In my last column (“Penn State vs. Insurer: Who Will Cover Sex-Abuse Court Costs?” in the April 30 issue of NU), I discussed various General Liability coverage issues that have arisen in the battle Penn State is waging with insurer PMA over liability insurance for the first lawsuit (John Doe A) in the Jerry Sandusky sexual-abuse case. Other arguments undoubtedly will arise as more suits are filed by other alleged victims.
While the university has purchased its GL insurance from PMA continuously since the 1950s, its Educators Legal Liability (ELL) coverage reportedly is written by United Educators. The ELL policy is similar to a Directors & Officers (D&O) policy but addresses exposures unique to educators and educational institutions.
According to its marketing materials, United Educators is a non-assessable reciprocal association owned and governed by 1,200 independent schools, public school districts, public school pools, colleges, universities and education associations. The company bills itself as “Education’s Own” insurer.
While Penn State is in a heated public debate with PMA over defense costs and coverage on its GL policy, there has been no public debate with United Educators. It is probable that United Educators will work with Penn State on the potential issues instead of first seeking coverage asylum in the courts.
United Educators provides not only typical “wrongful act” coverage for the university’s trustees, officers and employees, but it also provides coverage for allegations such as failure to educate and failure to supervise. While the ELL policy is broader than a D&O policy, it still has coverage limitations and is known to adhere to strict underwriting discipline. The group’s claims and litigation managers will have to carefully consider several potential barriers to payments for defense and indemnification in the Penn State situation.
(Before I begin it is important to qualify these comments: I do not have a copy of Penn State’s ELL policy, and the sample United Educators’ coverage form I do have may not be the edition used for Penn State. As a result, this discussion by necessity is general in nature.)
The first potential barrier is the question of the coverage application(s) that the university submitted over the years. Applications for D&O and ELL insurance typically include warranties under which the insureds attest that the information in the application is complete and correct. Misrepresentations that materially affect the underwriting of the risk can result in claim denials or total rescission of the policy. It is probable that possible application-warranty statements will be reviewed.
The ELL form I have includes an exclusion for knowledge of prior circumstances. It states that circumstances that reasonably might lead to a claim, which any officer knew about prior to the date of first coverage, are excluded. There is an exception for claims arising from such circumstances if the claim is made more than three years after the date of first coverage. Application of this exclusion would depend upon the dates when officers knew about the alleged abusive situations and the timing of the John Doe A claim.
The form also includes an exclusion for loss related to or arising out of “bodily injury, death, mental injury or emotional distress…from any cause including but not limited to assault and battery, sexual harassment, rape, molestation or any negligence such as negligent hiring, training, retention, supervision or referral of employees…” Serious scrutiny of this type of exclusion will be necessary if it appears on the ELL policies being reviewed for coverage.
While Pennsylvania has permitted insurers to pay for punitive damages arising from vicarious liability, the ELL form I have limits payment for punitive or multiplied damages and penalties to civil penalties that can be measured by actual damage. This is limited to $1 million.
The other potential minefield is similar to that already being argued with PMA: How long has United Educators provided the ELL insurance, and is the current policy applicable or will a previous policy apply? This issue raises questions that are similar to those being argued with PMA on the GL side.
Only time will tell whether any or all of these issues arise—as well as what else comes to light. Coverage also may be available on other policies, such as an Umbrella, but no others have been publicly discussed.
Regardless of public opinion on what should happen here, the courts undoubtedly will be occupied in the coming months unraveling and interpreting the insurance coverage that the university is trying to tap for defense and indemnification.