Roman Catholic Episcopal Corporation of St. John's v. Guardian Insurance Company of Canada

IN THE COURT OF APPEAL OF NEWFOUNDLAND AND LABRADOR Citation: Roman Catholic Episcopal Corporation of St. John’s v. Guardian Insurance Company of Canada, 2026 NLCA 11 Date: April 15, 2026 Docket Number: 202501H0004 BETWEEN: ROMAN CATHOLIC EPISCOPAL CORPORATION OF ST. JOHN’S APPELLANT AND: GUARDIAN INSURANCE COMPANY OF CANADA RESPONDENT AND: JOHN DOE (G.E.B. #26) AND OTHER ANONYMOUS CLAIMANTS/CREDITORS OF THE APPELLANT CORPORATION INTERVENORS Coram: W.H. Goodridge, F.J. Knickle and K.J. O’Brien JJ.A. Court Appealed From: Supreme Court of Newfoundland and Labrador, General Division 201401G6795, 201401G7895, 201001T2027, 200901T2235, and 200901T4501 (2024 NLSC 182) Page 2 Appeal Heard: December 18, 2025 Judgment Rendered: April 15, 2026 Reasons for Judgment by: K.J. O’Brien J.A. Concurred in by: W.H. Goodridge and F.J. Knickle JJ.A. Counsel for the Appellant: Mark R. Frederick and Chris T. Blom Counsel for the Respondent: Philip J. Buckingham K.C. Counsel for the Intervenors: Eugene M. Meehan K.C., Thomas S.G. Slade, Cory D.R. Giordano, Geoffrey E. Budden K.C., Paul A. Kennedy, and Clifton P. Prophet Authorities Cited: CASES CITED: John Doe v. Roman Catholic Episcopal Corporation of St. John’s, 2024 NLSC 182; Roman Catholic Episcopal Corporation of St. John’s v. Guardian Insurance Company of Canada, 2025 NLCA 29; Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235; Salomon v. Matte-Thompson, 2019 SCC 14, [2019] 1 S.C.R. 729; Carter v. Boehm (1766), 3 Burr. 1905 (Eng. K.B.), 97 E.R. 1162; Coronation Insurance Co. v. Taku Air Transport Ltd., [1991] 3 S.C.R. 622; Quinn v. Canada Life Assurance Co., 2006 BCCA 585; Vrbancic v. London Life Insurance Co., 1995 CanLII 1055 (ONCA); Sagl v. Chubb Insurance Company of Canada, 2009 ONCA 388, leave to appeal to SCC refused, 33261 (28 January 2010); Ontario Metal Products Company v. Mutual Life Insurance Company of New York, 1924 CanLII 336 (JCPC); Henwood v. Prudential Insurance Co. of America, [1967] S.C.R. 720; Taylor v. The London Assurance Corporation et al., [1935] S.C.R. 422; Arsenault’s Estate v. The Dominion of Canada General Insurance Company and Gallant (Third Party), 1979 CanLII 3261 (NBQB); L’Évêque Catholique Romain de Bathurst v. Aviva Insurance Company of Canada, 2016 NBQB 174, rev’d on other grounds 2018 NBCA 64, leave to appeal to SCC refused, 38443 (23 May 2019); Bazley v. Curry, [1999] 2 S.C.R. 534; John Doe v. Bennett et al., 2000 CanLII 28766 (NLSC); John Doe v. Bennett, 2002 NFCA 47; John Doe v. Bennett, 2004 SCC 17, [2004] 1 S.C.R. 436; Kruska v. Manufacturers Life Insurance Company, 1984 CanLII 888 (BCSC), aff’d 1985 CanLII 464 (BCCA); R. v. Salituro, [1991] 3 S.C.R. 654; Canadian Indemnity Co. v. Canadian Johns-Manville Co., [1990] 2 S.C.R. 549; Sagl v. Cosburn, Griffiths & Brandham Insurance Brokers Limited, 2007 CanLII 36644 (ONSC); Pereira v. Hamilton Township Farmers’ Mutual Fire Insurance Company, 2006 CanLII 12284 (ONCA); Silva v. Sizoo, 1997 CanLII 26880 (ONCJ); Non-Marine Underwriters, Lloyd’s of London v. Scalera, 2000 SCC Page 3 24, [2000] 1 S.C.R. 551; Smith v. Co-operators General Insurance Co., 2002 SCC 30, [2002] 2 S.C.R. 129; MacDonald v. Chicago Title Insurance Company of Canada, 2015 ONCA 842, leave to appeal to SCC refused, 36830 (20 October 2016); Bruno Appliance and Furniture, Inc. v. Hryniak, 2014 SCC 8, [2014] 1 S.C.R. 126; Moscarelli v. Aetna Life Insurance Co. of Canada, 1995 CanLII 7076 (ONSC), aff’d 1995 CarswellOnt 1070, [1995] O.J. No. 3997 (ON Div Ct); Lloyd's London, Non-Marine Underwriters v. National Armoured Ltd., 1996 CanLII 8104 (ONSC), aff’d 1999 CanLII 2590 (ONCA); Intermunicipal Realty & Development Corp. v. Gore Mutual Insurance Co., 1980 CanLII 4252 (FC); Walsh v. TRA Company Limited, 2023 NLCA 23; Midland Resources Holding Limited v. Shtaif, 2017 ONCA 320, leave to appeal to SCC refused, 37653 (21 December 2017); Ultracuts v. Magicuts, 2023 MBCA 71, leave to appeal to SCC refused 40980 (9 May 2024); Chenier et al. v. Madill Mercier et al. v. Plant & Anderson Ltd. et al., 1973 CanLII 478 (ONSC); Le Lievre and Dennes. v. Gould, [1893] 1 Q.B. 491, 68 L.T. 626; Goldshlager v. Royal Insurance Co. Ltd. and two other actions, 1977 CanLII 1306 (ONSC); Hoar's Estate, B.I.T.S. Limited and Sam Realty Ltd. v. Hudson Bay Insurance Company, 1980 CanLII 3236 (NBCA); Landmeyer v. Economical Mutual Insurance Co., 1985 CanLII 3121 (NSCA); V.K. Mason Construction Management Inc. v. Hanover Insurance Co., 1988 CanLII 3557 (ABKB); University of Saskatchewan