Even if you could buy a sexual abuse insurance policy with the highest limits available from across the insurance marketplace, with the broadest terms and conditions available anywhere in the market, your resulting coverage would still struggle to cover even 10% of the consequences of sexual abuse to you or your organization.
Understanding the effectiveness of sexual abuse insurance matters because, for many youth and vulnerable adult-serving organizations, their insurance premium has become the dominant cost of their entire sexual abuse risk management system. Any dominant cost needs regular review. When the cost applies to one tool in a risk management system, and that tool only addresses 10% of the consequences and impacts none of the causes of the risk the overall system is designed to manage, the tool and its cost need particularly close review.
“You,” in terms of who the consequences impact, is anyone working for a youth or vulnerable adult-serving organization with any involvement in or responsibility for sexual abuse prevention. This likely includes you if you are on the board, work in legal, financial, HR, or risk management, or are involved in a particular aspect of your organization’s risk management system. “You” may also work with such an organization, and you become aware of possible sexual abuse.
You may reasonably ask, “Why is insurance so limited?” The short answer is that insurance doesn’t deal with causes because it is an ‘after the event’ tool. It can only deal with some financial consequences of sexual abuse to organizations, not all of the financial consequences, and it doesn’t address any of the non-financial consequences. To many people, these other consequences are the most damaging after the harms sustained by a victim.
So, what are these uninsurable consequences, how do they add up to 90% of the consequences of failing to prevent sexual abuse, and why does all this matter to you?
Financial
There are two forms of uninsured financial consequences and one increasingly underinsured financial consequence.
- The first uninsured financial consequence is the immediate impact on revenues an allegation of sexual abuse can have on an organization. Some organizations aren’t able to survive even this initial hit.
- The second is the long-term impact on revenues and costs organizations suffer as they look to restore their reputation after the disclosure of the abuse or their response to it. For example, according to Pew Research in 2019, the Catholic Church still suffers from materially reduced donations because many Catholics believe sexual abuse remains a current problem for their Church because of how it has handled sexual abuse over the long term.
The increasingly underinsured financial consequence reflects the rising scale of sexual abuse settlements and jury awards compared to the available insurance. For context, an 8-year-old was recently awarded $485,000,000 for sexual abuse in foster care in 2018. This settlement level is exceptional and is more than 100 times the limit available to most organizations trying to insure sexual abuse.
Even adjusting for less exceptional awards of between $25,000,000 and $40,000,000 and the limits organizations seek, there are still gaps between the sought-for and the available coverage.
Disruption
If sexual abuse is alleged or discovered at an organization, the disruption caused to the organization’s activities and the lives of those closely involved with the allegation – not including the victim or the perpetrator – can be turned upside down.
Twenty years ago, it was unlikely anyone not in a very senior management position in the organization and its lawyers would have had any idea about such a situation.
Today, however, law enforcement is likely to investigate most allegations. An investigation can last six months but, in extreme cases, it can last two years. The disruption to an organization’s activities is likely to be more significant at the beginning of the investigation than later. However, the lives of the individuals waiting until the end of the investigation to hear if they are going to face criminal charges for failing to prevent, notice, or report sexual abuse are anything but peaceful.
After law enforcement has completed its work, particularly if that has ended in a conviction of the perpetrator, a civil case will most likely follow. Civil actions involving sexual abuse are rarely over quickly, and though most are settled before going to court, they can still last five years.
For the individuals working for youth and vulnerable adult-serving organizations where sexual abuse happens, up to seven years of disrupted lives and careers is a significant consequence that insurance can do nothing about. It can pay for an incident response team to be parachuted in to minimize the immediate disruption, though a well-thought-out incident response plan, well-implemented by the people inside the organization, is more effective.
The only way to try to limit the longer-term disruption and ensure a favorable outcome from the criminal investigation and civil litigation for the organization and the individuals who tried to protect minors and vulnerable adults is to be able to demonstrate that the organization was conscientious in trying to protect them. For that, the organization needs to perform the activities that enable it to produce extended and detailed records of having taken a systematic approach to maintaining comprehensive child protection.
As discussed elsewhere, the safe environment most organizations rely on to provide child protection doesn’t deliver detailed records, a systematic approach, or comprehensive child protection.
Reputation
Twenty years ago, almost every allegation or suspicion of sexual abuse was hidden behind a non-disclosure agreement. As a result, no details of the abuse or the names of anyone involved ever saw the light of day.
Today, because of the likelihood of a law enforcement investigation, it is unlikely that it will be possible to keep any names other than the victim’s quiet. Then, if there is a civil action, the plaintiff’s attorney will look to portray the people who, according to them, failed to protect a victim as lazy, stupid, incompetent, uncaring, and negligent, preferably grossly negligent. The impact on a reputation or even a career can be substantial.
Once again, insurance isn’t able to address these consequences. It can clean the fan after it has been hit, but it can’t stop anything from hitting the fan.
