`Wrongful sex' claims trip up professionals

A THERAPIST is sued for malpractice after entering into a romantic relationship with a patient. A judge overturns a ruling in a murder case because the attorney representing the accused had a sexual relationship with his client's mother. An information technology consultant, working under contract with a trade school, is sued after having an affair with a student. A coach is accused of negligent supervision when two high-school athletes skip practice and are caught engaging in a sex act with another student in the locker room. Any of these scenarios could be a preview for a titillating sweeps-week episode of a television program, a real-life headline on the evening news, or a risk-manager's nightmare. In certain professions, mixing business with pleasure–or simply being accused of doing so–is increasingly common, and the repercussions can devastate a professional's reputation, career and personal finances.

To help producers and underwriters understand and address the perils of “wrongful sex,” a panel of experts explored the subject last November at the PLUS International Conference held in San Diego, Calif. With the help of moderator Eric J. Sauter, an attorney at Wilson Elsner Moskowitz Edelman & Dicker LLP, they fielded some commonly asked questions about insuring sexual misconduct. The panel included Deborah K. Ropelewski, senior vice-president of Gallagher Healthcare Insurance Services Inc.; Richard J. Robin, executive vice president and chief operation officer of NAS Insurance Services; and Jacqueline M. Melonus, RN, JD, vice president of risk management for Professional Risk Management Services.

Q: What is the basis of the “wrongful sex” risk?

Deborah: What we call “wrongful sex” is any type of sexual misconduct or “undue familiarity” in which a professional engages while carrying out the duties of his or her profession. Most people are familiar with sexual harassment and the types of behaviors it encompasses in the context of employment practices (employer/employee relationships). We use “wrongful sex” in the broader context of any type of professional liability (not EPLI). It may involve a romantic or sexual relationship with a client, patient, vendor or any other third party with whom the professional interacts during the course of business. One psychiatry program's policy defines the term as actual, alleged, attempted or proposed erotic physical contact with either patients (current or former), their family members, members of their households, or someone with whom a patient has or had an affectionate relationship.

Most of the medical professional liability policies that I've seen do not define the term, but their exclusions offer a glimpse at the range of behaviors that could be considered problematic–a sexual act, even if it is consensual; any kind of sexual intimacy or sexual contact; unwelcome physical contact, sexual advances or assault; a request for sexual favors; sexual molestation, abuse or harassment; and verbal or oral statements of a sexually suggestive nature.

Q: Do employment practices policies offer coverage for sex-related claims?

Richard: Employment practices liability insurance protects an insured employer from employees' claims of discrimination, harassment or other wrongful employment conduct. EPLI markets commonly offer third-party coverage, too, which addresses claims of discrimination and sexual harassment brought by any non-employee against an employer. Covered claims include ADA violations, discrimination against customers, and even tenant discrimination by a property manager or property owner. Wrongful-sex claims, on the other hand, relate specifically to relationships between professionals and their clients–exposures not covered by core EPLI policies.

Q: If a business's liability insurance forms contain broad sexual-acts exclusions, is any protection available for claims arising from sexual misconduct?

Eric: Most professional liability insurance policies exclude coverage for intentional acts but not for sexual acts, except for classes with greater exposure in that area, like psychiatrists, other medical professionals or residential treatment facilities. A lawyers policy or an architects policy, for example, is unlikely to specifically exclude sexual misconduct. When such exclusions are present, however, they seek to avoid claims arising out of any kind of sexual act or molestation, sexual assault or battery, or negligent hiring or improper supervision that contributes to sexual misconduct. Sexual-acts coverage and exclusions are subject to interpretation, though. I think most people would agree that rape is a sexual act, but some might try to make a distinction between a sexual act and a criminal act. Plaintiffs attorneys often phrase their complaints to circumvent sexual-acts exclusions, citing related acts of neg- ligence or professional malfeasance to trigger EPL or professional-liability policy provisions.

An exclusion limited to sexual and/ or physical abuse is insufficient because it speaks to only a few of the many types of behaviors that can result in sexual misconduct claims. For instance, suppose two 5-year-olds allegedly engage in some kind of sexual activity. Can a child so young be guilty of the physical or sexual abuse of another child? The laws in most jurisdictions would say no, so the plaintiff would argue that the exclusion does not apply. In one conservative jurisdiction, however, two small boys at a day-care center went into a bathroom and supposedly had some kind of sexual interaction. The boys' parents learned about the incident, filed suit against the day-care center and were awarded $900,000.

