Claims Updates: Molestation and PFAS
The panel on emerging risks, hosted by Marcus Doran, Senior Director of Commutations, Reinsurance Finance at AIG, focused on molestation and PFA claims.
Amy Kallal of Mound, Cotton, Wollan & Greengrass updated the delegates on recent developments concerning molestation claims. To date, there have been a number of different sources of molestation claims, including claims against clergy of all denominations, the Boy Scouts of America, and media and sports organizations, as well as claims associated with the #METOO movement. Social inflation and the reviver statutes that a number of states have passed regarding statutes of limitations on sexual assault claims have served as the principal drivers for the increased number of molestation claims being reported.
Ms. Kallal pointed out that a number of policies are implicated by molestation claims, including GL, D&O, and EPL policies. Coverage issues under GL policies may include trigger, number of occurrences, and allocation. With regard to trigger, the majority view in the courts is that each policy in which an incident of abuse occurred is triggered. The minority view is the “first encounter” rule, wherein only the policy in effect at the time of the first instance of abuse is triggered. Aggregation clauses must also be taken into account when determining liability under a GL policy, for example, whether claims should be aggregated on a per abuser or per victim basis.
Ms. Kallal also noted that courts continue to grapple with the question of what constitutes the “occurrence” for a molestation claim. Certain exclusions or endorsements, such as the intentional acts exclusion, may impact coverage for molestation claims under a GL policy. Applicability of the exclusion may depend upon the theory of liability asserted against the employer of the abuser, i.e., vicarious liability or negligent supervision.
Case law concerning the number of occurrences under the policy also continues to develop and is jurisdiction-dependent. Litigants have advanced several different theories, including that the occurrence is the negligent hiring or supervision of the abuser or that each injury to a victim is a separate occurrence. While resolution of this issue is policy-dependent, the courts appear to be coalescing around the concept of one occurrence per victim per policy period. A minority of courts have held that each act of abuse constitutes a separate occurrence.
Finally, Ms. Kallal advised that there have been two principal reinsurance coverage issues related to molestation claims. First, there is the question whether and how ceding companies may be entitled to aggregate the claims. Second, there is the issue of the allocation of molestation claims to underlying policies.
Sin Senh, President and CEO of Roux, and Bill Mandia of Stradley Ronon Stevens & Young educated the delegates on PFAs, a term for a group of chemicals used in water-resistant clothing, stain-resistant furniture, nonstick cookware and other consumer products. Mr. Senh apprised the attendees that five hours before the presentation, the FDA announced its intent to regulate PFAs. Mr. Senh noted that PFAs have been around since the 1930s, with production beginning to slow in the early 2000s because of scientific concerns. Mr. Senh pointed out that only three or four compounds have been studied, while hundreds exist. PFAs are an extremely stable compound that tend to linger and can accumulate in the foodstream. All of this makes PFAs difficult to investigate, as there is an extensive amount of cross contamination. The cost of remediation is high, and claims will likely be costly.
Following Mr. Senh’s presentation on the science, Mr. Mandia discussed coverage issues. He first noted that certain responding policies may pre-date pollution exclusions. In addition, the EPA is just beginning a regulatory process for PFAs. PFOA and PFOS are subject to CERCLA, and the EPA has begun to develop standards for water supply.
Mr. Mandia then discussed current litigation over PFAs and stated that there are three drivers: (1) states or municipalities suing manufacturers or users of PFAs; (2) private entities, such as water utilities suing those same defendants; and (3) individuals, both on behalf of themselves and on behalf of a class, suing those same defendants. The case law on what constitutes a bodily injury or what constitutes “contamination” is in its incipient stages. Coverage issues regarding PFA claims are similar to those found in other long-tail exposures and include trigger, number of occurrences, impairment or exhaustion of aggregate limits, non-cumulation, allocation, applicability of pollution exclusions, known loss issues, issues concerning the existence of a prior settlement or policy buyback, and lost or missing policies.
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