In 1990, the Archdiocese of St. Paul and Minneapolis and the Diocese of Winona, Minn., were hit with a civil judgment of more than $1 million stemming from the sexual abuse of a minor by a priest in the 1970s. Quite naturally, the two Roman Catholic entities turned to their insurance companies to pay the judgment under the terms of their general liability policies.
But the insurance companies refused, arguing that, because the priest had a 15-year history of repeated abuse that was known to his superiors, church officials knew or should have known that he would abuse again. After a six-year legal struggle that reached the 8th U.S. Circuit Court of Appeals, the insurance companies prevailed. The dioceses had to pay the judgment themselves.
The Minnesota case was in many ways a harbinger of the problems the Catholic Church would face as more and more cases involving abusive priests began to surface. As the terms of general liability insurance policies began to change more than a decade ago, the church, along with other institutions, began tailoring its insurance to provide special coverage for liability from sexual misconduct by priests and other employees. But now that it is facing dozens of such cases, it finds itself increasingly at odds with its insurers and apparently unable to depend on much compensation from them.
Patrick J. Schiltz, who is interim dean of the University of St. Thomas School of Law in Minneapolis and who has represented dioceses in sexual misconduct cases, said that many dioceses "are in fact uninsured [because] the cases are so old they can't prove they have insurance or can't find it. The insurance companies have taken a very hard line in court in terms of the types of proof needed to prove coverage. In a lot of these cases, you don't have insurance playing a role. . . . In all of these hundreds of millions of dollars in damages, a very tiny percentage is going to get picked up by insurance."
The exact role insurance coverage has played in the settlement of sexual abuse claims against the church remains shrouded in the secrecy of confidentiality clauses that are usually part of the agreements. How often insurance companies have balked at paying claims, as they did in Minnesota, is unknown because few disputes between the church and its insurers ever reach the courts.
But according to experts in the field, it is likely that dioceses that have been hit with sexual abuse claims have exhausted their insurance coverage, which was often probably not enough to cover the cost of settling with alleged victims. In some cases, the insurance that a diocese had may not have provided any financial protection, they said.
It is also likely, the experts said, that while liability insurance covering sexual misconduct will remain available to the church, it will become more expensive and restrictive as insurance companies seek to minimize future losses.
In an e-mailed response to questions, Michael J. Bemi, president of the National Catholic Risk Retention Group, recently described what has been happening in this niche of the insurance market. He said that "both primary carriers and reinsurers are restricting or eliminating the available limit of sexual misconduct coverage, are significantly increasing the premiums for coverage that can still be purchased, are sometimes demanding increased deductibles/retentions, and are also demanding certain loss control programs/measures be in place before coverage can be [obtained] or renewed."
In addition, the new attention to sexual misconduct by priests is happening amid what insurers call a "hard market," meaning that premiums were already on the rise for reasons unrelated to the sex abuse scandal.
Robert P. Hartwig, chief economist of the Insurance Information Institute, a trade association in New York, said the cost of liability insurance has increased about 30 percent. He said that in 2001, "the worst year in the history of the insurance industry," companies paid out $53 billion more in claims than they received in premiums for property, casualty and liability policies. Only about $10 billion of that was due to the Sept. 11 terrorist attacks, he said.
Hartwig blamed "escalating jury awards" for rising insurance rates and suggested that a general loss of public confidence in the leaders of institutions -- including the Catholic Church -- could exacerbate the problem and drive up premiums even more.
"It's the hard market, but there is a connection between [failed energy company] Enron and the crisis in corporate governance and what's going on in the Catholic Church," he said. "The public is of the mind now that the leadership of many organizations should be viewed with suspicion. This translates to nonprofits, too. . . . There is a crisis of confidence, and that's an environment that is very conducive to tort activity."
Peter C. Young, an insurance professor at the University of St. Thomas, said insurance costs are also rising because insurance companies, like other investors, are no longer reaping hefty returns from their investments. During much of the 1990s, soaring investment income allowed insurance companies to hold down the premiums they charged, he said.
Insuring against the consequences of sexual misconduct is a relatively new phenomenon. For years, institutions such as Catholic dioceses carried general liability insurance policies, but those did not specifically cover cases of sexual misconduct. That began to change in the mid- to late 1980s with a surge of claims of abuse and other sexual misconduct that was not confined to the Catholic Church.
Under the old liability policies, "insurers had denied claims for damages associated with sexual misconduct or molestation, not always successfully," Hartwig said. In response, he said, insurance companies removed sexual misconduct coverage from their general liability policies and began offering the coverage in separate policies that could be bought at an additional cost.
It is not clear how much protection the older insurance policies have provided to the church, but it may not be much. Many of the allegations against Catholic priests go back years and often decades, to a time when the limits of liability in insurance policies were generally much lower than today. In general, it is the insurance that was in force at the time of the alleged sexual misconduct, not the insurance a diocese may be carrying today, that provides the protection.
Even proving that there was insurance at the time of the alleged abuse can be difficult.
"Many of these cases go back a long time and the church doesn't retain copies of insurance policies, and insurance companies, to my shock, don't retain copies themselves," said Mark Wendorf, a plaintiffs' lawyer in St. Paul who has been involved in hundreds of sexual misconduct lawsuits. "Oftentimes, the first line of defense by the insurance company is that the church has to present them with the actual policy."
More recent liability insurance policies covering sexual misconduct that are in force today also contain a strong incentive for church leaders not to repeat the notorious case of defrocked Boston priest John J. Geoghan, who is serving a prison term for fondling a 10-year-old boy in 1991 and who has been accused of fondling or raping more than 130 boys over several decades. Boston Cardinal Bernard F. Law has acknowledged transferring Geoghan to other parishes after he knew of sexual abuse allegations against the former priest. The Archdiocese of Boston recently backed out of a proposed multimillion-dollar settlement with 86 of Geoghan's victims.
Insurance is meant to protect the diocese, not an individual alleged perpetrator. But there is also a standard provision that says the insurance does not cover conduct that the bishop or diocese intends or expects to occur. This was the issue in the Minnesota case.
The insurance companies argued in court that the long history of abuse by Thomas Adamson, who is no longer a priest, should have led his superiors to expect him to abuse again. Reversing a lower court ruling, the appeals court agreed.
That general exclusion of coverage has now been made explicit in most sexual misconduct liability policies, according to experts in the field. Bemi said the National Catholic Risk Retention Group, which provides excess liability insurance to more than 50 archdioceses and dioceses, "will not provide coverage for any [sexual misconduct] claims that arise out of or are related to incidents that have occurred after our insured had knowledge of actual or alleged misconduct on the part of an individual."
Under those terms, a bishop who repeated Law's actions in the Geoghan case -- or those of Adamson's superiors in Minnesota -- would run a high risk of nullifying the sexual misconduct liability insurance that his diocese had been paying for.
Schiltz said he is not convinced that the highly publicized sex abuse scandal will necessarily lead to higher insurance costs for dioceses, because insurers have been aware of the problem for years.
But when it comes to insurance, perceptions can sometimes be as important as reality. Young, who teaches courses on the subject, said the sex abuse scandal in the church "couldn't do anything but influence" the thinking of insurance industry executives.
"Underwriters are people, too," he said. "Especially in liability underwriting, perceptions of the risk can really have an influence on the willingness of the industry to get involved in these sort of things."