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A.M. BEST'S MONTHLY INSURANCE MAGAZINE



Last Word
On High Alert

A spate of high-profile sexual misconduct incidents at U.S. colleges and universities is shining a spotlight on the need for insurance and risk management.
  • Lori Chordas
  • August 2018
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Michigan State is reportedly on the hook for a $500 million settlement with more than 300 women who claimed former Michigan State and USA Gymnastics physician Larry Nassar sexually molested them. Nassar is currently serving a 40-to-175-year sentence.

The university was accused of ignoring or dismissing complaints about the ex-physician dating as far back as the 1990s.

In 2012, Penn State University paid $109 million to settle claims by victims who accused the university’s former football coach Jerry Sandusky of molesting several boys he met through his charity, The Second Mile.

Reports of sexual molestation and harassment at higher education institutions continue to grab headlines.

Earlier this year, more than 50 women alleged sexual abuse against a former campus doctor at the University of Southern California.

Incidents like those have college and university administrators and boards on high alert. They are formulating or re-evaluating their enterprisewide risk management and insurance plans to prevent and respond to sexual molestation and harassment allegations.

Insurers, too, are asking questions.

“They’re wondering whether they are handling this exposure correctly, if they’re asking the right questions, if the risk is more significant than they anticipated and are we pricing the risk correctly. At this stage, I don’t believe we know the answers to those questions,” said John McLaughlin, managing director in Arthur J. Gallagher’s higher education practice.

Typically, claims related to bodily injury from any form of sexual molestation or harassment are covered under a school’s general liability policy, he said. Most policies are subject to aggregate limits.

Some carriers opt to exclude the risk. Others offer individual policies as a separate cover. “There are no ISO forms that deal specifically with this risk, so carriers have to frame their coverage to address the issue,” McLaughlin said.

United Educators is a liability insurance and risk management services firm for schools, colleges and universities. Its excess general liability policy offers limits of up to $40 million, along with worldwide coverage and access to a supplemental crisis response program available as part of a package. GLX can also provide defense and indemnity costs generated by sexual assault and abuse litigation, said Bryan Elie, vice president of underwriting at United Educators.

Earlier this year, USA Gymnastics, the national governing body for gymnastics, sued seven insurers for breach of contract. The organization alleged that the insurers hadn’t provided a full defense or fully reimbursed USAG for defense costs in 10 lawsuits filed by women who said Nassar sexually abused them. According to the lawsuit, USAG had purchased multiple policies among several lines, including comprehensive general liability, directors and officers, and umbrella insurance policies.

One of the biggest risks to education institutions is a hit to their reputation. “I’m not sure of any insurance product that specifically covers a college or university’s reputation,” Elie said.

Good risk management processes can help identify where potential exposures exist, especially those involving minors, said Constance Neary, vice president of risk management at United Educators.

“Colleges and universities often don’t even realize how many programs they have that involve minors—summer camps, music programs, science camps,” she said. “That’s why they need to continuously scan the landscape for potential problems. They also need to develop procedures to encourage reporting of misconduct and effectively respond and adjudicate allegations. In doing so, institutions increase the likelihood that victims are comfortable coming forward with a complaint,” she said.

Lori Chordas is a senior associate editor. She can be reached at lori.chordas@ambest.com.

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