Failure to disclose the allegations constituted a 'moral hazard' rising to civil fraud: court
The Supreme Court of Newfoundland and Labrador ruled that Guardian Insurance Company of Canada could void its comprehensive general liability (CGL) insurance policy with the Roman Catholic Episcopal Corporation of St. John's (RCEC) for failing to disclose clergy abuse allegations from 1980 to 1985.
The court found that RCEC knowingly failed to disclose allegations of sexual abuse by its clergy before obtaining the insurance policy in 1980 and during subsequent renewals. The insurance policies, providing liability coverage up to $10 million, were issued by Guardian's predecessor and later assumed by Intact Insurance Company.
Guardian argued that the non-disclosure constituted a material misrepresentation and fraudulent concealment, voiding the policy. RCEC sought indemnification for claims arising from sexual abuse by clergy during the policy period.
The Supreme Court concluded that RCEC had knowledge of abuse allegations but concealed this information from Guardian. The court emphasized that insurance contracts require utmost good faith, obligating insured parties to disclose all material facts, even if not explicitly requested by the insurer. Evidence showed RCEC failed to report these allegations to civil authorities or Guardian, violating both statutory duties under the Child Welfare Act and common-law principles.
Expert testimony showed that insurers did not explicitly consider sexual abuse an underwriting risk in the 1980s. However, the court ruled that a reasonably prudent insurer would have viewed RCEC's knowledge as material to the policy's issuance. The court also identified RCEC's actions as creating a "moral hazard," undermining the integrity of the insurance agreement.
The court declared Guardian entitled to void the policy ab initio, freeing it from indemnification obligations. Additionally, the court ruled that RCEC was not entitled to a refund of insurance premiums due to the fraudulent nature of its non-disclosures. The court relied on precedent emphasizing that fraud in insurance applications nullifies claims for premium refunds.
