Most institutions carry liability insurance to protect themselves against the bad acts of employees working in an official capacity, or misusing their facilities – and Penn State is no exception. But the recent, lurid child sex abuse scandal embroiling the Penn State football program and former coach Jerry Sandusky isn’t a typical “slip-and-fall” case.
If you’re not much on sports, here are the basics: Pennsylvania State University assistant football coach Jerry Sandusky has been convicted on 45 counts of sexual molestation, both in his home and in the Penn State football program’s restroom and shower facilities.
The criminal trial phase is over, although as of this writing, Sandusky has yet to be sentenced. The civil liability side of the case is just warming up.
Technically, Sandusky retired from the coaching staff in 1999, though he was granted “emeritus” status after he retired, and allowed free use of the University of Pennsylvania athletic facilities for years while he served as director of Second Mile, the charity he founded as an outreach to disadvantaged youth. But he was using the charity to gain access to victims the whole time, some of whom he raped in the locker and shower room himself.
The ultimate financial liability the University will face is unclear. The current Penn State University president, Rodney Erickson, claims that the University did carry sufficient insurance coverage to cover anticipated claims. And normally liability insurance would cover civil suits from actions on campus.
But the Sandusky case is different – and the carrier is balking.
At issue: According to an investigative report conducted by the former Director of the FBI Louis Freeh, the University was first alerted to the possibility that Sandusky was a sexual predator as early as 1998. If that weren’t enough, another football coach, Mike McQueary, walked in on Sandusky apparently sodomizing a child in the locker room/shower facility in 2001. He informed the Nittany Lions’ head coach Joe Paterno, and Paterno notified the school Administration – which did nothing.
The school took no action to restrict Sandusky’s access to the facilities or to children on campus. Instead, the Free Report concluded that Paterno and the University administration, including the former director of the Campus Police, “repeatedly concealed critical facts relating to Sandusky’s child abuse from authorities, the University’s Board of Trustees, the Penn State community, and the public at large.”
Most of the boys whom Sandusky was convicted of victimizing were assaulted after 2001, after the Administration had an opportunity to bring Sandusky’s depraved acts on campus to a halt – and this ix the crux of the matter from a liability insurance perspective:
In concealing the reports of Sandusky’s sexual depredations on campus, the University concealed information from insurance company underwriters that was material – indeed, central – to their underwriting decision. As a result, lawyers representing the Pennsylvania Manufacturers Association Insurance company filed suit in court seeking to limit their liability to pay damages in this case.
The company also pointed to specific contractual provisions: Their contracts with the University had been amended in the early 1990s to specifically exclude coverage for sexual harassment and assault claims. The company also asserts that such claims are routinely excluded in Pennsylvania as a “matter of public policy.”
Obviously, there’s no foolproof way to screen out, a priori, every employee or associate who may commit a bad act. If there were, everyone would do so. But anyone with staff or who offers access to facilities to the public should review coverage and assess possible gaps in their coverage: Most policies will honor claims for inadvertent acts, but not for deliberate ones – and Penn State’s carriers will point to the University administration’s cover-up of the Sandusky crimes as a deliberate act. Indeed, at least two Penn State administration members have been indicted for perjury.
Further, many policies specifically exclude claims of abuse or molestation. If this is the case with your liability insurance coverage, you may need to buy a separate abuse and molestation insurance policy.
In the case of athletic programs, some companies that issue general liability programs to sports facilities and their directors and boards will underwrite additional coverage. But the carriers typically vary by industry.
This is a high-risk area for insurance companies, so when you apply for coverage, be prepared to show that you’re taking some risk mitigation measures of your own, such as requiring background checks for staff members, implementation of a “buddy system,” ensuring adequate supervision and reducing or eliminating “sleepover” events.
Penn State’s liability exposure does not necessarily extend to all of Sandusky’s victims – just the ones abused on campus or at or as a result of officially sanctioned university events. Some estimates, based on the cases already known to the public, peg the University’s exposure to about $100 million. Their endowment could cover that, easily, though it will hurt future programs and scholarships. However, other people may yet come forward with liability claims, and that will take time to work out.
More broadly, we are already seeing a tightenting of the market – liability premiums and molestation and abuse premiums have climbed following the public exposure of the case. But the insurance risk pool should also expand as a result of increased public awareness of the importance of abuse and molestation insurance – especially as distinct from a general liability policy.