Boy Scouts of America filed for voluntary Chapter 11 bankruptcy Feb. 28 in the U.S. Bankruptcy Court for the District of Delaware, citing an influx of childhood sexual abuse lawsuits—indeed hundreds have been filed to date in various federal and state courts, with well over a thousand more anticipated.
The direct factor contributing to the sudden increase of these lawsuits is legislation recently enacted by many states allowing previously time-barred child sexual abuse claims to go forward, i.e., revival statutes, usually entitled “Child Victims Act.”
In 2019, 14 jurisdictions alone amended their civil statute of limitations (SOL) for child sexual abuse claims. Among which, eight jurisdictions enacted revival statutes allowing previously time-barred claims: New York, the District of Columbia, Montana, New Jersey, Arizona, Vermont, Rhode Island, and North Carolina.
Additionally, Alabama has passed new law moderately enlarging civil SOL for sex abuse claims, although the retroactive application on claims previously time-barred is currently uncertain. Pennsylvania has also decided to extend civil SOL for sexual abuse claims by 25 years, but has yet to vote on whether to apply the new SOL retroactively, and/or to open a two-year window, for time-barred claims.
On the other hand, Tennessee, Texas, Connecticut, and Illinois have enlarged their civil SOL for child sexual abuse claims, but chose not to apply the new law retroactively to revive time-barred claims.
Time-barred claims can be revived many ways. New York, Montana, and New Jersey allow claimants of all time-barred claims to commence civil lawsuits during a limited time window (one and two years, respectively). Vermont has abolished the civil SOL for child sexual abuse claims and applies the new law retroactively to revive all previously time-barred claims without a deadline for commencing lawsuits.
The District of Columbia, Arizona, and North Carolina have opted for a hybrid approach—enlarging the SOL, but allowing limited retroactive application to revive only relatively recent time-barred claims. Rhode Island, on the other hand, has enlarged the civil SOL, but allows retroactive application to revive time-barred claims as against perpetrators only, not other defendants, i.e., the “deep pockets” that the plaintiffs’ attorneys typically pursue on theories of negligent hiring, retention, supervision, etc.
‘Deep Pocket’ Defendants Affect Insurers
However, for the vast majority of states, the ability to name non-perpetrator “deep pocket” entities as defendants in civil lawsuits is what is now affecting insurers that issued commercial general liability (CGL) insurance and professional liability (E&O) insurance to them.
CGL insurance is “occurrence” based coverage, providing tail coverage for liability arising out of events allegedly occurring during the policy period, even if lawsuits are commenced long after the policy period. Underwriters calculate risks based on the existing SOL(s) and set premiums accordingly.
To retroactively enlarge the SOL effectively increases the insurers’ exposure beyond what they had initially agreed to assume. The impact could be severe as to those insureds with substantial exposure to child sexual abuse claims, such as the Boy Scouts, Catholic dioceses, daycare centers, and any other facilities that oversaw operations involving minors.
Evolving Case Law
Furthermore, judicial interpretation of what constitutes an “occurrence” has evolved over time. Older decisions typically held that sexual abuse injuries were not accidental/”occurrences,” e.g., the “operative act” test, and therefore not covered under CGL insurance even where the insureds are non-perpetrators sued in the theories of negligence.
More modern cases generally find the opposite through judicial expansion, e.g., the “point of view of the insured” test. Similarly, judicial expansion is seen with respect to E&O insurance by broadened interpretation of the term “professional incident.”
In response to the evolving case law, insurers started to include sexual abuse liability exclusion endorsements on their CGL & E&O insurance policies, while allowing the insureds options to purchase specific coverage for sexual abuse claims under a separate coverage form.
Reviving older claims means that older policies (that do not contain such sexual abuse exclusion endorsements) may now be interpreted under the modern case law (requiring coverage under CGL and E&O insurance for sexual abuse claims unless specifically excluded), thereby creating greater exposures than anticipated, decades later.
Record Retention Periods
To that end, revival statutes can create issues if the lawsuits are based on events well past beyond the insurance companies’ record retention period. For example, 11 N.Y.C.R.R. § 243.2(b)(1) requires that insurers maintain records for each policy until six calendar years after the expiration date of the policy.
While record retention periods of this range are typically sufficient (except where the SOL is tolled for extended periods of time), reviving old claims beyond record retention periods creates a potential problem in that the insurers may no longer have the records as to whether a given policy was issued, and if so, the extent of coverage thereunder.
In most jurisdictions, the insured bears the burden of proving both the existence and the terms of the policy. The insurer has no duty to provide coverage if the insured cannot meet its burden of proof.
However, the insured is not required to prove terms of the policy by absolute certainty, but only by either “clear and convincing” or “preponderance” of evidence, and may prove the terms of a lost policy by circumstantial evidence.
Although 2019 was the year for revival statutes, revival statutes had been enacted previously, albeit in a lesser magnitude: Connecticut in 2002, Delaware in 2007 and 2010, Oregon in 2009, Hawaii in 2012 and again in 2018, Minnesota in 2013, Massachusetts in 2014, Georgia in 2015, Utah in 2016, Maryland in 2017, and Michigan in 2018.
Nor has the trend of revival statutes stopped or slowed down. On Jan. 1, California’s revival statute became effective. Massachusetts is also considering an amendment to make its 2014 revival statutes more generous. A number of other states (including Iowa, Kansas, Maryland, Nebraska, Ohio, Wisconsin, New Hampshire, etc.) are still considering enactment of new revival statutes or further expansion of existing revival statutes.
Insurers will be well-advised to keep track of this development.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
Michael L. Zigelman is chair of the General Liability Coverage Practice Group at Kaufman Dolowich & Voluck LLP and co-managing partner of the New York City office where he concentrates his practice in insurance coverage matters, specifically dealing with directors and officers liability, professional liability, ERISA/fiduciary-related claims, commercial general liability, admiralty and maritime, toxic/mass tort and environmental coverage.
Rita Y. Wang is an associate at Kaufman Dolowich & Voluck. She regularly represents insurance companies in coverage litigation, as well as insureds in securities and antitrust litigation. She focuses her insurance practices on third-party liability insurance products, including directors and officers liability, financial institutions fiduciary liability, professional errors and omissions liability, and commercial general liability insurance.