Insurance coverage

New York employers must take action to secure insurance coverage for next wave of sexual abuse | Kelley Drye & Warren LLP

On Nov. 24, 2022, New York will open a one-year “look-back” window that will revive old sexual abuse claims that were previously barred by applicable statutes and allow victims to pursue action against responsible parties, regardless of or when the abuse occurred. The lookback window is the result of the recently enacted Adult Surviving Act (“ASA”). The ASA is an analogue of New York’s Child Victims Act (“CVA”) of 2019. The CVA revived claims by victims who below eighteen years old at the time of the abuse. In contrast, the ASA applies to victims who were eighteen years old or older when the abuse occurred.

Like the CVA, the ASA revives otherwise barred claims based on theories of intentional remedy and negligence. This means that companies that previously employed abusers can be sued and held liable under theories of vicarious liability – such as negligent hiring, training and retention – even when the employer had no no direct knowledge or involvement in the abuse.

Nearly 11,000 lawsuits were filed under the CVA during its relaunch window, initially set at one year and then extended to two. A large percentage of these lawsuits were against organizations that had significant involvement with children, such as churches, youth organizations and foster care agencies. Even aside from the substantial damages resulting from such lawsuits, the financial impact of simply defending against such lawsuits has been staggering, and many organizations have been pushed into bankruptcy.

The ASA promises to have an equally broad impact on a much wider range of organizations and industries, such as entertainment, hospitality, healthcare, or any other industry that involves a lot of adult interaction. As the #MeToo movement has shown, many women who were previously reluctant to speak out about their abuse are now ready to come forward. Such claims – which may have been barred by statutes of limitations – will become actionable on November 24.

The impact of the ASA cannot be overstated: a variety of longstanding claims based on allegations of harassment or other abuse are now actionable, and employers must anticipate a flood of new claims based on old behaviors. It is therefore essential that New York employers understand the far-reaching effect of this law and take steps now to prepare for claims allowed by the ASA.

Insurance may cover revised abuse claims

Insurance may provide coverage for revived abuse claims, but policyholders will likely need to look to older policies that were in effect when the alleged abuse occurred. Indeed, the policies most likely to cover sexual abuse claims are General Liability (or CGL) policies, which typically cover injuries that occur within a one-year to from the date of issue of the policy. Thus, a lawsuit alleging that an employee sexually assaulted a client in 1979 could be covered under the CGL policy that the employer purchased that year.

Also, coverage is more likely for much older claims, dating back to the 1980s or earlier. From the mid-1980s, sexual abuse exclusions became commonplace in CGL policies. Previously, CGL policies generally did not have such exclusions. It is well established under New York law that standard CGL policy language of this era generally covers vicarious liability claims against employers based on sexual abuse.

In contrast, event-based CGL policies, “claims made” policies – such as Directors and Officers (“D&O”) or Employment Practices Liability Insurance (“EPLI”) apply to new claims that are made (or lawsuits that are filed) during the policy period, regardless of when the conduct occurred. So, if coverage is available under these policies, it will be under policies that are currently in force, or that will be in force during the ASA’s one-year relaunch window.

Although modern CGL policies and claims-based policies are much more likely to contain sexual abuse exclusions than older CGL policies, the possibility of coverage should not be discounted until the policy has been carefully examined and compared with the allegations in the trial.

The challenges of locating historical insurance policies

Employers should take immediate action to identify and locate their old insurance policies that may respond to new ASA claims alleging abuse in the distant past. All insurance policies require the policyholder to notify the insurer of new claims in a timely manner. Late notice may be grounds for the insurer to deny coverage altogether. When a new lawsuit alleges abuse that occurred decades earlier, the policyholder cannot give notice if they do not know which insurer was insuring them at the time. In the context of CVA, many insurers refused to excuse late notices even when the policyholder quickly undertook a search to identify the correct insurer.

Locating historical insurance policies can be difficult. Old fonts can be stored in storage closets or offsite storage facilities in poorly organized file systems. In many cases, a tedious manual review of old records may be required to determine what evidence of coverage is available. Often policies have been lost or destroyed. Some companies have a record retention policy of only six years. When policies are missing, policyholders can take a number of steps to find evidence of historical coverage. Policyholders can contact insurance brokers who have sold their insurance over the years. Brokers often keep records of policies going back years or decades. Additionally, organizations may have been required to provide proof of insurance to municipalities in the past, and such records may be uncovered through Freedom of Information Act (“FOIL”) requests. In some cases, court records from previous personal injury lawsuits against an employer may identify the name of an insurer covering the loss. Even when a complete copy of the insurance policy cannot be found, it is still possible for the policyholder to establish the existence of coverage through the use of extrinsic evidence.

Coverage issues

Just as employers will scramble to secure coverage for the flood of ASA claims that were previously barred by the statute of limitations, insurers will seek to limit their own exposure by fending off claims and bolstering defenses to coverage in the possible.

Employers should not accept coverage denials for cash. Insurance policies should be carefully reviewed to determine the extent of coverage. A preliminary question will be whether the policies cover sexual abuse claims or whether such claims are excluded. In the context of CVA, insurers have raised many other defenses to coverage, even where the policy does not specifically exclude sexual abuse.

Even where the insurer agrees to provide coverage for a lawsuit, many questions may arise as to the extent of that coverage, particularly where the claim involves multiple instances of alleged abuse, or where the allegations span several years and/or several policies. In this situation, policyholders should hire a knowledgeable coverage attorney to navigate these complex issues.

Conclusion

Kelley Drye attorneys have extensive experience defending employers in sexual abuse cases under revival laws such as the CVA and ASA, and helping employers obtain insurance coverage for such claims, including identification of historical insurance policies.

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