Opening the Door
Insurers are concerned as states are changing or reconsidering laws allowing child sex abuse victims to sue.
- Timothy Darragh
- September 2019
BIG ANNOUNCEMENT: Pennsylvania Attorney General Josh Shapiro speaks at a press conference in 2018, calling for the statute of limitations to be re-opened for victims of childhood sexual abuse.
Photo Credit:AP Photo/Marc Levy
- What’s Happening: Recent news reports are shining a light on cases of sexual abuse of children.
- The Fallout: In state after state, lawmakers are reconsidering laws that barred victims from suing, and instead are opening the possibility of new lawsuits for abuses that occurred decades ago.
- The Upshot: Organizations and their insurers may be responsible for potentially huge new claims they may not be prepared to cover.
The explosive 2018 grand jury report detailing sexual abuse of children by hundreds of priests in Pennsylvania tore open old wounds for some victims and created a healing environment for others.
It also sent an ominous message to churches, schools, other organizations that serve children and the general liability insurers that cover those groups: Get ready to pay.
After the report revealed more than 300 priests had abused an estimated 1,000 youths over the years in six dioceses across Pennsylvania, church leaders faced with a public relations nightmare could no longer hide behind the state's statute of limitations. The law prohibits childhood abuse victims from filing civil suits past the age of 30, an age long before many victims came to terms with their abuse.
In each of the six dioceses, the church established settlement funds outside the court system that are funded with savings, proceeds from the sale of assets and insurance payouts—sums many insurers likely had not figured on paying.
But while Pennsylvania may have garnered the biggest headlines, a possibly greater fallout from the grand jury report is reaching across the country. In state after state, lawmakers are reconsidering laws that barred victims from suing, and instead are opening the possibility of new lawsuits for abuses that occurred decades ago.
In state after state, lawmakers are reconsidering laws that barred victims from suing. “It’s kind of a game changer. Insurers’ actuaries will need to think about how they will be accounting for the financial consequences resulting from this legislation.”
There is, of course, no comparison between the decades of solitary suffering some abuse victims have endured and the financial losses sustained by policyholders and their insurers.
Still, a combination of extraordinary events has created a unique moment in which dozens of states are considering or moving to reopen a long-closed door to civil litigation for abuse survivors. Those events include the grand jury report, scandals involving abusive doctors such as Larry Nassar at Michigan State University and the sexual assault allegations against movie mogul Harvey Weinstein.
Consider: Eighteen states and the District of Columbia have new laws this year giving childhood sex abuse victims decades more time to file civil lawsuits, according to Child USA, a victim advocacy group. Five of them also are allowing victims whose cases had been time-barred to reopen a “window” on their statutes of limitation, it said. Two of those states are heavily Catholic New York and New Jersey, which are opening windows on Aug. 14 and Dec. 1, respectively.
In all, more than three dozen states saw statute of limitation reform bills introduced this year, Child USA said.
“This is a really active moment,” said Marci Hamilton, the organization's chief executive officer.
Lawmakers, she said, are coming to understand that childhood sex abuse is wrapped in shame and confusion, and often cannot be acknowledged by victims until much later in life.
“It's just unlike any other crime,” Hamilton said, saying victims generally begin to face their abuse in their 50s.
While some of the statute of limitations bills failed, supporters of the measures come back again, as in the case of Pennsylvania, where the senate majority leader last year blocked a reform bill that had bipartisan support in the House. A new proposal calls for amending the state constitution and has again passed the House.
The upshot for the organizations and their insurers is that they will be responsible for potentially huge new claims they may not be prepared to cover.
“That's moving the goal line completely, and it was likely done to increase the pool of insurance funds that these plaintiffs would be able to draw from,” said Greg Irons, Aspen Insurance senior vice president, casualty claims. “It's kind of a game changer. Insurers' actuaries will need to think about how they will be accounting for the financial consequences resulting from this legislation.”
“I think there are a lot of carriers that should worry about that,” said Pamela Davis, president and chief executive officer of the Nonprofits Insurance Alliance.
It's not just the Catholic Church and its insurers at risk, Davis said. Scouts BSA, formerly the Boy Scouts of America, is facing the threat of bankruptcy as it battles in courts with insurers resisting claims that they are responsible for covering settlements with hundreds of former scouts.
Experience has shown that when states seek to open windows on their statutes of limitation, also called reviver bills, the financial impact can be significant.
Minnesota lawmakers opened a three-year window for victims beginning in 2013 and four Catholic dioceses filed or are planning to file for bankruptcy as a result.
According to a report issued by Catholic bishops in June, insurers paid $30 million of the costs related to allegations of abuse from July 1, 2017 to June 30, 2018 for the entire United States.
But in recent months, insurers for the rural Minnesota diocese of New Ulm tentatively settled its bankruptcy case by paying almost as much, $26 million, to victims of child sex abuse there.
