In the October 3, 2016 edition of the Lloyd’s Brief I addressed the challenges of limitations in sexual abuse claims. The article discussed coverage issues including difficulties associated with proving policies of insurance in historical sexual abuse claims, the interpretation of the grant of coverage and exclusions for intentional acts. In this article we consider the further issue which arises when the employer is aware of the historical acts of sexual abuse but does not inform the insurer.
To provide some background to the discussion, we consider an institutional framework where an employee committed acts of sexual abuse in the past, as late as the mid-1980s. There is sufficient historical evidence in the employment records to suggest that the employer was aware of the abuse. The employer was insured under a commercial general liability policy with occurrence-based coverage. The employer did not advise the insurer of the abuse, nor did the insurer ask the employer if it was aware of any acts of abuse.
As discussed in the earlier article, the Supreme Court of Canada liberalized the limitation period for sexual abuse claims 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.
Until 1999 employers were not vicariously liable for the unauthorized intentional acts (sexual abuse) committed by an employee. This issue was revisited by the Supreme Court of Canada in 1999, when 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.
Against this background, the question then arises: was the employer required to inform the insurer of the historical acts of sexual abuse?
The issue was considered by Justice S. McNally in the decision of L’Eveque Catholique Romane de Bathurst v. Aviva Insurance Company of Canada in October 2016.
The Diocese of Bathurst settled claims for damages arising from sexual abuse committed by clergy from the late 1950s to the early 1980s. The insurer refused coverage, in part, on the grounds that the Diocese had failed to disclose to the predecessor companies its knowledge of the acts of abuse at the time they occurred.
The common law duty of disclosure of material facts by the insured to the insurer was confirmed in the decision of Carter v. Boehm. Lord Mansfield explained that the special facts upon which the contingent chances to be computed lie most commonly within the knowledge of the insured only. On this basis the insured is required to disclose to the insurer the material facts which would affect a reasonable insurer’s decision to underwrite the risk. The principle that the insured is required to disclose the material facts with the utmost good faith is now enshrined in insurance policies and related statutes.
It is the insurer which has the burden of proving that the insured breached the duty of disclosure. In doing so, the best evidence to lead in order to establish materiality is that of an objective source who can testify as to the standard insurance industry practices.
In the Bathurst decision, the Diocese called the evidence of Frank Szirt, who was qualified as an expert in the field of underwriting as a result of his employment in the insurance industry from 1965.
Mr. Szirt explained that sexual abuse was virtually unheard of until the mid-1980s. The incidents of abuse were not in the public domain. Employers, including non-profit charitable organizations such as a church were not vicariously liable for sexual abuse committed by an employee until the 1999 decision of Bazley v. Curry.
As such an underwriter would not ask questions of an employer about the risk of sexual abuse at the hands of an employee, nor would an insured employer be expected to understand that they were to disclose such information, if known.
It was not until the mid-1980s that questions were being asked about sexual abuse and, ultimately, exclusions were included in the policy of insurance.
Justice McNally therefore concluded that the Diocese was not obligated to disclose its knowledge of the abuse which took place from the 1950s to the 1980s. The issue of sexual abuse by clergy was not material to the risk at that time and therefore the disclosure of any such conduct would not have been expected or required by an insurer.
Since the mid-1980s our understanding of sexual abuse in society is much clearer. An employer may now be vicariously liable for the unauthorized intentional acts (sexual abuse) committed by an employee. A reasonable insurer therefore expects to receive information about conduct such as sexual abuse, and a reasonable insured should understand that the information is to be disclosed. It should be kept in mind that old occurrence policies are not necessarily dead policies. They will be viewed for purposes of forming the contract within the context of their times, but will have application for expanding areas of tort, if they apply, regardless of whether any risk was foreseen.