Organizations across the globe are facing an increased exposure to sexual misconduct liability (SML) claims due to growing awareness and reporting following the #MeToo Movement.
Claims against your organization can result in substantial costs, severe operational disruption, and potentially devastating reputational damage.
It is critical business leaders address this threat and implement appropriate risk mitigation measures, as well as establishing robust defense in case of liability claims.
A developing area of litigation
Sexual abuse is alarmingly recurrent worldwide. In the US, a 2024 survey by the Newcomb Institute (opens a new window), found that roughly 1 in 4 adults (26%) experienced sexual harassment or assault in the preceding 12 months. While in Australia, the number of sexual assaults registered by police rose by 11% in 2023 (opens a new window) — the 12th straight annual rise — to reach the highest rate of recorded sexual assaults in 31 years.
Acts of sexual misconduct pose a high-risk safety concern within workplaces — especially where the care of minors and vulnerable adults is paramount. As the occurrence of sexual misconduct grows, litigation and claims surrounding SML have also increased in recent years due to heightened societal awareness, evolving statutory requirements, and growing scrutiny. Additionally, in the US, the average amount of sexual abuse settlements is also “increasing dramatically (opens a new window)”.
Organizations must remain cognizant of changes within relevant law and legislation. For example, depending on jurisdiction, statute of limitations laws may change and enable potential, historical claims of abuse to be lodged.
Some US states (opens a new window) have introduced legislation that either extends or waives the statute of limitations for childhood sexual abuse victims. This has allowed victims to sue abusers, years after the alleged wrongful act.
The risk of sexual misconduct to businesses
SML is not a novel risk to organizations. However, many companies — of all sizes — may have limited experience in preventing, handling, and responding to such allegations.
Organizations that could be at greater threat of SML claims, include:
Educational institutions
Religious authorities
Transportation companies
Healthcare providers
Leisure facility management companies
Sexual misconduct allegations — whether unsubstantiated or not — can decimate an organization’s reputation. Members of the public and media could interpret a sub-standard response as either victim-blaming, ignorant, or uncompassionate.
Beyond reputational risks, sexual misconduct allegations can have a deleterious effect on wider company aspects. While the USA Gymnastics sexual abuse scandal “eroded trust (opens a new window)” between the organization and its thousands of members, sponsorship also dissipated, and threats were made for decertification.
Settlements for SML claims can reach vast sums of money. In Australia, a Tasmanian church was ordered to pay AUS$2.4 million (opens a new window) to a victim of sexual abuse, and in the US, two school districts paid (opens a new window) settlements totaling $4.8 million to students abused by their water polo coach. Ostensibly, these totals have the potential to render companies insolvent.
Furthermore, perpetrators of sexual misconduct and abuse are frequently repeat offenders — introducing the possibility of class action lawsuits, where allowed.
Creating the correct response
Organizations should investigate allegations promptly, confidentially, and with a high duty of care. Establishing proactive risk management and sound prevention tactics can help organizations lessen the risk of sexual misconduct, and potential SML claims.
Employers must introduce measures that reduce the chances of sexual misconduct occurring. It is inadequate to only conduct training and checks at the time of hire. Staff should be subjected to thorough, repeated screening procedures, ongoing training requirements, and supervision policies to lessen the chance of SML incidents. It is critical that company policies and procedures are reviewed and enhanced throughout the year — to help mitigate evolving risk exposures.
This is an area that authorities are keen to enforce. As part of a recent settlement, American ride-hailing services company Lyft was ordered to establish “safety and governance reforms (opens a new window)” that do more to protect passengers, and limit sexual and physical assaults from drivers.
Both employees and the public should be fully aware of the correct channels to report actual or suspected incidents of abuse or misconduct. This should be clearly signposted and easily accessible.
The initial response following an accusation or incident is of the upmost importance. Appropriate action and interaction with all relevant parties can have significant effects on future outcomes, such as potential claim settlements and organizations’ reputations. Response procedures should be well-documented, regularly rehearsed, and fully understood by all relevant stakeholders.
Insurance: the last line of defense
Typically, SML claims are covered under General Liability or Hospitals Professional Liability policies. However, exclusions for SML exposures, and further policy restrictions related to sexual misconduct, are becoming more common.
This is, in part, due to insurers’ reluctance to underwrite SML risks on either an occurrence or claims made basis, as claims could result in ‘nuclear verdicts’ — especially in conjunction with statutes of limitations opening up. Consequently, some insurers within the US have reduced, removed, or specifically excluded coverage (opens a new window) for SML.
SML exclusions or “silent” coverage can create gaps or leave organizations without coverage (opens a new window) at all. Affirmative, standalone SML policies can remedy this. Coverage can be secured from the London and Bermudian markets, and provide organizations with suitable balance sheet protection and risk management support.
Key features of standalone SML policies, can include:
Funding for defense costs
Protection against retroactive cases (subject to market appetite and risk exposure management for individual insureds)
Risk management and crisis response services
SML policies can be modified to provide tailored coverage for each organization. This enables underwriters to introduce bespoke solutions, such as:
Availability of limits on both a primary and excess basis
Creation of Master Policies, Lineslips, and Binding Authorities Options that can help facilitate efficient underwriting processes for organizations who either have a significant number of locations which purchase individual insurance policies, or to risk portfolios who are looking to create a collective solution.
Captive reinsurance
Acting with Lockton
It is crucial that business leaders take action to build resilience within their organizations. Beyond bespoke SML coverage to suit your organization, you can find out more on how to protect your business here (opens a new window), or by contacting a Lockton London Casualty team member.
