Supreme Court Dismisses Claims for
Institutional Sexual Misconduct

Earlier today the Supreme Court of Canada released reasons in three cases regarding liability for sexual abuse which occurred in institutional settings.  This trilogy of rulings by Canada's highest  court upheld decisions by the British Columbia Court of Appeal  limiting the liability of the provincial government and a Vancouver  area school board for abuses perpetrated by members of foster  families, in two cases, and a school janitor, in the other.

In doing so, the Supreme Court declined to expand the scope of  direct governmental liability - for negligence or breach of fiduciary  duty, as well as non-delegable and vicarious liability.  One of the  decisions also held in check the extension of limitation periods  under the 'discoverability' provisions common to limitation statutes across the country.

However, although these decisions will be welcome news to insurers and risk managers alike, they still go only a small way to  stemming the flood of covered claims for sexual or other deliberate acts, omissions or harm.

The two foster family cases are K.L.B. v. British Columbia, and M.B. v. British Columbia.  At issue in each was whether the deep pockets of the Provincial Crown are available for recovery by children who had been sexually abused by foster parents or siblings.  The answer was "no".

In each of these cases, the plaintiff/appellants argued that, pursuant to the provisions of the Protection of Children Act, R.S.B.C. 1960, the provincial government had a number of non-delegable duties to foster children, to act in the best interests of the children and, effectively, to ensure that they did not come to any harm.  Alternatively, they argued that Act imposed on the Crown a fiduciary duty - of utmost good faith or, failing that, simple negligence to prevent such harm.  In the alternative, the plaintiffs argued that the provincial government was vicariously liable for the acts or omissions of the persons to whom it had delegated such parental duties.

However, Chief Justice McLachlin, held (in M.B.) that:

The government is not vicariously liable for torts committed by foster parents against foster children in their care on the ground that foster parents are not, in their daily affairs, acting "on account of" or on behalf of the government.

The appellant’s claim that the Board has a fiduciary duty to ensure that no employee harms school children on school premises regardless of fault fairs no better.  This proposal amounts to an attempt to recast the appellant’s claim for breach of non-delegable duty into the language of fiduciary duty and extends fiduciary law beyond its natural boundaries.  Fiduciary obligations are not obligations to guarantee a certain outcome for the vulnerable party, regardless of fault.They do not hold the fiduciary to a certain type of outcome, exposing the fiduciary to a certain type of outcome, exposing the fiduciary to liability whenever the vulnerable party is harmed by one of the fiduciary’s employees.  Rather, they hold the fiduciary to a certain type of conduct.  As [the British Columbia Court of Appeal held in A.(C.) v. C.(J.W.),] "A fiduciary is not a guarantor".  A fiduciary "does not breach his or her duties by simply failing to obtain the best result for the beneficiary".

In K.L.B., the Court of Appeal had also ruled that the plaintiffs’  actions had been commenced more than two years after they had  reached the age of majority, and were therefore statute barred.   Counsel argued that their causes of action were not reasonably  discoverable "prior to commencement of the actions", and that  the two-year limitation period for actions based on personal injuries should be extended pursuant to other provisions of the B.C. Limitation Act.  Psychological evidence had been adduced that,  even after they had commenced their actions, the plaintiffs’ lacked  a "thorough understanding" of the connection between their past  use and current psychological state.

However, the Supreme Court held that, to endorse such a standard would set the bar too high.  The plaintiffs may not have been aware of the existence of any governmental duties, or even the causal link between the abuse and their harm.  But, they were all aware of the  abuse they had suffered, they had consulted with counsel long  before they commenced their proceedings, and they had made a  complaint to the provincial Ombudsman, and even met with a  Ministry representative to seek compensation, in June of 1991. As such, the limitation period had started to run, at the latest, by such  date.

These decisions have obviously placed limits on institutional liability for sexual assault, as well as the length of the 'coverage tail' for such claims under general liability insurance policies. However, they obviously did not address, let alone curtail, the exposure (ex.) of parents and therefore homeowners’ insurers, let alone mployers and their CGL insurers, for assaults perpetrated by their children or employees, respectively.  

As indicated in a previous bulletin
[ http://www.cwilson.com/insurance/reviews/insrev33.htm ],  none of these rulings on vicarious liability, nor the Court’s decisions in Scalera and Sansalone have closed the door on liability or insurance coverage for 'innocent insureds', for sexual or other  assaults committed by others.

For further information with respect to this and other issues of  insurance law and practice, pease contact Neo Tuytel via email  at njt@cwilson.com, or by phone (604.643.3180).