v. Fireman’s Fund Insurance Co. of Canada, 1995 CanLII 6167 (SKQB), rev’d on other grounds 1997 CanLII 9789 (SKCA), leave to appeal to SCC refused, 26370 (19 March 1998); Madsen Estate v. Saylor, 2007 SCC 18, [2007] 1 S.C.R. 838; Matchim v. BGI Atlantic Inc., 2010 NLCA 9, leave to appeal to SCC refused, 33660 (22 July 2010). STATUTES CONSIDERED: Child Welfare Act, 1972, SN 1972, c. 37, s. 49(1); Insurance Contracts Act, RSNL1990, c. I-12, s. 5(6). TEXTS CONSIDERED: Craig Brown & Thomas J. Donnelly, Insurance Law in Canada, (Toronto: Thomson Reuters, 1999) (loose-leaf updated 2026, release 2); Denis Boivin, Insurance Law, 2nd ed, (Toronto: Irwin Law, 2015). K.J. O’Brien J.A.: [1] This appeal addresses whether an archdiocese’s failure to disclose to its insurer allegations of sexual abuse of children by one or more of its priests allows the insurer to treat a comprehensive general liability insurance policy as void and to deny coverage under it. It also addresses whether the insurer is entitled to keep the premiums paid if it elects to void the policy because the insured committed fraud. Page 4 [2] The archdiocese in question is the Roman Catholic Episcopal Corporation of St. John’s (“RCEC”) and the insurer is Guardian Insurance Company of Canada (“Guardian”). [3] Following a trial, a judge of the Supreme Court of Newfoundland and Labrador found that RCEC’s failure to disclose its knowledge of sexual abuse met the relevant legal tests that gave Guardian the right to void the policy and deny coverage, and additionally relieved Guardian of any obligation to return premiums paid by RCEC (John Doe v. Roman Catholic Episcopal Corporation of St. John’s, 2024 NLSC 182, the “Decision”). RCEC has appealed the Decision. [4] John Doe (G.E.B. #26) and Other Anonymous Claimants/Creditors of the Appellant Corporation (the “Intervenors”) are representative plaintiffs for persons who claim to have been abused by clergy or members of lay religious orders for whom RCEC is responsible. If Guardian is allowed to deny coverage, there may be less money available to compensate members of this group. For this reason, the Intervenors previously applied to intervene in this appeal and were permitted to do so on a restricted basis (Roman Catholic Episcopal Corporation of St. John’s v. Guardian Insurance Company of Canada, 2025 NLCA 29, the “Intervention Decision”). BACKGROUND [5] This appeal arises from one of the saddest chapters of Newfoundland and Labrador’s recent history; one that is well known now but was not at the time the abuse occurred. The significant facts are not in dispute. [6] Acting through an insurance broker (the “Broker”), Guardian issued a Comprehensive General Liability Policy to RCEC for the period of October 1, 1980 to October 1, 1981 (the “Policy”). The Policy was renewed for subsequent yearly periods until October 1, 1985. The Policy was occurrence-based and included Bodily Injury Liability coverage, which required Guardian to pay all sums that RCEC “shall become legally obligated to pay as damages because of bodily injury”. The Policy included an endorsement that extended coverage for bodily injury liability to clergy employed by RCEC (the “Clergy Endorsement”). [7] As early as 1975, and at all material times when the Policy was in force, RCEC was aware of allegations of sexual abuse. Details of this knowledge were provided Page 5 at trial by the uncontested evidence of RCEC’s current Archbishop and reviewed in the Decision: [34] In 1975 Father Philip Lewis arranged a meeting between Vicar General Monsignor Morrissey and T.C. T.C. gave Monsignor Morrissey the details of the sexual abuse he suffered at the hands of Hickey. The Vicar General did not report the incident to civil authorities as per section 49(1) of the [Child Welfare Act, 1972]. The Vicar General did, however, inform Hickey of the information received from T.C. Hickey confronted T.C. [35] No action was taken by the Vicar General to prevent further abuses by Hickey. Hickey continued to abuse children over the following 14 years as he moved from parish to parish within the Archdiocese. [36] In May 1980 a seminarian, Randall Barnes, told Archbishop Penney that Hickey and another seminarian were abusing boys at the parochial house, Parish of Rushoon. Hickey was the parish priest at Rushoon. … [39] Before the Policy issuance in 1980, at least six (6) priests under RCEC control were aware of Hickey’s sexual predation: Monsignor Morrissey, Archbishop Penney, and Fathers McIntyre, Lewis, McGee, and Barnes. [8] During the relevant period, RCEC’s organization structure included an Insurance Committee, which was comprised of four lay people working in the insurance industry and two of the three members of RCEC’s Board of Administration. The evidence established that one of the priests who was aware of the sexual predation, Vicar General Monsignor David Morrissey, was on the Board of Administration (Decision, at paras. 