Sexual assault and molestation remain one of the most challenging coverages for insurance carriers. It’s easy to remember notorious examples like the Penn State and Michigan State scandals in education. However, these well-publicized claims are not the only factors leading to enhanced underwriter scrutiny, higher premiums and capacity issues. Reviver statutes and social inflation are two factors that are contributing to this challenging market cycle.
In recent years, states across the country have enacted “reviver statutes,” which essentially extends or removes the statute of limitations for victims of abuse to come forward and issue a claim against those responsible or culpable. While this is undoubtedly a step towards justice and an advancement for our society as a whole, it also creates a complicated situation for schools and insurance carriers that may be hit with unexpected verdicts and massive settlements due to lawsuits/claims once deemed obsolete.
The topic of reviver statutes claims is a difficult one to address from an insurance standpoint. When a claim is brought to light decades later, there are several issues regarding coverage. A policy written 40 years ago is obsolete, and documents/witnesses will be undoubtedly hard to come by. The sheer amount of cases filed is also an issue. In California, after a previous one-year statute of limitations was extended for allegations involving the Boy Scouts of America, nearly 400 lawsuits were filed on the first day.
Social inflation is defined as societal trends responsible for increased litigation and juries becoming more plaintiff-friendly, awarding much higher verdicts at a much faster rate than in the past. Social inflation has contributed to the rising cost of insurance for all industries, including education. The sharp increase in average rate increases on Umbrella/Excess policies and Directors & Officers Liability is primarily due to social inflation and the rise in “nuclear verdicts.”
Understand Your Coverage – Past and Present
The key to being ready for potential legislation spurred by reviver statutes is preparation, especially in the education industry. A recent article from United Educators highlights steps schools can take to be prepared for this litigation.
Claims of sexual abuse may involve coverage that expired years ago. This highlights the need to gain a clear picture of your institution’s past coverage, including tracking down old paper policies, which can even include policies issued through carriers or brokers that no longer exist. Because of this, it may take some time to gain a full sense of coverage.
One solution may be to employ an insurance archeologist – a professional skilled in historic insurance reconstruction and coverage analysis.
Regarding future coverage, social inflation and reviver statutes wreak havoc on insurance renewals for abuse and molestation. Insurance companies are reducing their loss capacity by lowering the limits of liability they are willing to offer in umbrella/excess policies while the cost of abuse coverage is increasing. Ensure you allow sufficient time for underwriting in advance of your next renewal. This will be especially important if you and your broker are forced to find additional capacity or pricing is not in line with your budget.
It is also important to remain informed on reviver statutes in your institution’s state. Staying abreast of laws, legislation and changes that may affect your school is crucial.
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Talk to your trusted RCM&D advisor today if you have any questions about your current coverage.