Limitation periods provide comfort to both insureds and insurers. With the passing of a limitation period, each can draw comfort from the knowledge that a claim has not been pursued and is not likely to be pursued in the future. Limitation periods have been liberalised through the use of the discoverability principle, but for the most part the tolling of the limitation period means the end of a possible claim.
Claims for sexual abuse present a greater challenge. The Supreme Court of Canada liberalised the limitation period for sexual abuse claims in M. (K.) v. M. (H.) to the point where the limitation period does not begin until the plaintiff is reasonably capable of discovering the wrongful nature of the defendant’s acts. Typically, that is not until he or she has received counselling. More recently, in Ontario, legislation has been passed to eliminate entirely the limitation period in cases of sexual abuse. A plaintiff is no longer required to demonstrate that there was a delay in his or her understanding of the wrongful nature of the acts of the assailant.
The vicarious liability of a commercial entity for the acts of its employees is a well-established principle of common law. However, until 1999 employers were not responsible for the unauthorized intentional acts (sexual abuse) committed by an employee. When this issue was revisited by the Supreme Court of Canada in the decision of Bazley v. Curry, the court expanded the scope of vicarious liability for sexual assault in circumstances where the nature of the employment relationship is such that it provides the opportunity for the abuse to take place.
It is important to remember that these changes in the law are retrospective in nature. The liberalization of the limitation period applies to all claims in the past. The expansion of the doctrine of vicarious liability applies equally to claims arising from incidents of abuse before the Supreme Court ruled on the issue in 1999.
All of this presents an interesting problem for insureds and insurers. While claims for sexual abuse are self-limiting in nature, by virtue of the age of the victim, they are often pursued when the victim is well in to their adult years, with the result that the abuse may have taken place at any time from the 1950s to the present.
One of the first challenges for the insured arises from the obligation of the insured to prove the existence of the policy, including the language and liability limits. In the years from the 1950s to the 1980s, coverage was typically under an occurrence-based policy. The employer must prove the language of the policy in place at the time of the assault. Given the passage of time, policy documents may not be available, either through the insured or through the insurer.
The original policy need not been produced. The language and limits of a policy may be proved through secondary evidence. As an example, in Synod of the Diocese of Edmonton v. Lombard General Insurance Company of Canada, the court accepted the evidence of the broker who confirmed that the policy wording at the time of the loss was similar to that of a subsequent policy, reinforced by the amount paid by the insured each year by way of premium.
The coverage clause in a general liability policy in the 1960s and 1970s typically read as follows:
To pay on behalf of the Insured all sums which the Insured shall become obligated to pay by reason of the liability imposed upon the Insured by law, or assumed by the Insured under contract, for damages because of bodily injury, sickness or disease, including death at any time resulting therefrom, caused by events occurring within the Policy Period and suffered or alleged to have been suffered by any person or persons.
The primary interpretive principle provides that when the language of the policy is unambiguous, the court should give effect to clear language, reading the contract as a whole, with the objective of advancing an interpretation that is consistent with a reasonable expectations of the parties. In doing so, the coverage clause is to be interpreted broadly.
If an ambiguity is found to exist in the language of the contract, it is to be construed against the insurer as the author of and in control of the language of the policy. In accordance with the contra proferentum rule: “whoever holds the pen creates the ambiguity and must live with the consequences”.
When dealing with sexual abuse claims the court will take into account the particular nature of the risk. This was illustrated in the decision of Jesuit Fathers of Upper Canada v. Guardian Insurance Co. where the court concluded as follows:
This Court has recognized the public purpose served by insurance. In particular, it can help ensure that the needs and expectations of third parties who are injured accidently or through negligence are met by giving them access to a compensation fund…no one questions that there is a public interest served by the compensation of victims of different forms of abuse in residential schools.
In the case of E.M. v. Reed the plaintiff brought a claim against Father Francis Reed and the Diocese of Sault Ste. Marie alleging negligence, assault and battery among other claims arising from a relationship which began in 1964 when Reed became the plaintiff’s parish priest. She was 16 years of age at the time. One of the insurers of the Diocese took the position that there was no coverage. The coverage clause was similar to that reviewed above but extended coverage to include assault and battery “unless committed by or at the direction of the Insured”. Justice Wilkins observed that the insured under the policy was the Diocese. The assault and battery was not committed by or at the direction of the Diocese. It was therefore entitled to indemnification.
The matter was appealed to the Ontario Court of Appeal. The court rejected the appeal with the following observation:
The point of an insurance policy is to transfer the risk of future events, foreseen and unforeseen. Had Great American intended to limit coverage to certain types of events, it ought to have used express words to that effect in the policy. Instead it chose to use words that are remarkably broad and expansive.
The extension of the limitation period in claims for sexual abuse was not foreseen prior to 1992. The extension of vicarious liability to acts of sexual abuse committed by employees was not foreseen prior to 1999. Yet, claims arising from sexual abuse at any time in the past are subject to these changes in the law.
Exclusions under the contract of insurance are interpreted narrowly. The courts in Ontario are guided by the 1942 English decision of Woolfal & Rimmer, Ltd. v. Moyle, which provides as follows:
I cannot help thinking that, if insurers wish to limit by some qualification a risk which, prima facie, they are undertaking in plain terms, they should make it perfectly clear what that qualification is.
Exclusions for intentional acts have been considered by the Ontario Court of Appeal on two occasions, in the context of claims against parents alleged to have failed to properly supervise their children. In each case the court ruled that the allegation of intentional assault by the child did not disentitle the parents to coverage as the pleadings did not allege that the parents committed the assault. In similar fashion, if the employer in a case which alleges sexual abuse at the hand of an employee did not commit the intentional act, the exclusion for intentional acts will not apply.
The onus is on the insured to show that the claims fall within the grant of coverage. The onus is on the insurer to show that the claims fall within the exclusions.
The broad language in coverage clauses in older policies of commercial general liability insurance and the absence of clear exclusionary language raises the potential for indemnity arising from claims for sexual abuse many years past. The exclusion of claims arising from sexual assault has become fairly standard language since the mid to late 1980s. There is, however, a long trail of claims which may still arise by virtue of the elimination of the limitation period in Ontario and the application of the discoverability rule in other provinces and territories in Canada.
One of the additional questions which arises in claims of this nature is the obligation of the insured to report to the insurer the acts of abuse if and when the insured learns of them. Further commentary will follow on this issue in a subsequent edition of this newsletter.
Underwriting Current Risks
While this article addresses historical abuse situations, underwriting today occurs in a markedly different climate where unwillingness of victims to report and higher standards of scrutiny apply to employers. In underwriting risks where potential sexual abuse issues exist, underwriters should be mindful of the following:
Exclusions must be clear. Any ambiguity will result in an exclusionary clause that may not be effective.
Risks may be acceptable if they do the following:
- develop and enforce standards for monitoring and reporting. Prevention is the best cure, but early reporting allows for early treatment and containment of economic damage.
- demonstrate risk management in hiring and dismissal.
- have geared their operations to permit limited windows of opportunity for abuse to occur.
With one of the largest charity and not-for-profit practices in Canada, Miller Thomson LLP develops risk management, investigation and reporting guidelines for charities which have been proven to be effective. We are happy to assist your insureds to become better and more profitable risks for your syndicate.