February 23, 2012
A significant problem faced by organizations offering services to youth, elderly, and the developmentally disabled is that individuals who sexually abuse are not easily identified. The majority of perpetrators involved in these incidents at nonprofit organizations have no prior abuse convictions. Also, they are often highly regarded by their peers and the families of those they are secretly abusing.
Data collected from 227 closed claims files over the past 22 years by the Nonprofits Insurance Alliance Group in Santa Cruz, California (a group with 11,000 members nationwide) reveals some interesting insights: 47% of sexual abuse claims involve agency staff members who have abused clients — mostly children, but also the elderly and mentally disabled; 22% of claims arise from client vs. client contacts — virtually all minors; foster home abuse claims account for another 11%; and claims against agency volunteers account for 4%.
The data indicates that most claims are without merit, but can be expensive to defend and costly when there has been actual abuse. Almost 75% of the claims closed with no indemnity paid and at an average defense cost of $4,000. The remaining 25% averaged almost $130,000 in paid indemnity and $40,000 in defense expenses. Those costs can put a serious dent in the budget of a nonprofit agency not insured for this special exposure.
The standard commercial general liability policy excludes coverage for an intentional act, a central requirement for conviction of sexual abuse. In most states, that exclusion extends to the agency responsible for supervision of the perpetrator. In recent years, many carriers have added specific exclusions for any claim of sexual misconduct, and also added those exclusions to Directors and Officers policies. That leaves agencies and their boards without protection for claims that they negligently hired, trained or supervised their staff or volunteers, negligently certified foster homes, or provided inadequate oversight to the activities of clients in their care.