Allegations of sexual misconduct can happen in a multitude of organisations at any time. Broadly supported social movements, high-profile cases, and the resulting cultural changes within institutions have cut through in ways that mean victims may nowadays be more likely to come forward. And no industry is immune to allegations and their repercussions.
While it’s undoubtedly a good thing that sexual misconduct claims are being treated with the seriousness they demand, the resulting liability and reputational implications following an allegation are becoming increasingly complex, costly and far-reaching.
Sexual Misconduct Liability (SML) is an organisation’s potential legal and financial exposure arising from claims or allegations of sexual abuse or other sexual misconduct committed against third parties by its employees, volunteers, representatives, or by third parties in circumstances where the organisation is alleged to have failed in its duty of care.
There may be a common assumption that SML risk is most prevalent in a few “high-risk” sectors. However, in the current legal and societal landscape, organisations can face increased scrutiny for their lack of awareness and preparation in all kinds of industry spaces: for example, hospitality, leisure and real estate. With escalating jury settlements in many countries and reform in contractual requirements becoming more common, it’s imperative that organisations understand where they’re underestimating their risks in respect of sexual misconduct liability so they can start taking a proactive approach to managing them.
Counting the costs of a sexual misconduct liability allegation
An SML allegation is invariably a highly sensitive and potentially damaging event to all parties involved. And the costs to the organisation at the centre of the claim, whether unfounded or not, extend far beyond the potential claim settlement.
Decades of an exemplary record and reputation can be left in tatters. Operations could end up being shut down through loss of licensing, service users might well move away to other suppliers, and regulators and governing bodies can take a hard line with organisations not prioritising the wellbeing of their clients. Legal defence costs, crisis communications and formal internal investigations can pile up; with claims litigation potentially taking years to develop.
SML claims can bring organisations under scrutiny as well as the accused
As societal expectations continue to evolve, not only is the response to an allegation of sexual misconduct scrutinised by the press and social media, but investigations into what preventative measures were in place beforehand are becoming more commonplace. This can be exemplified by the allegations made against USA Swimming*, where former athletes accused the organisation of not acting upon their complaints and that the coaches in question accused of sexual misconduct were allowed to continue working despite warning signs. They were accused of having a “culture that enabled coaches to sexually abuse their athletes”. Though focus has typically been on the perpetrator themselves, this has expanded into organisational accountability:
- Were full background and abuse checks completed?
- Were they repeated annually?
- Why weren’t adequate supervision/1-to-1 protocols in place?
- Did the organisation have adequate anonymous reporting systems in place?
- Is there a risk of the accused being a serial offender?
The questions and enquiries can go on and on.
"In wake of the crisis, USA Gymnastics, the national governing body for U.S. gymnastics, and the United States Olympic and Paralympic Committees have scrambled to repair their reputations and the trust of athletes, all while juggling multiple lawsuits. USAG also faces a threat from the USOC to decertify it as the organization overseeing the sport."
How USA Gymnastics has changed since the Larry Nassar scandal – ABC News*
Whilst overall awareness, prevention measures and reporting structures continue to improve in the high-risk sectors, there may still be work to do for those who consider themselves in lower-risk environments.
How an organisation can ensure it’s covered for sexual misconduct liability
Whilst SML is not a recent development, organisations of all sizes may have never had an incident or allegation of abuse. When incidents arise that an organisation has never dealt with, such as a third-party-on-third-party allegation, they may be unprepared to handle their responsibility to manage the case.
“Silent” coverage, where cover is not explicitly referenced in a General Liability/Professional Liability policy, risks a potential denial or coverage dispute in the event of a claim. Exclusionary language, sub-limits and retroactive cover can also restrict the policy response. In a complex environment where General Liability policies can exclude SML negligence claims for example, a standalone SML product may be the best way to ensure full coverage.
Finding specialist tailored SML coverage
Risk management is an ongoing effort and not something which can simply be “held on file”. Ongoing reviews and audits are paramount in maintaining standards and allowing policies and procedures to be adapted as SML exposures evolve.
Encouragingly, more organisations now offer specialist expertise in abuse prevention and risk management. These can be partnered with either on an ongoing advisory basis or for a one-off in depth assessment, to review and reform abuse prevention policies and procedures.
To find out more, talk to us about tailored SML insurance solutions: [email protected]
*All cases referred to in this article are being cited as examples and as reported.