Recently, the Supreme Court of Canada issued their decision in the Jesuit Fathers of Upper Canada v. Guardian Insurance Co. of Canada case, concluding that the Guardian Insurance company was under no duty to defend the Jesuit Fathers of Upper Canada against claims of sexual abuse.
The Jesuits operated and administered an Indian residential school from 1913 until its closure in 1958. In 1988 they purchased an insurance policy that would insure them against any claims that may be made by former students. The insurance policy was for a one-year period and was renewable annually. In 1994 legal counsel for the Jesuits wrote to their insurer putting them on notice that the Jesuits were facing allegations of sexual abuse by 10 former students and that more allegations may be coming. The letter identified the Jesuits claimed against, the dates and locations of the alleged acts, the nature of the possible claims and the names of the10 victims. However, it was only with respect to one of these 10 former students that the Jesuits had received any formal claim alleging sexual abuse and indicating the possibility of a negotiated settlement. The insurance company refused to renew the insurance policy beyond September 30, 2004, and refused to defend the Jesuits in relation to all claims, with the exception of the one student who had filed a formal claim before the insurance policy ended.
While the Ontario Superior Court of Justice and the Ontario Court of Appeal both found that the insurance company owed a duty to the Jesuits to defend them against all of the allegations of sexual abuse by former students, the Supreme Court of Canada reversed these decisions. They concluded that in order for a claim to be made for which an insurance company must defend the Jesuits against, “there must be some form of communication of a demand for compensation or other form of reparation by a third party [i.e. the former students alleging sexual abuse] upon the insured [i.e. the church], or at least communication by the third party to the insured of a clear intention to hold the insured responsible for the damages in question.” In this case, only one of the former students had communicated a formal demand for payment of damages before the insurance policy ended.
Additionally, the Supreme Court of Canada further held that it was not sufficient for the Jesuits to submit a list of all the alleged complainants. Instead, each of the claims must have been made to the Jesuits by the former student (or their agent) whose rights allegedly had been violated. Since it was the Jesuits who put their insurance company on notice without having been formally put on notice by each of the specific claimants, the insurance company did not have a duty to defend the Jesuits. As such, the insurance company did not have a duty to defend the Jesuits against all of the allegations made by the former students, and the Jesuits were responsible for paying any damages, other than the one specific instance, that may result.
According to the Supreme Court, the Jesuits put their insurance company on notice before they needed to. Since the insurance policy was a one-year renewable policy, the insurance company was not obligated to renew the policy. The Jesuits might have protected themselves better by (a) purchasing an insurance policy for a longer period of time, and/or (b) waiting until they had received a formal demand for repayment by all of the former students before putting their insurance company on notice. Churches, charities and non-profit organizations should always be aware of their insurance policy coverage.
This article was written by Robert G. Kuhn and Ian C. Moes, lawyers who practice in charity and not-for-profit law with the law firm of Kuhn LLP. It is only intended as a guide and cannot cover every situation. It is important to get legal advice for specific situations. If you have questions or comments about this case or other construction law matters, please contact us at 604-864-8877.