. See id.
The clock is thus ticking and time is almost up. To this end, here is a brief list of suggested steps to help prepare for the coming wave of claims:
1. Search for, Locate, and Compile Relevant Insurance Policies
Most schools and similar organizations facing legacy claims have General Liability (“GL”) policies going back many years, if not decades. These GL policies provide coverage for bodily injury taking place within the policy period. These policies can provide two tremendous benefits to organizations facing claims under the Child Victims Act: defense coverage and indemnity coverage. GL policies typically have a “duty to defend,” requiring the insurance company to defend against any potentially covered claims asserting bodily injury against the insured. Also known as “litigation coverage,” this duty to defend can provide vital coverage for insureds, as lawsuits may drag on for several years and cost thousands of dollars in attorneys’ fees.
GL policies also provide indemnity coverage, meaning that if the claimant goes to trial and wins a verdict against the insured, the insurance company will have a legal obligation to pay for the judgment. Likewise, this indemnity coverage also covers settlements with claimants seeking damages for bodily injury. This is important because many cases will not go to trial.
The applicable GL policies are those in place when the alleged bodily injury occurred. Individuals filing revived claims under the Child Victims Act may now be fully grown adults alleging sexual abuse or molestation taking place many years ago, in the 1960s, 1970s, 1980s, and/or 1990s (or even earlier). These policies may have been issued long before the widespread use of computers or the existence of the Internet, so insureds may have to comb through paper files and other hardcopy sources. Even if the actual policies themselves have been lost, insureds should search for letters, certificates of insurance, or other documents that refer to legacy GL policies. Using secondary sources such as these, insureds may be able to prove that they had coverage, even if the actual policies have been lost.
2. Review Additional Types of Coverage
Depending on the institution, other kinds of entities facing revived claims under the Act may also have Directors & Officers (“D&O”), Employment Practices (“EPL”) and/or Errors & Omissions (“E&O”) policies. D&O policies cover claims made during the policy period against a company’s directors and officers, typically for a “Wrongful Act.” Private company D&O policies also provide entity coverage for the alleged “wrongful acts” of business itself. EPL coverage may also be implicated for claims alleging wrongful retention and EPL coverage for institutions is typically quite broad. By contrast, E&O insurance — also known as Professional Liability insurance — covers claims for professional errors and omissions. For institutions specializing in education, these additional kinds of policies may also provide coverage.
3. Provide Notice
After finding their legacy policies (or secondary evidence thereof), insureds should provide notice to their insurance companies. Many insurance policies contain a Notice of Claim or similar provision requiring the insured to provide written notice of any “claim” (often defined to include both an actual lawsuit and a written demand for monetary damages) “as soon as practicable.” In addition, some policies also require notice of an “occurrence” likely to give rise to a later claim. Although the law with respect to notice is often complex, and depending on applicable law, late notice may not be problematic, the best practice is for policyholders to provide notice under applicable insurance policies.
Schools, religious organizations, and other institutions providing services to children may have already received letters or emails from claimants alleging sexual abuse or molestation. These communications may qualify as “claims” within the meaning of their policies, so insureds should report them to their insurers as well as any actual lawsuits filed on or after August 14. If the claimants provide details of their alleged abuse (including the years in which it occurred), insureds can also anticipate which policies will likely be impacted.
4. Anticipate Likely Insurer Defenses
Depending on the size of the exposure, the insurers will likely try and find ways to limit and/or deny coverage. For GL policies, insurers may argue that there has not been an “occurrence,”meaning an accident, because the alleged conduct was intentional. This so-called defense has no merit for institutions, as no institution intends to harm children, and claims against institutions are most always negligence-based (such as failure to take action, failure to warn, negligent supervision, etc.).
Some GL policies may also have exclusions for sexual abuse or molestation, but these exclusions were developed and used only in recent years. The key issue here is for policyholders to find and pursue coverage under older policies which do not contain any such exclusion. Alternatively, even if a policy contains an exclusion, depending on the specific language, it may not apply.
Depending on the policy period, the insurer(s) may also try and disclaim coverage by claiming that another insurer is on the hook for the claimant’s alleged injuries. This is more of a delay tactic than a basis for denial, but it can be frustrating to policyholders when an insurer is bound to defend and indemnify, and the only thing holding it back is its idea that some other insurer should share in payment.
To this end, it’s helpful to understand how allocation works regarding coverage for so-called “long-tail” claims taking place over several policy periods. Courts use tend to apply one of two approaches to determine how to apportion liability across multiple policy periods: the “all sums” approach and proration. Keyspan Gas E. Corp. v. Munich Reins. Am., Inc., 31 N.Y.3d 51, 58 (N.Y. 2018). The “all sums” approach allows the insured to collect its total liability under any policy in effect during the periods of the alleged harm or injury, up to the policy limits. Id.
The “all sums” allocation approach is akin to “joint and several liability” and thus places the burden on the selected insurer to seek contribution from the insurers that issued the other policies. In re Viking Pump, Inc., 27 N.Y.3d 244, 255 (N.Y. 2016).
By contrast, under pro rata allocation, each insurer’s liability is limited to the sums incurred by the insured during the policy period, meaning that each insurance policy is allocated a “pro rata” share of the total loss for the portion of the loss occurring during its policy period. Keyspan Gas, 31 N.Y.3d at 58. In other words, pro rata shares are often calculated based on each insurer’s “time on the risk”—a fractional amount corresponding to the duration of the coverage provided by each insurer in relation to the total loss. Id. New York has not adopted a strict all sums or pro rata allocation rule. Instead, the particular language of the relevant insurance policy will govern the method of allocation. Id.; Viking Pump, 27 N.Y.3d at 257. For example, the Court of Appeals of New York has held that “all sums” allocation is appropriate for policies containing non-cumulation and prior insurance provisions. Viking Pump, 27 N.Y.3d at 264.
Regardless of the defenses that the insurers raise, insureds should review their coverage response(s) carefully and refuse to simply take “no” for an answer. With these kinds of claims, coverage denials are common, but rarely valid. Hiring a coverage attorney is oftentimes the only way policyholders can achieve justice.
In closing, a storm is coming on August 14. Businesses and nonprofits are likely to face revived claims under New York’s Child Victims Act. Insurance carriers have been preparing for some time to limit liability at the expense of their policyholders, and most have a game plan to do so. Although insurance implications can be multifaceted, policyholders should not be dissuaded from pursuing coverage. If done correctly, coverage can be secured. Policyholders must act now to batten down their insurance hatches and line up coverage.