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Employers Knowledge of Sexual Abuse may be a Double Edged Sword: Roman Catholic Episcopal Corporation of Saint John’s v. Guardian Insurance

Today the Supreme Court of Canada refused to hear an appeal from a decision of the Newfoundland and Labrador Court of Appeal: Roman Catholic Episcopal Corporation of Saint John’s v. Guardian Insurance

The case is interesting to those of us who represent survivors of childhood of sexual abuse because it illustrates the challenges in recovering compensation for survivors.

In many cases the abuser has little or no assets or is dead. Often a survivor’s only hope of receiving some measure of compensation for their injuries is by pursuing the institution that employed the abuser.

Vicarious liability of employers tricky to prove

Whether an employer will be held vicariously liable for wrongful acts of employees (specifically sexual abuse) has been a difficult issue when representing survivors of sexual abuse. Traditionally, the view of the courts was that employers were not responsible for acts committed outside the scope of the employee’s employment. Since sexual abuse is clearly outside the scope of any type of employment employers were typically not held responsible (vicariously liable) for sexual assaults perpetrated by employees.

In 1999 the supreme court of Canada outlined the circumstances when an employer would (and would not) be held vicariously liable for sexual abuse by an employee: Bazley v Curry and Jacobi v. Griffiths.

“The employer knew it was happening!”

In order to avoid the difficulty of proving vicarious liability plaintiffs usually seek to prove a claim of direct liability against the employee. In most cases it is common for the plaintiff to plead that the defendant “knew or ought to have known” about the abusers conduct in order to try to establish a claim for negligence.

Knowlege impacts insurance coverage

However, if the plaintiff is successful in establishing the defendant employer’s knowledge of the abusers conduct it can impact on insurance coverage.

Case in point is the decision from Newfoundland and Labrador involving the Diocese of Saint John’s and its insurer, Guardian Insurance.

In 1989 the plaintiff, John Doe, sued the Diocese of Saint John’s and it’s Archbishop for compensation for abuse that John Doe suffered as a result of sexual assaults perpetrated by a priest employed by the Diocese, James Hickey.

The Diocese turned to its insurance company, Guardian, for indemnification and defence under its policy of insurance.

The insurance company denied liability on the grounds that the Archbishop or the Diocese knew or ought to have known about Hickey’s sexual misconduct and failed to communicate this knowledge. Having knowledge of Hickey’s conduct and failing to report was a breach of the Diocese obligations under the policy according to Guardian Insurance.

The insurance company was not able to find enough evidence to support this defence and eventually entered into a consent order to defend and indemnify the Diocese from claims made as a result of Hickey’s abusive acts.

Between 1992 and 1997 other persons came forward claiming that they had been abused by Father Hickey. Guardian Insurance eventually became aware of additional information that was filed as a result of the new claims that suggested that Archbishop Penney and other officials from the Diocese had knowledge of Hickey’s improper sexual activities.

Guardian subsequently claimed that Hickey’s assaults were not covered by the policy because the Diocese knew of his conduct and failed to report it to the insurer.

The Supreme Court of Newfoundland and Labrador allowed a motion by the Archdiocese to strike Guardian Insurance’s defence. The court ordered Guardian to defend and indemnify the Diocese.

Guardian appealed. However the Newfoundland Court of Appeal dismissed Guardian’s appeal finding that the insurer was required to both defend and indemnify under the policy.

The claim was subsequently appealed to the Supreme Court of Canada which released its decision today denying leave to appeal.

Why is this decision of importance to abuse survivors?

But for the consent order that Guardian enetered into, it is possible there would have been no insurance coverage available to pay the plaintiffs’ claims.

In this case, the Diocese likely had assests that could be liquidated, if necessary, to pay the claims.

In cases where the defendant actually has assets available to satisfy a judgment the availability of insurance may not be a determining factor in whether to bring forward a claim.

However, in cases where the employer is out of business or has limited assets (for example in the case of a charity) counsel for the plaintiff needs to weigh carefully the advantages and disadvantages of pleading knowledge on behalf of the defendant employer and needs to consider what impact that may have on potential insurance coverage.