Because of the renewed spotlight on sexual harassment, a Company can face significant legal costs associated with their employees’ alleged misconduct. To limit legal costs, some Companies turn to liability insurers when a sexual abuse situation arises. Instead of receiving the anticipated coverage, however, a Company may receive from their insurer a denial of coverage citing an exclusion under the agreement for sexual abuse. In such case, the Company should not immediately assume that their insurer’s interpretation of the policy is correct, especially when the cited exclusion fails to define “abuse” or is otherwise unclear. A review of the precise policy language often is in order.
For example, a policy that excludes coverage of bodily injury arising out of sexual harassment or abuse, or perhaps out of physical or mental abuse, but that does not sufficiently define those terms or exclusions, has been found to be an inadequate basis to deny coverage. Similarly, in a lawsuit alleging a Company’s negligent supervision of a manager, an exclusion purporting to bar coverage of “bodily injury arising out of any sexual act” was deemed an insufficient basis to deny coverage. In these cases, the Company arguably did not understand the subsequently claimed limits of the coverage. If the insurer intended to exclude such claims, in many cases it is obligated to specify such exclusions clearly and specifically, not just in general terms.
The insurance law doctrine provides in many instances that coverage exclusions are to be strictly construed against the insurer and that coverage should not be denied unless the policy conveys in unambiguous language the expressed intent to exclude particular coverage. When an exclusion relies on an undefined term or is silent or vague as to its scope, the exclusion is often interpreted in favor of coverage.
Coverage fights can be pointless when terms like “harassment” or “abuse” are specifically defined and the alleged misconduct fits within the definition. But, the Company should take a closer look when an insurer denies a sexual misconduct claim and the denial rests on undefined terms or limited exclusions.