43-44). [9] RCEC did not disclose the allegations to Guardian, nor did it make any report under section 49(1) of the former Child Welfare Act, 1972, SN 1972, c. 37: 49.(1) Every person having information of the abandonment, desertion, physical ill- treatment or need for protection of a child shall report the information to the Director or a welfare officer. [10] Litigation against RCEC by abuse survivors started with a few claims in the early 1990s. There are now hundreds of claimants alleging abuse at some time from Page 6 the 1940s to 2021 (Intervention Decision, at para. 6). Some of these claims fall within the Policy period, that is, from October 1, 1980 to October 1, 1985. ISSUES [11] In their written and oral arguments, the parties identified and described the issues slightly differently. To resolve the appeal, I will organize the matters raised into two principal issues: 1. Did the judge err in finding that RCEC’s failure to disclose the allegations of sexual abuse to Guardian entitles Guardian to void the Policy? 2. Did the judge err in finding that if Guardian voids the Policy, it is not required to return the premiums paid by RCEC because RCEC committed fraud? [12] For the following reasons, I would find that the judge did not err in finding that Guardian is entitled to void the Policy because of RCEC’s failure to disclose the abuse allegations. However, I would find that the judge erred in finding that Guardian is not required to return the premiums paid, because Guardian did not establish fraud on the part of RCEC. STANDARD OF REVIEW [13] The standard of review on appeal is set out in Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235. For pure questions of law, the standard is correctness. On a question of law, this Court can replace a trial judge’s opinion with its own (Housen, at para. 8). [14] However, in this appeal the issues raised are primarily ones of fact, or mixed fact and law, for which the standard of review is more deferential to the trial judge. For questions of fact and of mixed fact and law, the standard is palpable and overriding error. On this standard, this Court can only intervene if there is an obvious error in the Decision that is determinative of the outcome of the case. The fact that an alternative factual finding could be reached based on a different ascription of weight does not mean that a palpable and overriding error has been made. Page 7 [15] That said, for questions of mixed fact and law, if the judge made an extricable error in principle with respect to the characterization of the legal standard in question or its application, that error amounts to an error in law and the applicable standard is correctness (Housen, at paras. 10, 26-27, 36-37; Salomon v. Matte-Thompson, 2019 SCC 14, [2019] 1 S.C.R. 729, at para. 33). ISSUE 1: Did the judge err in finding that the RCEC’s failure to disclose the allegations of sexual abuse to Guardian entitles Guardian to void the Policy? [16] The judge’s most significant finding was that RCEC’s knowledge of the allegations of sexual abuse by the clergy was a “material fact” (Decision, paras. 77, 80, 108, 118-119, 127, 139, 177, 181). [17] Parties to an insurance contract are required to deal with each other in utmost good faith. One of the consequences of this requirement is that an applicant for insurance is obliged to reveal to the insurer any information that is material to its application for insurance. This is because the insurer’s decision about whether to accept the risk of the contract depends in large part upon facts known only to the insured. The courts have recognized this common law duty of disclosure since at least the seminal case of Carter v. Boehm (1766), 3 Burr. 1905 (Eng. K.B.), 97 E.R. 1162. [18] Cases since Carter have expanded upon the insured’s duty of disclosure. The information disclosed must be full and accurate, so the insured must not misrepresent either directly or by partial omission. It does not matter if the failure to disclose is deliberate or inadvertent. The duty applies even in the absence of questions from the insurer, although an insurer’s failure to ask for particular information may be evidence that the information is not material. The duty to disclose only applies to past and present facts, not to opinion or speculation about the future. Most importantly, the duty only applies to facts that are relevant or material to the insurer’s decision to enter the contract, that is, to “material facts” (Craig Brown & Thomas J. Donnelly, Insurance Law in Canada, (Toronto: Thomson Reuters, 1999) (loose-leaf updated 2026, release 2), at §5.2 The Customer’s Duty; Coronation Insurance Co. v. Taku Air Transport Ltd., [1991] 3 S.C.R. 622, at 636; Quinn v. Canada Life Assurance Co., 2006 BCCA 585, at para. 26; Vrbancic v. London Life Insurance Co., 1995 CanLII 1055 (ONCA), at 26-27; Sagl v. Chubb Insurance Company of Canada, 2009 ONCA 388, at paras. 