The Archdiocese of St. Paul and Minneapolis fought its insurers over coverage for three years until it reached a $210 million bankruptcy settlement last year. Insurers in that case were liable for $170 million of the $210 settlement, or 80%, the archdiocese said.
It's impossible to know how much settlements and lawsuits have cost the church's insurers over recent decades. According to the website bishop-accountability.org, from 1986 through 2011, a lowball estimate of settlements with victims was more than $3 billion.
Even where reviver laws are not adopted, dozens of states are considering or have enacted laws giving victims more time to decide whether to sue.
Take, for example, Tennessee. There, under its former law, a civil suit based on child sexual abuse could not be filed after the individual reached age 25. In certain cases, the injured person had to offer “admissible and credible evidence corroborating the claim,” according to a summary of the state's new statute of limitations law.
Gov. Bill Lee signed an expansion law earlier this year, so as of July 1, Tennesseans can sue up to age 48, it said. In the alternative, individuals who “discover” their abuse as adults have three years from that time to file suit, it said.
The measure also removes the former law's requirement for corroborating evidence.
In another example, Washington lawmakers this year eliminated the statute of limitations for the most serious sex crimes against children, and extended limits for older victims to as much as 20 years.
The pending claims put insurers in a delicate position of arguing the fairness of having to pay out claims for which they have not been reserving, while being respectful of victims.
“The horrors of child abuse greatly outweigh insurance fiscal solvency and soundness issues,” said Sam Marshall, president and chief executive officer of the Pennsylvania Insurance Federation. “Nonetheless, those are issues that need to be addressed.”
The federation supports victim compensation funds that can quickly pay negotiated claims handled by a third-party administrator, a process being done in states including Pennsylvania, New Jersey, Colorado and California, Marshall said.
Allowing “retroactive liability,” Marshall said, without having collected the premiums to pay on the claims is “a recipe in the insurance world for fiscal instability. That's not fair to our policyholders, claimants, anybody.”
An effective justice system also holds those responsible for bad behavior accountable, said Robert Gordon, senior vice president, policy development and research for the American Property Casualty Insurance Association. Litigating cases now, when some alleged perpetrators might be long dead, isn't going to hold anyone accountable, Gordon said.
“What we're trying to avoid is retroactive changes that don't hold people accountable and essentially try to transfer the burden to other parties,” he said.
Insurers are understandably reticent to speak publicly about the issue. Officials at Catholic Mutual Group, the National Catholic Risk Retention Group, the National Association of Mutual Insurance Companies and others declined to comment for this story.
Travelers also declined to discuss the matter, outside of reporting in its first quarter earnings report that it was pumping up reserves to cover pre-2009 claims, following the passage of New York's reviver legislation in February.
The company's business segment's first-quarter income fell due in part to $21 million of unfavorable net prior-year reserve development compared with net favorable prior-year development of $66 million, it reported.
New York’s dioceses have settlement funds that bypass the courts, but also look to insurers to pay on claims they cannot verify. “How do companies reserve for that much uncertainty?”
Travelers would have reported a net favorable reserve development but for the adoption of the reviver law, Chief Financial Officer Dan Frey said on the earnings call. Executives at CNA and Chubb also reported possible impacts from revived claims.
The exposure of certain insurers covering churches and schools in states like New York is a concern, said AM Best Senior Financial Analyst Vicky Riggs. In June, AM Best downgraded its Long-Term Issuer Credit Rating to “a” from “a+” for New York Schools Insurance Reciprocal, an insurer that only serves schools in New York state, because of the passage of the reviver law.
“There are hundreds of thousands of teachers that are active and retired and even if only a few committed abuses against children years ago, the law now opens the door for a surge in claims activity and potentially costly litigation,” she said.
“The one-year lookback is specifically problematic because victims of any age going back 50 years can seek damages against alleged abusers—and they could be deceased.”
In addition, New York's dioceses have settlement funds that bypass the courts, but also look to insurers to pay on claims they cannot verify, she said. The New York Archdiocese alone reported that it has paid out $65 million as of April to settlement participants.
“How do companies reserve for that much uncertainty?” Riggs said.
The archdiocese now is in court with 30 insurers, demanding they cover claims in settlement funds and lawsuits that will arise while its “window” is open to long-ago victims.
Hamilton says the insurance industry has been “the primary barrier” to reopening statutes of limitation, adding that when it's happened, institutions like the church and its insurers took a hit, but didn't close their doors. California opened a window in 2003 and victims filed about 1,150 claims, she said.
“We're not talking about an avalanche of claims,” Hamilton said. “There is a lot of sky-is-falling rhetoric coming from the insurance industry.”
APCIA's Gordon said the insurance industry has seen bigger threats to its financial health but is concerned about the next scandal that opens the doors to unforeseen claims on insurance reserves.
“This doesn't rise to the level of Superfund or asbestos or 9/11, but it is a significant threat and has precedential implications,” he said. “Insurance really only works if you have a legal system that provides a reasonable amount of consistency and predictability.”
Without that, he said, “That's going to severely undermine the insurance industry.”