Just as with disruption, the only way to limit the reputation damage is for the organization to perform the activities that enable it to produce extended and detailed records of a systematic approach to comprehensive child protection.
Legal
I am not qualified to give legal advice, and I am not going to discuss damage, but from my lay perspective, liability arises in a couple of ways.
- An organization is held to the duty of care to follow rules around child protection, such as those included in the “safe environment” approach. However, it fails to follow the rules or does so in a limited or otherwise deficient way. The result is a successful allegation of negligence.
- An organization is held to a higher standard than a safe environment. In this case, its actual control activities are compared with all the many things that are potentially available to a well-run youth or vulnerable adult-serving organization to protect children. To the extent there is a gap between the two sets of activities, the result may be a successful allegation of one or more forms of negligence. Whether there is a gap or not, a plaintiff’s attorney will look to conflate what are alleged to be the organization’s legal failures with what the attorney will paint as its moral failure to use all the controls it could have used to protect children. Given that a plaintiff’s attorney achieves the most favorable outcome for their client by engendering anger in a jury, the less scope an organization gives an attorney to arouse moral indignation, the better.
Once again, insurance cannot help with these legal consequences. Though it can pay for a defense to allegations around potential legal liabilities, it cannot go back and change the action or inaction that gave rise to the potential liability. For that, an organization needs to perform the activities that enable it to produce extended and detailed records of a systematic approach to comprehensive child protection to do so.
How are these consequences 90% of the consequences?
The four consequences outlined above are the main consequences of failing to prevent sexual abuse. They are not all your organization’s sexual abuse risks.
The following quantification is based on discussions with people dealing with or who have dealt with a sexual abuse incident or claim. I also acknowledge that circumstances and facts make a difference. However, based on mine and others’ experience, it seems reasonable to assume each of the four consequences is broadly equally harmful. This would mean insurance was effective for 25% of the consequences of sexual abuse because it only deals directly with financial consequences. You may have a different opinion; for some, the financial consequences are paramount and for others for example, reputation is all.
The 25% is then further reduced in several ways.
- Insurance only deals with costs related to legal liability. It doesn’t deal with the financial consequences of disruption in the short term or damaged reputation over the long term. Assuming these three are also equally harmful, which will depend on your organization’s context, insurance is only worth 8.3%.
- There is a growing gap between how much insurance is available in the marketplace and how high legal liability can be. This gap has grown rapidly as settlements and jury awards have risen exponentially over the last ten years, and coverage availability has fallen in response. Absent a dramatic shift in the marketplace, this gap will continue to grow, and insurance will become less, not more, effective.
- I will not even try to quantify the third form of restriction because it would involve delving into the differences between occurrence and claims made insurance and how each responds to sexual abuse in the past. Suffice it to say that both forms of coverage have limiting aspects on recoveries, and depending on coverage details and the facts, the limiting “aspects” can be absolute.
Because one restriction reduces the impact of insurance below 10% and other conditions likely reduce it further, 10% seems like a generous suggestion of how effective insurance is as a sexual abuse risk management tool.
Why all this matters to you
It’s not new that insurance focuses only on the financial consequences of failing to prevent a risk from crystallizing. What’s unusual about sexual abuse risk is that:
- With most risks, the core risk management toolset addresses both causes and consequences broadly. However, sexual abuse risk is most commonly managed with the ‘safe environment,’ which focuses exclusively on causes and in a deliberately limited way. Further, for many organizations, insurance is their only tool for addressing consequences.
- The non-financial consequences of failing to prevent sexual abuse are so much more extreme than for most other risks because of sexual abuse’s core nature.
- Insurance has become a disproportionate cost compared to other sexual abuse risk management costs.
So, it’s the combination of the limited toolset, the extreme consequences of failure, and the high and rising cost of sexual abuse insurance that makes the difference with sexual abuse. This combination means that organizations with limited resources or a fixed sexual abuse risk management budget have less to invest in a balanced sexual abuse risk management system.
I am not suggesting your organization should stop buying sexual abuse insurance. Far from it. Rather, you should consider the balance of tools you use to try to prevent sexual abuse and address the main consequences of failing to prevent it. Given the inherent focus of insurance on just the financial consequences, its limitations compared to the full scope of consequences need to be understood. Then, you should consider the relative importance of all the consequences to you and your organization and address the gaps.
The issue is that many youth and vulnerable adult-serving organizations now have to spend up to 90% of their entire sexual abuse risk management budget on insurance. I am suggesting organizations should consider their risk management system’s balance and therefore consider if their organization is investing enough on:
- preventing, identifying, and responding to suspicions of sexual abuse,
- protecting their organization from the financial consequences of failing to prevent sexual abuse, and
- protecting their organization and the people they ask to protect children from the non-financial consequences of failing to prevent sexual abuse.
Organizations must look after themselves, of course, but not at the expense of the potential victims they are trying to protect or the people they ask to do the protecting.