51-52 [Sagl CA] leave to appeal to SCC refused, 33261 (28 January 2010)). Page 8 [19] The common law duty of disclosure has been codified in some provinces and for some classes of insurance. It is also included as a contractual term in many modern insurance policies. While in some instances legislation has modified the common law duty of disclosure, the parties have not identified any legislation that would alter the common law principles in this case. [20] If an insured breaches of the duty of disclosure, the insurer is entitled to treat the contract as void. That is why the judge’s finding regarding “material fact” is so critical – it is this finding that entitles Guardian to void the insurance contract. What is a material fact? [21] The common law test for material fact was set out in Ontario Metal Products Company v. Mutual Life Insurance Company of New York, 1924 CanLII 336 (JCPC), at 588 [Mutual Life]: … it is a question of fact in each case whether if the matters concealed or misrepresented had been truly disclosed, they would, on a fair consideration of the evidence, have influenced a reasonable insurer to decline the risk or to have stipulated for a higher premium. [22] This test was adopted by the Supreme Court of Canada in Henwood v. Prudential Insurance Co. of America, [1967] S.C.R. 720, at 727. [23] The “reasonable insurer” aspect of the test requires an objective inquiry. The court must view the non-disclosure through the eyes of a reasonable or prudent insurer rather than through the eyes of the actual insurer or insured involved. However, there is a subjective element to the test as well. The non-disclosure or misrepresentation must have induced the particular insurer to enter into the contract (Taylor v. The London Assurance Corporation et al., [1935] S.C.R. 422, at 429; Sagl CA, at para. 51). [24] The onus is on the insurer to prove the materiality of an omission or misrepresentation (Arsenault’s Estate v. The Dominion of Canada General Insurance Company and Gallant (Third Party), 1979 CanLII 3261 (NBQB), at para. 15). Page 9 The judge’s finding of material fact [25] In the Decision, the judge identified the test for material fact from Mutual Life and Henwood set out above. He proceeded in two steps. First, he considered whether a prudent insurer would have been influenced by the information had it been disclosed, and second, he considered whether it would have influenced Guardian. [26] At trial, each party called an expert witness to give an opinion as to whether disclosure of sexual abuse allegations would have influenced a reasonable insurer in their decision to issue the Policy. The judge only qualified one of the experts, that of RCEC, to give this evidence. That expert was Frank Szirt. [27] In deciding what a reasonable insurer would have done, the judge relied primarily on Mr. Szirt’s testimony (Decision, at para. 78). As such, it is helpful to review Mr. Szirt’s evidence in some detail. [28] Mr. Szirt had significant relevant insurance industry experience during the period for which Guardian insured RCEC. Although he was RCEC’s witness, to qualify him as an expert, the judge had to be satisfied that Mr. Szirt’s opinion was impartial, independent and unbiased. The judge was so satisfied. [29] Mr. Szirt presented two reports and was questioned under direct and cross- examination. In his reports and during direct examination, Mr. Szirt opined that, between 1980 and 1985, insurers did not consider sexual abuse by clergy as a material risk. This was because, in Mr. Szirt’s opinion, underwriters lacked knowledge of the injuries suffered by victims of abuse that would have triggered the coverage provided by liability policies. The underwriters were thus unaware of the insurance implications of sexual abuse. Mr. Szirt testified that sexual abuse emerged as an issue to be considered by underwriters in the mid-to-late 1980s and became an important underwriting factor