Many educators’ legal liability (ELL) insurance carriers are amending their policy to specifically exclude acts of sexual/physical abuse and molestation. Underwriters contend that the ELL policy form was never designed to cover claims alleging bodily injury, and that the additional exclusion merely clarifies the policy’s intent that such events are more appropriately covered by a school’s general liability policy. However, such exclusionary wording could have unintended consequences for your ELL policy.

Many educators’ legal liability (ELL) insurance carriers are amending their policy to specifically exclude acts of sexual/physical abuse and molestation. Underwriters contend that the ELL policy form was never designed to cover claims alleging bodily injury, and that the additional exclusion merely clarifies the policy’s intent that such events are more appropriately covered by a school’s general liability policy. However, such exclusionary wording could have unintended consequences for your ELL policy.

Typical ELL Policy Language:

“The carrier is not responsible for claims based upon, arising out of or attributable to, sexual abuse, sexual molestation, and any sexual harassment that is not alleged in any employment practices act.”

The Claim:

ABC Academy discovers that one of their long-time and well-respected faculty members has been implicated in a series of abuse cases involving Academy students over several years. While the Academy immediately takes action against the faculty member, there remain questions in the community about how this issue could have gone undetected by Academy executives for such a long period of time. Shortly thereafter, a group of alumni file a lawsuit alleging the Academy’s (and the Board of Directors) failure to govern appropriately has irreversibly damaged the school’s reputation. The alumni allege the value of an Academy degree, which was once thought to be a gateway to a successful career path, is now substantially diminished. The alumni seek monetary relief for the perceived financial harm they have suffered.

The Issue:

Other potential claim scenarios include a derivative action filed against individual directors and officers, a claim by a donor alleging their charitable gift was given under false pretenses and even creditors that are negatively impacted by a decreased school bond rating (due to the damaged reputation of the school). Although the Academy’s ELL carrier previously stated that the exclusion was meant to clarify the standard bodily injury exclusion, the broad exclusion language might be interpreted in a way that would deny the above claim in which a financial loss (and not bodily injury) is alleged. After all, according to the carrier’s claims adjuster, the claim was “arising out of” a sexual abuse case and, therefore, no coverage should apply. Perhaps even more importantly, if the ELL carrier asserts the exclusion at the onset of the claim there may be significant defense expenses that remain uncovered.

What Should You Do?:

The most obvious response is to negotiate the removal of this exclusion entirely. This type of exclusion seemingly singles out a specific group of clients (educational institutions) and adds restrictions that are not found in management liability programs for many other types of organizations or industries. Since the application of the exclusion can easily surpass the intent, removing the exclusion is the best course of action.

Failing that, amending the exclusion language to utilize a “for” preamble in lieu of the “based upon, arising out of or attributed to” preamble should limit the scope of the exclusion so that only claims directly linked to sexual misconduct would not be covered.

In addition, purchasing your general liability and ELL policy from the same carrier can avoid disputes between carriers as to which policy applies. While this may not be sufficient to cover every claim related to abuse and molestation, it should be easier to find coverage for defense costs, and damages when one carrier cannot contend that the other is responsible for any payments.

If a suitable compromise cannot be reached and the above claim being uncovered is of particular concern, a competitive remarketing of your ELL policy is recommended with bid instructions that any submission should be free of such exclusion. ELL policies without this exclusion are available in the marketplace.

Conclusion:

While claims made against a school alleging bodily injury from sexual abuse are traditionally covered by a school’s general liability policy, accepting exclusionary language on your educators’ legal liability policy could have unintended consequences on coverage. However, there are several steps your school can take to limit the potential for an uncovered claim to arise.