Changes in child compensation laws could negatively impact insurers

A few weeks ago, the Archdiocese of New York filed a lawsuit against its insurers after one company refused to cover claims brought through a new law that opened a window for older victims of child sex abuse to file civil litigation in New York.

Three other states also passed legislation broadening the statute of limitations for child abuse crimes, and another 16 states and the District of Columbia have similar laws that are expected to pass this year.

These nationwide changes to child victim compensation laws have the potential to impact the reserve positions of insurers and negatively affect insurer ratings, says a commentary from AM Best. In particular, insurers that specialize in providing coverage to academic, religious, daycare, municipal entities, and other childcare organizations are at significant risk, as claims and litigation become more frequent, resulting in increases in defense cost containment expenses.

The report also notes that many insurers will face operational challenges with locating exposures that extend beyond 20 years, as the technology and data storage procedures were very different decades ago.

Vicky Riggs, senior financial analyst, said in a news release that states’ legislation changes are likely to increase litigation and that insurers’ reserve levels could be impacted similarly to how asbestos and environmental claims continue to affect some reserve levels today.

“Both areas have very long latency periods, extending years if not decades, significantly increasing the risk of litigation,” she said. “The settlement amounts awarded are unpredictable, leading to uncertainty and challenges in establishing reserves.”

Related: 

• Insurer shuns civil suit against imprisoned child molester
• Insights for handling a sexual harassment claim
• Catholic Church risk management efforts reducing abuse, claims