Insurance Coverage for Multiple Acts of Sexual Abuse

Background. When church leaders learn that a young child has been sexually molested by an employee or volunteer worker, other victims often emerge. Why? Because pedophiles are both predatory and promiscuous. The existence of multiple victims raises important questions regarding the amount of insurance coverage that is available, as a recent case illustrates.

Facts. In the summer of 1999 a counselor at a YMCA summer youth camp allegedly sexually and physically assaulted six children attending the camp. The parents of the children sued the YMCA for negligent hiring practices. Three of the lawsuits were collectively settled for $6 million, with YMCA’s liability insurer contributing $1 million towards the settlement.

A question arose as to the liability of YMCA’s insurer for the remaining three lawsuits. The YMCA’s insurance policy contained a $2 million “General Aggregate Limit” and a $1 million “Each Occurrence Limit.” However, the policy also included a “Sexual Abuse Occurrence Coverage” endorsement form. This form stated that it modified coverage provided under the general liability coverage form. It defined a “Sexual Abuse Occurrence” as:

The insurer claimed that a single “sexual abuse occurrence” exists regardless of the number of incidents involved; that the policy limit of $1 million for each “occurrence” was exhausted by the $1 million it contributed to the three settled claims; and, that as a result, it had no duty to defend the YMCA in the remaining lawsuits.

The YMCA construed the policy differently. It claimed that a separate new “occurrence” was triggered for each of the six abuse victims and therefore the policy’s $2 million “General Aggregate Limit” had not been exhausted by the insurer’s $1 million contribution toward the three settled claims.

A trial court ruled that the insurer had a continuing duty to defend the YMCA in the remaining lawsuits and that the YMCA was entitled to indemnity in each of the lawsuits subject to the policy’s aggregate $2 million limit. The insurer appealed.

The court’s ruling. The court ruled that the YMCA’s insurance coverage for the six acts of child molestation was limited to $1 million. It noted that under the insurance policy all acts of sexual abuse, including the negligent employment of the perpetrator “shall be deemed and construed as one occurrence which takes place when the first act of sexual molestation or abuse occurs, regardless of the number of persons involved, or the number of incidents or locations involved, or the period of time during which the acts of sexual molestation or abuse took place.” Further, a “Sexual Abuse Occurrence” means “a single act, or multiple, continuous, sporadic, or related acts of sexual molestation or abuse caused by one perpetrator, or by two or more perpetrators acting together.” The court concluded:

The YMCA asserted that the $2 million “General Aggregate Limit” was available because some of the six victims’ injuries constituted “physical” abuse rather than “sexual” abuse and therefore were not subject to the policy’s limits on sexual abuse coverage. It argued that a jury might determine that the type of physical contact that actually occurred was wrongful but not sexual in nature. As a result, the YMCA claimed that any liability on its part for the counselor’s physical assault of the children was covered by the policy, and therefore the insurer had a continuing duty to defend for occurrences that did not involve sexual abuse.

The court noted that the victims’ lawsuit alleged that the children were “physically, sexually, and mentally abused” by the counselor. It concluded that these allegations “suggested the possibility that the children’s injuries may have resulted from physical abuse unassociated with sexual abuse or molestation … thus triggering the insurer’s duty to defend in these lawsuits.”

Relevance to church treasurers. This case contains two important lessons for church leaders.

First, it demonstrates that multiple acts of child abuse by the same perpetrator may constitute a single “occurrence” under a church insurance policy, which has the effect of greatly reducing the amount of money available under the policy to compensate the victims for their injuries. Church officers and directors have a fiduciary duty to understand the terms and limitations of their church’s insurance policies. If your liability policy treats all acts of molestation by the same perpetrator as a single “occurrence,” you need to understand that this will expose the church to a potentially uninsured or underinsured risk. Church leaders should determine what level of coverage they desire in the event of multiple victims, and address ways to achieve additional coverage with their insurance company.

Second, this case demonstrates that limitations in insurance policies should not always be taken at face value. In this case, the policy clearly treated multiple acts of sexual abuse as a single occurrence which had the effect of limiting available coverage to $1 million. However, the YMCA pointed out that the victims’ lawsuit alleged “physical” as well as “sexual” abuse, and that this made the general liability limit of $2 million available. This was a very creative argument that may be relevant to any church that is faced with a lawsuit alleging multiple incidents of child abuse.

This article first appeared in Church Treasurer Alert, August 2006.