New state laws encouraging child sex-abuse victims to come forward are expected to spur a wave of lawsuits against insurance companies.
Twenty-two states and Washington, D.C., have laws going into effect this year that extend or eliminate the statute of limitations for child sex-abuse claims against alleged abusers or the institutions they were affiliated with, according to advocacy group Child USA.
Most of these institutions, such as churches or schools, are expected to try to use liability insurance to cover some of the cost of defending against these lawsuits and paying potential damages.
But almost every aspect of these insurance contracts could end up under dispute. In some cases, it might be difficult to find a contract at all.
“The insurance litigation wave is just beginning,” said
Robert Chesler,
an attorney at Anderson Kill, which represents insurance policyholders.
The legal disputes underscore the complexity of litigating decades-old claims and the uncertainty about how much money will ultimately be available to compensate victims.
The total potential insurance cost is difficult to estimate, but analysts say it could reach billions of dollars. Dioceses in California and Minnesota have reached multimillion-dollar settlements in past cases, including a record $660 million settlement between the Archdiocese of Los Angeles and about 500 plaintiffs in 2007.
Insurance companies have historically paid between 20% and 80% of settlements between churches and victims, said research firm Dowling & Partners in a July note to clients.
New York’s Child Victims Act, which was signed into law earlier this year, opened a one-year window on Aug. 14 for victims to sue their abusers and affiliated institutions regardless of when the alleged abuse occurred.
Hundreds of lawsuits have been filed in the state in recent weeks against churches and other organizations.
The Diocese of Rochester filed for bankruptcy Sept. 12, citing 46 new lawsuits that were filed against the diocese since the window opened. In its bankruptcy filing, the diocese said it might have insurance coverage for some of the sex-abuse claims. The diocese declined to comment.
Insurers set aside reserves to pay claims based on what they expect to pay in future years or decades. For many liability-insurance policies sold to churches or other institutions in past decades, insurers might have estimated they wouldn’t incur future sex-abuse claims on those policies once the statutes of limitation passed. Now, they need to recalculate their reserves based on the new laws.
Chubb Ltd.
, Travelers Cos. and
Selective Insurance Group Inc.
have all said on conference calls this year that they have increased their reserves because of potential exposure to sex-abuse claims.
Many institutions and insurers don’t hold on to decades-old policy documents, and it can be difficult to track down details. Sometimes “insurance archaeologists” are hired to hunt down evidence of old policies.
“There are all kinds of policies out there that are being examined to see whether coverage exists,” said
Dan Kohane,
senior member at Hurwitz & Fine PC in Buffalo, N.Y., who represents insurers in coverage disputes.
If the policyholder can’t immediately locate an insurance policy, the policyholder might not notify the insurer of a claim or a lawsuit within the time required by the policy, which could also jeopardize coverage, he said.
Insurers and policyholders could also spar over whether a policyholder knew about alleged abuse and ignored it. Liability insurance policies typically cover negligent acts but not intentional ones.
CNA Financial Corp.
sued the Diocese of Buffalo earlier this month, asking a court to rule that insurance policies one of its companies may have sold to the diocese in the 1970s shouldn’t apply to recent child-abuse claims. The diocese is accused of “a decadeslong pattern of covering up allegations of abuse,” the lawsuit says.
CNA declined to comment. The diocese said it “intends to take all necessary steps to enforce the insurance contracts.”
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The Roman Catholic Archdiocese of New York sued more than 30 insurance companies in June, anticipating that the firms would deny coverage. These companies all provided insurance to the archdiocese at some point starting in 1954, according to the lawsuit.
The archdiocese alerted one of its insurers, a Chubb subsidiary, about a sexual-abuse lawsuit earlier this year, and Chubb said it wouldn’t cover the claim, according to the lawsuit.
“We are confident and we are expecting that our insurers will meet their financial obligations under the policies, as they have now promised they will,” the archdiocese said. Chubb declined to comment.
Another key question is whether all claims about a single alleged abuser should fall under one insurance claim, or whether each victim or each instance of abuse should count as a separate “occurrence” under an insurance policy.
The distinction can be significant. Many policies have coverage limits and deductibles that apply per occurrence. The more occurrences there are, the more an insurer and a policyholder might ultimately have to pay.
Write to Nicole Friedman at nicole.friedman@wsj.com and Ian Lovett at Ian.Lovett@wsj.com
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