in the mid-1990s. [30] In Mr. Szirt’s opinion, an insurer would not have expected RCEC to know whether sexual abuse was material to underwriting its liability risk and, consequently, would not have expected RCEC to disclose its knowledge of such abuse. [31] Although Mr. Szirt’s opinion evidence on direct examination was favourable to RCEC’s position, under cross-examination he gave evidence that favoured Guardian’s position. That evidence was summarized by the judge as follows: Page 10 [59] Szirt acknowledged during cross-examination that the disclosure of sexual abuse could be considered a management issue and that some underwriters could have accepted it as a risk, while others would have declined; but ultimately it was a matter of individual judgment (see page 32 of the Transcript). [60] Putting individual judgment aside, the failure to report the incidents of sexual abuse between 1975 to 1980 would have been information a reasonable and prudent insurer would consider when deciding whether to issue a policy of insurance, even though it was not necessarily material (see pages 81-84 of the Transcript). [61] Despite this opinion, Szirt was clear during cross-examination that from his personal perspective, as a reasonable and prudent underwriter, he would not have accepted the risk and issued a CGL policy to RCEC had it disclosed the existence of sexual abuse of children by clergy between 1975 and 1980 (see pages 28, page 30 and 32 of the Transcript). He acknowledged that while not material information it still went to the character of the individual seeking coverage, and therefore would go to the decision as to whether to provide a policy of insurance (see pages 95-96 of the Transcript). [62] Towards the end of his cross-examination, Szirt was asked by counsel for Guardian whether it was his evidence that a reasonable and prudent underwriter, advised of the history of sexual abuse at the time of the submission by [the Broker] in September 1980, would still have issued a GCL policy. He affirmed this summary by Guardian’s counsel but noted that it could have been issued without the endorsement extending coverage to employees, thus making the Policy different than what a reasonable and prudent insurer possessed of this knowledge would have issued (see page 108 of the Transcript). [32] The reference to “the endorsement” in paragraph 62 above is to the Clergy Endorsement. To understand the judge’s reasoning, it is helpful to reproduce the evidence that the judge is referring to in that paragraph. In this excerpt of the transcript, counsel for Guardian was cross-examining Mr. Szirt: Q. You just indicated to me that if all the information concerning the abuses had been provided to a reasonable and prudent underwriter that they would not agree to add clergy as an additional insured to the policy. A. That’s correct. Q. But yet we see the policy that Guardian issued has clergy attached thereto. A. Yes. Page 11 Q. So can I conclude from your evidence that had the information concerning the Archdiocese, from the Archdiocese and the abuse of the priests been given to a reasonable and prudent underwriter in September of 1980, the commercial general liability policy would have issued to the Church but the endorsement attached to it would have been refused. A. If it had been disclosed, yes. Q. So the policy that the Guardian Insurance Company ends up issuing is something different than a reasonable and prudent insurer would have issued if it had been possessed of all the knowledge that we now know existed at the time. A. Yes, I would agree with that, yes. Q. Because in relation to the endorsement provided under the policy the information that was not disclosed would have been material to the provision of the endorsement. A. I am not sure whether it would be material, it would certainly be a factor that ... well, let me rethink that. It would most certainly be a factor, whether it would be material or not ... it would ... yeah, it would be material now because it affected the coverage, yes, yeah. (Transcript, at 474-476) [33] In addition to Mr. Szirt’s expert testimony, the judge considered the evidence of two fact witnesses who addressed the changes which took place from the early 1980s to the late 1980s in terms of society’s view of the sexual abuse of children and how insurers considered such abuse. [34] One of those witnesses was a social worker employed with the Department of Social Services who worked in child welfare during the 1980s. Her career spanned from 1978 to 2006. The other witness was Michael Mallett, a retired underwriter who had