The enormity of the claims stemming from a New York law that alters the statute of limitations for historical allegations of child sexual abuse will likely force insurers to tap into reinsurance, industry experts said.
Passed earlier this year, the New York Child Victims Act both extends the statute of limitations in the state and opens a one-time, one-year window that allows victims of child sexual abuse to pursue civil action, regardless of when the abuse took place. More than 400 cases were filed the day the window opened Aug. 14, and one New York law firm told CNN it expects 1,200 of its clients to eventually file lawsuits.
Organizations likely to face suits include the Catholic Archdiocese of New York, the Boy Scouts of America and Rockefeller University, which operated a Manhattan hospital where one doctor allegedly molested hundreds of young patients, CNN reported.
"You can expect the [settlement] numbers to be shockingly large," said Timothy Lytton, a professor of law at Georgia State University. He added that they would be large by the standards of the normal tort system payouts, even for mass torts like airplane crashes.
"There are a lot of claims here, and they are very serious claims," he said.
Public pressure
Revelations about child sexual abuse in a range of organizations, most notably in the Catholic Church, have emerged regularly in recent decades, and were thrust firmly into the spotlight in 2002. That was when The Boston Globe published reports that showed that church officials had helped cover up and enable years of abuse by priests and other clergy.
Increased public pressure created a push for laws that would enable survivors to hold their abusers accountable even if the statute of limitations had expired. CHILD USA, a child protection-focused nonprofit think tank, lists 15 other states and the District of Columbia as having passed laws paving the way for some form of action relating to historical sex abuse claims. Six of those take effect in 2019.
Marci Hamilton, a professor at the University of Pennsylvania and CEO of CHILD USA, said she has been involved with trying to pass such a law in New York since 2003. The main opposition over the years came from bishops and insurers, she said, noting that the act finally passed this year as part of a wave of reforms launched when Democrats gained control over New York's government.
Although the law was prompted by the "huge scope of the problem" in the Catholic Church, Lytton said it would be unfair to characterize the New York act as solely aimed at confronting clergy sexual abuse.
"We know that youth organizations in general suffer from this, whether we're talking about the Boy Scouts or USA Gymnastics," Lytton said. "Every institution has the possibility of having individuals who commit these sorts of crimes and abuse."
The scope of the laws passed to date varies widely, from a statute in Michigan that allows only claims against doctors, to one in Vermont that is free of time limits and allows for the revival of all expired claims against perpetrators, private organizations and government. Many of these windows have only applied to private entities, whereas New York's allows for civil claims against both private and public entities, meaning that schools and government-controlled institutions are not immune.
When California opened a similar window in 2002, it ultimately led to the Archdiocese of Los Angeles paying a settlement of $660 million over clergy sexual abuse. Over a dozen other dioceses have filed for bankruptcy protection since the 2000s amid a wave of claims.
"I think the public entities along with their insurance companies are going to be in for a much greater shock than the insurers that are protecting the private institutions because they've already been through this in other states," said an insurance executive who is familiar with the implications of the act.
Coverage problems
One challenge in determining who pays out for any settlements reached is that some of the claims are expected to go back several decades, which could make it difficult to locate the relevant policies, Lytton said.
The Archdiocese of New York in late June preemptively sued roughly two dozen insurers, including subsidiaries of Chubb Ltd., American International Group Inc. and Hartford Financial Services Group Inc., that it says wrote liability policies during the time periods for which claims are being filed. The lawsuit says some of the insurers have indicated that they intend to contest and reject claims, but that they are "obligated to provide coverage" for the claims and lawsuits alleging sexual and physical abuse, including defense costs and expenses incurred during investigation.
For Travelers Cos. Inc., the passage of the act resulted in a first-quarter net unfavorable prior-year development in its business line of $21 million pretax. CFO Daniel Frey said on an earnings call that the changes stemming from New York's Child Victim Act opened potential exposure to claims in the general liability line that had previously been time-barred.
In an earlier case, insurer Interstate Fire & Casualty Co. was ordered by a judge in 2016 to pay $1 million plus interest to reimburse the Archdiocese of Hartford, Conn., for settlement funds it had paid out.
Many dioceses also have policies for a variety of risks from the Catholic Mutual Relief Society of America, a self-insurance fund of the church, and the National Catholic Risk Retention Group.
History repeating
When lawsuits started to "hit seriously" in the 1990s and then later in the 2000s, the claims were "so big basically insurance companies made zero money on the policies and often got kicked into reinsurance," Lytton said. The wave of cases expected to be filed in New York makes it likely that reinsurers will need to pay out, he added.
"It's very hard to imagine people were writing policies with anything even in the ballpark that large back in the 1990s and 2000s before 2002," Lytton said. "I don't think the insurance industry understood the scope of this."
Attachment points for reinsurers — the level of claims at which the policy kicks in — were also often much lower several decades ago, the time period for which some claims are expected to be filed.
The insurance executive familiar with the implications of the act also expects reinsurers to face payouts, and also said it will force many organizations to file for bankruptcy.
"When that happens, the value of the claims decreases because there's a limited pot of money," the executive said. He added, though, that reinsurers should have enough capital to cover litigation issues.