Most insurers deny responsibility for defending a perpetrator, but still at issue is whether coverage exists for an insured company or professional organization that employs the accused. Just as insurers don't wish to cover intentional acts, insured entities don't want responsibility for the criminal conduct of others. Two important issues that can affect defendants' likelihood of having such cases dismissed are background checks and foreseeability. In some jurisdictions, statutes require employers to conduct criminal background checks on anyone they hire to work with children or developmentally disabled adults. Such a precaution is wise, and in the event of a claim, it can make or break an employer's defense. A court might also consider whether it was foreseeable that an insured's employee might engage in some kind of improper sexual conduct, and if so, what measures were taken to prevent such conduct. If plaintiff's counsel can establish the defendant's negligent hiring or lack of supervision, a suit may not be subject to summary disposition.

Q: Are broad sexual-acts exclusions effective? Do they adequately protect MPL companies against such claims?

Deborah: First, let's differentiate between a physicians professional liability (PPL) policy and one written for hospitals and other medical facilities (HPL). Most PPL policies contain broad exclusions for sexual misconduct. One exception is a psychiatrists program I am aware of, which does provide indemnity coverage for sexual-misconduct claims that arise from the rendering of professional services, subject to a relatively low sublimit of liability, and also defense costs for the insured physician. Because most claims include allegations regarding the professional services rendered, most PPL policies will end up providing defense coverage (but no indemnity coverage) for the individual insured, at least until the case is adjudicated. A hospital professional-liability policy, on the other hand, is likely to provide coverage–even for allegations of sexual misconduct–but only for the named-insured entity and possibly for other “innocent” insureds, so long as the perpetrator engaged in the offending activity without the knowledge and consent of, and certainly not at the direction of, the named insured (or other insureds).

Q: Can professional-liability underwriters avoid this exposure by offering coverage only to insureds with a strict “no sex” policy?

Jacqueline: Establishing a no-sex or non-fraternization policy is fairly common for some professions, such as health-care and mental-health provid-ers, and is increasingly prevalent in other fields, too. The policies typically acknowledge that a variety of romantic, sexual, protective or even angry feelings can develop between a professional and his or her clients, but prohibit professionals from acting on those feelings. A good non- fraternization policy states that a sexual relationship between a professional and his or her client is unacceptable and the professional is responsible for maintaining appropriate boundaries, even if a client initiates physical intimacy. The policy might define related terms, establish what conduct is appropriate and what is not, outline consequences for failure to adhere to the policy, offer resources for dealing with personal feelings and suggest alternatives to acting on them.

While a non-fraternization policy is an important part of an overall risk-management plan, having one in place does not guarantee freedom from sex-related claims. Such a policy must have support within the organization and should accompany other risk-management measures, including criminal background checks for job applicants, sound hiring practices and adequate employee training and supervision.

The Wall Street Journal reported last year that about 80% of large companies now routinely conduct criminal-background checks to guard against negligent-hiring lawsuits, employee theft and even terrorism. The same article stated that one large retail chain had announced it would soon begin screening all job applicants in its U.S. stores for criminal histories. The company had come under fire, the article said, after two incidents in which employees were accused of sexually assaulting young female shoppers. Both of the accused employees had prior convictions for sex-related offenses.

Q: What should insureds include in their professional-conduct standards?

Jacqueline: Professional-service providers must be clear and careful about their non-fraternization and professional-standards policies. Make sure the standards set forth truly discourage inappropriate behavior, and that the organization and its employees and volunteers can reasonably adhere to them. Also bear in mind that the path to sexual misconduct can be a slippery slope. Some people begin by indulging in suggestive language and then engage in increasingly risky behavior as they gradually lose their sense of where the boundaries lie. Try to impress upon insureds how some seemingly harmless actions–like exchanging gifts with clients or seeing patients one-on-one offsite–can bolster allegations of improper conduct. Including specific examples of prohibited behavior in your policy will alert professionals to the warning signs that someone is crossing the line between professional and personal relationships, and a few cautionary tales can illustrate the dangers of doing so.

Q: Should insureds really worry about facing a wrongful-sex claim? How often are they filed and what are the results?

Eric: This is a growing area in terms of both frequency and severity. Resources are readily available for people who believe they may have a basis for a sexual-abuse claim. One example is www.AdvocateWeb.com, a Web site that is, essentially, a how-to manual for someone who wants to bring a wrongful-sex claim. Its home page states that, “Even one incident can have many victims,” and the site “offers extensive free resources for victims, survivors, and their families, friends, victim advocates and professionals.” The site directs visitors to plaintiffs attorneys, suggests ways to sidestep insurance-policy exclusions, and offers guidance for pleading one's case in court.

