Claim of Prior Knowledge of Sexual Abuse Prevents Insurance Coverage

A federal district court in Arkansas, construing Arkansas law, recently determined that an exclusion in an insurance policy for “prior knowledge” of potential claims prevents insurance coverage for sex abuse claims against a school. Youth organizations need to check their insurance policies for similar exclusions.  

Most, or at least many, states do not allow claims against employers for abuse by employees based simply on agency law. Those states generally hold that sexual abuse by definition is outside the scope of the employees’ scope of work.  Thus, in order to sustain a claim, plaintiffs have to allege that the employers know or should have known of the employee’s prior actions or predilections. The application of a “prior knowledge” exclusion in those states, then, could put youth organizations in an untenable position. Even if the allegations are not true, an insurer could point to a prior knowledge exclusion to avoid coverage and paying defense costs.

This is a single opinion in a single state, construing a specific insurance policy under specific case law. However, youth organizations should avoid a similar dilemma by checking their insurance policies and talking to attorneys in their jurisdictions who understand state law and potential pitfalls.