worked with Guardian from 1981 to 1985. The judge assessed their evidence as follows: [103] When the evidence of these two witnesses is viewed in its entirety, I am left with the following observations: (a) societal understanding of sexual abuse in the early 1980s was limited; (b) there was no understanding of its impact from an underwriting perspective; (c) in the late 1980s there was a sea change in both societal understanding and the way insurance underwriting responded to it; and (d) there were no civil claims for sexual abuse in which an employer was held liable in negligence or vicariously Page 12 liable prior to 1986 (or indeed, much later). It was not an exposure which existed in the insurance industry from 1980 to 1985. [35] Although the judge accepted that the impact of sexual abuse on the insurance industry, and on society in general, was not understood during this period, he weighed that against the undisputed evidence that by 1980 RCEC was aware of sexual abuse of children by members of its clergy. The judge accepted Guardian’s argument, articulated as follows: [104] … When coupled with the evidence of [the social worker] that: (i) sexual abuse of children was on the radar for social workers across the country, and (ii) a majority of provincial governments had taken the extraordinary step of enacting legislation requiring mandatory reporting (without exemption) where children were suspected to be in need of protection; then it leads this Court to the inevitable conclusion that 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. [36] The judge reasoned: [105] I accept this argument because this was information that went to the very nature of the character and integrity of a potential insured, which, according to [Mr. Szirt], would have been sufficient for him to decline issuance of the Policy … [37] The judge concluded that had the information been disclosed, a reasonable insurer would not have issued the Policy because of RCEC’s failure to act on the allegations, and thus the objective element of the material fact test was met (Decision, at para. 108). [38] Turning to the second step of the material fact test, the subjective consideration, the judge relied on the expert evidence of Mr. Szirt and the factual evidence of Mr. Mallett, who had underwritten renewals of policies for religious institutions for Guardian during the relevant period. Mr. Mallett testified that the underwriting process on renewals was no different than that at the inception of a policy. He further testified that if he were the underwriter and advised of the history of sexual abuse, he would not have renewed the Policy (Transcript, at 825-828). The judge summarized portions of Mr. Mallett’s evidence: [115] He described RCEC’s knowledge as a material change because as potentially criminal acts it raised the question of whether they could underwrite the risk in the first place. Guardian would not have renewed the Policy and would have declared it void ab initio because a prudent underwriter would not take on the risk of something Page 13 impossible to quantify. This would be due to unknowns such as where these claims are coming from, how many, how serious, the cost of the potential claims and associated legal costs (see pages 49-52 of the Transcript). [39] Ultimately, the judge found that Guardian had proven on a balance of probabilities that the underwriter(s) who approved and renewed the Policy would not have done so had they been aware of the abuse allegations (Decision, at para. 118). [40] Being satisfied with respect to both the objective and subjective elements of the material fact test, the judge concluded: [119] 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 for sexual abuse. RCEC’s allegations of error by the judge [41] RCEC accepts that it was under a duty to report to Guardian all material facts. It also accepts the legal test for material fact from Mutual Life and Henwood identified by the judge. However, RCEC alleges that the judge erred in his application of that test and in his conclusion that the undisclosed allegations of sexual abuse were material facts. The Intervenors join RCEC in these submissions. [42] More specifically, RCEC and the Intervenors allege the judge erred by: a. assessing the duty of disclosure retrospectively, that is from today’s perspective as opposed to that of the relevant time. b. failing to consider whether a reasonable insurer would have expected RCEC to know that the sexual abuse allegations were “material facts” at the relevant time. c. failing to consider in his assessment of materiality that Guardian