Incidents that might have simply raised eyebrows in years past now form the basis for large-payout lawsuits. I read about a situation in which a young, female teacher privately tutored some of her students at her home in the evenings. Apparently, for two 16-year-old male students, the lessons included sex education. Their parents filed suit against the teacher and the school district and reportedly received settlements of $250,000 for each boy. In another case that made headlines on the East Coast, two male high-school athletes who were supposed to be at practice after school were found in the girls' locker room having sex with a female student their own age. The girl's parents have indicated they intend to sue the boys' coach and their school for negligent supervision, among other charges.

Jacqueline: A 2003 court case in Indiana, Thayer vs. OrRico, shows how a professional's sexual relationship with a client can open a Pandora's box of litigation. Cathy Thayer, a plaintiff in the case along with her husband, worked for a number of years for a psychologist and a psychiatrist at their clinic. She asked Dr. OrRico, the psychologist, for advice regarding problems she was having with her children and her marriage. Eventually, Ms. Thayer and Dr. OrRico entered into a sexual relationship while she was still employed at the clinic. She continued to seek and receive advice from him about her marital problems, including her sexual relations with her husband. At one point, Dr. OrRico advised Ms. Thayer to stop taking the anti-depressant medication his partner, the psychiatrist, had prescribed and instead undergo herbal treatments, which Dr. OrRico provided, for her headaches and depression. Shortly after Ms. Thayer resigned from her position at the clinic, Dr. OrRico ended their sexual relationship. Later, she and her husband sued Dr. OrRico for medical malpractice. Dr. OrRico denied having a provider-patient relationship with Ms. Thayer, stating he had offered her advice as a friend rather than as a therapist, had never scheduled appointments with her and had not billed her for his services. A trial court granted summary judgment to Dr. OrRico, stating that the case involved employment matters rather than those of medical malpractice. The Indiana Court of Appeals reversed the ruling, however, finding that elements of a provider-patient relationship did exist because of the nature of the advice Dr. OrRico had rendered. The Thayers now can proceed with the malpractice lawsuit and also are filing claims for sexual discrimination and sexual harassment. In addition, they filed a legal malpractice suit against the attorney whom they originally consulted about their potential claims, alleging that the lawyer failed to take the necessary steps to preserve and prosecute the claims of sexual discrimination and sexual harassment.

Q: I understand that a policy I write may provide a defense for an employer for vicarious liability or negligent supervision, but I'm not securing coverage for rapists and pedophiles, am I?

Richard: From time to time, most markets may find themselves covering claims they never intended to cover, either because wording wasn't clear, clever attorneys found new covered exposures within a policy, or insureds and underwriters differed in their interpretation of the product's intent. To determine whether coverage exists for a certain exposure, consider the same elements as you would for an EPLI, D&O or E&O claim. First, is the incident a covered event? Policies' insuring agreements spell out the types of activities they cover, and criminal proceedings likely will not be one of them. For a civil proceeding, check to see if coverage is available for that specific type of allegation. Third-party EPLI contains a coverage grant for sexual harassment, and allegations of rape, pedophilia and other deviant sexual behavior can be tied into sexual harassment coverage. Second, review the policy exclusions to see to what types of claims the policy will not respond. Finally, remember that a pedophile is not legally a pedophile until a jury determines as much. Entities buy insurance policies because they want and deserve defense coverage in the event they–or their employees or volunteers–are accused of wrong-doing. If a claim results from the actions of a misbehaving employee, or if it's a false allegation, the insured is entitled to a defense, and the insurer has a duty to provide it.

Deborah: Most carriers writing hospital professional liability or facility coverage provide some level of coverage to the named insured and to “innocent” insureds. For instance, a hospital's or facility's professional liability policy protects that facility for its vicarious liability for the acts of others. If a staff member, patient, visitor or vendor allegedly commits a criminal act on the facility's premises and the facility is named in the resulting legal action, coverage applies to the entity, so long as the perpetrator acted without its knowledge or consent or at the direction of the named insured.

Keep in mind, however, that even “innocent” insureds may not be covered or provided a defense if they knew, or should have known, about an instance of sexual abuse and failed to prevent it or stop it. They also may not be covered if they knew, or should have known, that the perpetrator had a history of sexual misconduct, depending on the precise exclusionary wording.

Insureds can secure some level of protection by conducting criminal background checks for all job applicants to avoid inadvertently hiring someone with a history of pedophilia or sexual predation. Also, underwriters can add language to policy exclusions to clarify that no coverage is afforded to an individual alleged to have directly committed a criminal sexual act or molestation. There are also exclusions written to provide coverage to the named insured for defense to adjudication, but they require an individual to reimburse the company for defense costs if he or she is found guilty.

