Non-disclosure of known abuses by clergy a civil fraud

The Supreme Court of Newfoundland and Labrador, General Division, held on December 20 that Guardian Insurance Company of Canada, acquired in 1998 by the Intact Insurance Company, was not obligated to cover the Roman Catholic Episcopal Corporation (RCEC) of St. John’s or return its premiums. The church had sought indemnity under its commercial general liability policy for damage claims arising from the victims of sexual abuse at the hands of its clergy and admitted to having knowledge of the fact prior to entering into an insurance contract with the insurer.

“The Court held that Guardian had established its burden of proving that the non-disclosure of the allegations of sexual abuse constituted a material nondisclosure and a moral hazard that rose to the level of civil fraud, thereby relieving Guardian of any obligation to return the premiums paid by Roman Catholic Episcopal Corporation of St. John’s during the policy period,” the summary in the case states.

Material misrepresentation 

The issue arose after the consolidation of several legal actions against the corporation. The case examines material non-disclosure, material misrepresentation, moral hazard, utmost good faith and the general principles of interpretation for the contracts of insurance.

The policy in question, issued from 1980 to 1985 through Marsh & McLennan Limited, covered bodily injury liability with a $5-million limit until 1982. This was later increased to $10-million. When RCEC received claims on behalf of those abused, the church submitted its request for defense and indemnification to Intact. 

During the subsequent trial, the justice in the case heard from expert witnesses who agreed that sexual abuse was not on the radar for insurance underwriters in 1980, as there were no known claims for sexual abuse at that time, but that a reasonable and prudent underwriter would not have accepted the risk. If they had, the expert witnesses further added that an insurer could’ve issued the policy, but likely without the endorsement extending coverage to employees.

“Absent fraud, there is an obligation on the insurer to refund the premium to the insured in instances of non-disclosure or misrepresentation,” the decision states. “Unless there has been fraud, this usually means that the customer is entitled to a refund of premiums.” (Given fraudulent misrepresentation, the insurer is under no such obligation.) 

Admitted to direct knowledge of abuse 

According to the agreed statement of facts submitted by RCEC, the corporation admitted that it had direct knowledge of its priests sexually abusing children as early as 1974 and did not report the issue to authorities, as required by law. It also admits to not disclosing this knowledge prior to the issuance of the policy. 

The case stacked up against Guardian includes a societal and legal landscape at the time, which did not hold religious institutions liable for sexual abuse committed by their clergy. The law on the matter did not change until 1999. 

“Irrespective of the general societal understanding at that time, RCEC was under a common law duty and a moral duty to disclose this information to Guardian,” the decision states. “The most likely scenario would have been that had the information been disclosed to the underwriter, it would have been viewed as potential criminal conduct that went to the core of the insured’s moral fiber. As such, I find that it would have been considered a material risk that would prevent the issuance of the policy or the introduction of exclusions for individual clergy members and for any direct liability by RCEC for future claims.”