Misunderstood Personal Lines Issues (Part 2)
Page 3 of 7




Sexual harassment and illegal substances

The questions
  • Concerning, sexual molestation and physical and mental abuse, does that exclusion impact the insured and family? Will it at least defend me if I didn't do anything?
  • What is the controlled substance exclusion and what does it mean?

    Let's look at the policy...

    Liability Section
    1. Coverage E-Personal Liability and Coverage F-Medical Payments to Others do not apply to "bodily injury" or "property damage":
    k Arising out of sexual molestation, corporal punishment or physical or mental abuse; or
    l. Arising out of the use, sale, manufacture, delivery; transfer or possession by any person of a Controlled Substance(s) as defined by the Federal Food and Drug Law at 21U.S.C.A Sections 811 and 812.

    Controlled Substances include but are not limited to cocaine, LSD, marijuana and all narcotic drugs. However, this exclusion does not apply to the legitimate use of prescription drugs by a person following the orders of a licensed physician.

    The answers

    Sexual molestation and physical/mental abuse exclusion
    According to Exclusion k, sexual molestation, corporal punishment, and physical or mental abuse are criminal acts that the policy does not cover.

    The problem is that the exposure is there for anyone who has contact with others and is most prevalent with adults volunteering with children such as:
  • Boy or Girl Scout leaders
  • Sunday School teachers
  • Big Brother or Sisters
  • Sport coaches, etc.

    Are your insureds involved in any of these activities? If so:
  • Do they have an Umbrella?
  • Does the Umbrella have this exclusion?

    Controlled substances exclusion
    Exclusion l. Controlled substances are those that are controlled by the state of California and/or are illegal substances.

    If it is a prescription, it is in triplicate with one copy going to the state of California.

    It could conceivably be a criminal offense IF it is an illegal substance.

    An example: the insured, in an effort to help, gives one of her prescription drugs (controlled) to a friend. It causes a severe reaction, injury, or even death. Is this covered? In part, that would depend on what "transfer" means in the policy?

    The son/daughter of an insured gives/sells some pot or LSD to a friend and injury/death results. Is this covered?

    Your child's friend takes some of your prescription drugs unbeknownst to you. Are you covered?

    It would appear, based on the exclusionary language in the policy, that these claims could be legitimately denied by the insurer. Questions to ask are:
  • Does your insured have an Umbrella?
  • What does it say?

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    Not only are policy forms, clauses, rules and court decisions constantly changing, but forms vary from company to company and state to state. This material is intended as a general guideline and might not apply to a specific situation. The authors, LunchTimeCE, Inc., CEfreedom, and Insurance Skills Center, and any organization for whom this course is administered will have neither liability nor responsibility to any person or entity with respect to any loss or damage alleged to be caused directly or indirectly as a result of information contained in this course.