had not asked RCEC any questions regarding sexual abuse when RCEC applied for or renewed the Policy. Page 14 d. ignoring Mr. Szirt’s evidence that, while he would not have issued the Policy, “that doesn’t mean that there are no other prudent and reasonable underwriters who for a variety of reasons might have accepted it.” e. failing to consider the public policy goals and key principles of Canadian insurance law. f. failing to follow L’Évêque Catholique Romain de Bathurst v. Aviva Insurance Company of Canada, 2016 NBQB 174, rev’d on other grounds 2018 NBCA 64, leave to appeal to SCC refused, 38443 (23 May 2019), in which the court found that a comprehensive general liability policy was not void because of the archdiocese’s failure to disclose allegations of sexual abuse because it was not established to be a “material fact”. [43] Before addressing these alleged errors in turn, I will briefly address a further error alleged by the Intervenors. In their factum, the Intervenors submit the judge erred by failing to consider the doctrine of relief against forfeiture. This issue was not included in the draft factum that the Intervenors filed with their application for intervention. Nor was it addressed in the Decision and nothing before us suggests that the judge was asked to consider relief against forfeiture. Importantly, RCEC did not raise it as an issue in the Notice of Appeal and the Intervention Decision did not permit the Intervenors to expand the scope of the appeal by raising new issues. This Court considering relief against forfeiture now would be inconsistent with the Intervention Decision and procedurally unfair. As a result, I will not address it. a. Did the judge err by assessing the duty of disclosure retrospectively, that is from today’s perspective as opposed to that of the relevant time? [44] Neither RCEC nor the Intervenors point to any particular language or passage in the Decision that evidences this error. Rather, they highlight evidence before the judge that addressed the extent to which society’s understanding of and reaction to the sexual abuse of children has changed since the early 1980s. They allege that the judge improperly used hindsight in assessing the duty of disclosure. They assert that, properly interpreted, the evidence established that during the relevant period, no one considered sexual abuse of children to be something that might result in an insurance claim, and so it could not be a material risk. [45] Further, the Intervenors submit that judge failed to analyze materiality in light of developments in the law. They note that it was not until the Supreme Court of Page 15 Canada’s decision in Bazley v. Curry, [1999] 2 S.C.R. 534, that employers were held vicarious liable for torts of their employees if there was sufficient connection between the employer’s creation or enhancement of the risk and the wrong complained of. [46] Whether a fact is material is a question of fact, so RCEC must identify a palpable and overriding error in the judge’s assessment (Mutual Life, at 588; Insurance Contracts Act, RSNL1990, c. I-12, at s. 5(6)). It is not enough to establish that this Court could weigh the evidence differently and come to a different conclusion. [47] I am not convinced that the judge improperly used hindsight in conducting his analysis nor that he failed to consider relevant developments in the law. I will explain why. [48] The judge was aware that he had to assess the duty of disclosure from the perspective of the past. He stated that he had to “consider what information would have influenced underwriters in the period 1980 to 1985” (Decision, at para. 83). [49] In considering the qualifications of the proffered experts, he focused on their experience during the 1980 to 1985 period. He declined to permit Guardian’s expert to opine as to whether disclosure of sexual abuse allegations would have influenced a reasonable insurer because she had no experience underwriting comprehensive general liability policies during this period. In reviewing the evidence of all witnesses, he focused on their testimony about how sexual abuse was understood historically, both generally and in the insurance industry. [50] The judge accepted that from 1980 to 1985 insurers did not consider sexual abuse as material to the risk of church institutions and that it was “not on the radar screen” for underwriters (Decision, at para. 86). Yet he found that RCEC should have disclosed the information because, if it had, the information would have influenced the underwriters to either deny the Policy or exclude the coverage for