Q: If two consenting adults, such as a lawyer and his or her client, enter into a sexual relationship, what's the harm?

Jacqueline: We're all sexual beings, and sexual feelings are not inherently right or wrong. It's likely that at some time in a professional's career, he or she may be attracted to a client or patient and wish to have a romantic relationship with that person. In that case, it's important to consider the context. Professionals have a certain degree of authority, influence and power in their professional relationships, whereas the client or patient relies on the knowledge and expertise of that professional. Because the attorney-client relationship, to use your example, is an unequal one, sexual activity between the two parties breaches the attorney's fiduciary role. The same principle applies to a provider-patient relationship and the provider's duty to act in the patient's best interest.

In February 2002, The American Bar Association added to its rules of professional conduct a provision addressing the conflict of interest created when attorneys have sex with their clients. Rule 1.8 states that a lawyer shall not have a sexual relationship with a client unless a consensual sexual relationship already existed between them when the lawyer-client relationship commenced. The related comments add that even in such a situation, the lawyer must carefully consider whether his or her ability to represent the client might be materially limited by the physical relationship.

States differ in their laws and statutes governing the attorney-client relationship. Even in states that do not explicitly offer any guidelines, plaintiffs have successfully filed civil cases against attorneys, and disciplinary action has been taken by the bar against attorneys for sexually exploiting their relationships with clients. Even if a professional and a client both consent to sexual activity, it still can be alleged that the professional used his or her power or influence to the detriment of the client.

In one case, a psychiatrist indulged in a sexual relationship with a patient, and the two eventually married. The marriage didn't last long, and the patient-turned-spouse not only filed for divorce, but also filed a malpractice claim against the doctor.

Eric: In another case, a man in his early 20s was charged with murder. His lawyer counseled him to plead guilty, throw himself on the mercy of the court and try to get the most lenient sentence possible. The young man's mother urged him to do the same. He followed their advice and received a sentence of 25-years-to-life. The ruling was subsequently overturned and the defendant was granted a new trial after the judge hearing the case learned that the man's mother and his attorney had been romantically involved during his initial trial. The appellate court found that the relationship created an opportunity for the attorney to exert undue influence over the defendant's mother, who in turn influenced her son, and that the son should have been made aware of the relationship before he entered his plea. The client now will undoubtedly sue the lawyer for legal malpractice. Keep in mind that the attorney had sex not with his client, but with someone who was related to, and in a position to influence, the client.

Q: What can be done to minimize the risks of wrongful sex for professional-liability insureds?

Jacqueline: First, you can increase awareness about the problems inherent in the types of activities discussed here. I find that professionals often are unaware that, if they face a professional-liability lawsuit, they risk not only disciplinary action by their licensing board, but also possible criminal penalties, sanctions by professional organizations and loss of employment. Second, advise insureds to avoid placing themselves in situations that may look incriminating if allegations of sexual impropriety are made against them, or that may lead to increasingly inappropriate behavior. Even if they don't actually enter into a sexual relationship with a patient or client, professionals should take care to remain within well-defined boundaries for professional conduct. I ask insureds if they take extra care with their appearance when they're going to meet with a certain client, if they discuss personal matters unrelated to current treatment or the business at hand, or if they meet with clients or patients offsite or after hours when no one else is around. All of these behaviors are warning signs that a professional-client relationship has breached, or is likely to breach, the boundaries of acceptable professional conduct. Finally, offer real-life examples of cases in which professionals have had, or have been accused of having, improper sexual contact with their clients or patients, and talk about the fall-out from such actions.

Q: Do any insurance products offer protection against sexual-misconduct claims?

Richard: Several stand-alone products are available, and some programs are willing to endorse a sublimit to a professional policy. Such products are sold to entities and professionals with the more obvious exposures–social service and health-care providers serving children, the elderly and the disabled. The market for sexual-misconduct liability stand-alone products has been rather tight lately because of the molestation crisis in the Catholic Church, but coverage can be arranged for sufficient premium.

For the less-obvious classes, employment-practices third-party coverage and limited discrimination coverage are the only stand-alone products readily available. I think it's a matter of supply and demand. Liability policies for such professionals as lawyers, architects and engineers do not yet have across-the-board exclusions for wrongful sex, so those professionals tend not to actively seek coverage for it. Once they do, however, carriers undoubtedly will be motivated to begin offering coverage for this exposure.