One area of focus during the contract proposal process is ensuring that contractors carry appropriate insurance coverage prior to commencing work.
Organizations want to protect themselves in the event of wrongdoing by a contractor who is either working on their behalf or on their premises. As a result they will mandate the type and level of insurance coverage they require contractors to hold to ensure they are adequately protected in the event of a claim. During the vetting process, evidence of coverage will likely be required, usually via certificates of insurance.
Many of these insurance coverages will be familiar to contractors such as commercial general liability (CGL) and workers’ compensation, and providing evidence is not usually a challenge.
However, organizations that hire contractors who work with children and vulnerable adults (or have them on their premises regularly) are becoming increasingly sensitive to their potential exposure to allegations of sexual abuse, whether founded or unfounded. Many of these allegations arise from ancillary services provided by contractors and vendors, such as sports programs, camps, catering or maintenance services and transportation.
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As such those with a potential exposure are taking steps to protect themselves by requiring contractors to provide evidence of affirmative (often standalone) sexual molestation liability (SML) coverage.
Even where the potential for interaction with minors or vulnerable adults on-site is minimal, such as provision of on-site maintenance, contractors may be required to provide evidence of SML coverage as a condition of being awarded the contract.
Coverage is available as a stand-alone product from specialist insurers or can be included as part of a CGL policy.
The challenge for contractors who hold a CGL policy is that some carriers, faced with changing legislation and increased claims frequency, are excluding sexual molestation from their policy. New legislation, such as New York’s Child Victims Act, have expanded the ways victims can use the legal system to address allegations of sexual abuse. Many other states have passed similar legislation or are giving consideration to the same.
Furthermore, court awards and settlements have increased in recent years. An individual/single victim of abuse reached a record $8m settlement with the Los Angeles Archdiocese as a result of abuse suffered while attending a school run by the Archdiocese.
Faced with increased frequency and severity, many general carriers have reduced their appetite for SML and have taken steps to specifically exclude coverage or have introduced a sublimit for SML which may fall short of the contractual requirement.
Even where a CGL policy does not specifically exclude or limit coverage, the policy may be silent in respect of SML coverage. Many CGL policies were not designed to provide coverage for this type of exposure and may not specifically affirm or exclude cover. In either case a contractor could find themselves unable to provide evidence of affirmative SML coverage as required.
This means that for many contractors stand-alone SML coverage is becoming a business necessity.
Stand-alone SML insurance provides affirmative coverage for allegations of abuse against the policyholder and those employed by them. However it is important to stress that claims can arise not only from allegations of abuse perpetrated by employees of the insured, but can also involve allegations of failure to supervise where inappropriate conduct has occurred between two minors or vulnerable adults.
With that in mind, stand-alone coverage can extend to cover claims arising from a failure to supervise, negligent employment and failure to investigate allegations. Contractors and vendors looking to work with organizations should review their policy with their insurance broker to ensure they have broad, affirmative coverage in place which would satisfy the increased demands of those entities and respond in the event of a claim.
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