clergy (Decision, at para. 119). In isolation, these findings may appear to be inconsistent, but when read in the context of the full Decision, they can be understood harmoniously. The information had not been disclosed, but had it come to light, the reasonable insurer would have reacted to it. [51] The judge was aware of the risk of a “hindsight” analysis because RCEC raised the issue: Page 16 [117] … RCEC’s counsel advanced the position that Mallett’s evidence on this point was informed by the passage of time as he used the lens of today to comment on what he would have done in the early 1980s. While perhaps the case, this argument completely ignores the concession by their own expert Szirt that he would not have issued the Policy had he been provided with the information about the history of sexual abuse by RCEC’s clergy. [52] The judge was also aware of developments in the law regarding vicarious liability. RCEC argued at trial that up to and including 1999, the law in Canada did not hold religious institutions liable for sexual abuse committed by their clergy (Decision, at para. 27). Although the judge did not cite Bazley by name, that was the case he was referring to when he noted that “the legal landscape changed in 1999 when the Supreme Court of Canada expanded the scope of the vicarious liability” (Decision, at para. 28). [53] Mr. Szirt’s opinion regarding materiality did not distinguish between direct and vicarious liability (Decision, at para. 58). At the relevant time, there were no claims against religious institutions for direct or vicarious liability arising from sexual abuse (Decision, at paras. 87, 103). [54] Importantly, the judge recognized that RCEC’s exposure was not limited to vicarious liability. He cited cases which addressed direct liability arising from a religious institution’s failure to discharge its duty to protect children from being abused, including John Doe v. Bennett et al., 2000 CanLII 28766 (NLSC); John Doe v. Bennett, 2002 NFCA 47; John Doe v. Bennett, 2004 SCC 17, [2004] 1 S.C.R. 436 (Decision, at paras. 163-164). He also addressed RCEC’s risk of being found directly liable: [134] Having previously found that RCEC was aware of allegations of sexual abuse of children since 1975, I conclude that despite this knowledge it chose to obtain a CGL policy from Guardian that would cover future direct liability arising from these criminal acts, bringing it within the definition of moral hazard. [55] Ultimately, I would conclude that the Decision does not support the Intervenors’ argument that the judge failed to consider the developments in the law in his materiality analysis. [56] Given the evidence before him, much of which I have reviewed above, it was open to the judge to find that RCEC failed to disclose a material fact. RCEC’s own expert witness acknowledged that the information was material and, if disclosed, Page 17 would have affected coverage. RCEC has not established that the judge was improperly affected by hindsight nor that he failed to appreciate developments in the legal landscape. b. Did the judge err by failing to consider whether a reasonable insurer would have expected RCEC to know that the sexual abuse allegations were “material facts” at the relevant time? [57] RCEC submits that the judge erred in law by failing to ask whether a reasonable insurer would have expected RCEC to know that allegations of sexual abuse were material to the insurance contract. [58] The first hurdle for this argument is that RCEC did not present any law to support the proposition that a judge must consider what a reasonable insurer would have expected the insured to know at the relevant time. Neither the insured’s belief of materiality nor the insurer’s expectation of the insured’s belief are considered in the material fact test set out in Mutual Life and Henwood. [59] During the hearing, counsel for RCEC acknowledged that it was asking this Court to make “new law” by requiring consideration of what the insured understood to be material when applying for insurance. [60] When considering a request to make new law, it is helpful to begin with the policy underlying the current law. The reason that the insured’s opinion or belief is not considered in the common law material fact test was explained in Kruska v. Manufacturers Life Insurance Company, 1984 CanLII 888 (BCSC), aff’d 1985 CanLII 464 (BCCA): [26] The test of materiality is whether the facts in question "would influence the judgment of a prudent (or reasonable) insurer in fixing the premium or in deciding whether to accept the risk": see MacGillivray and Parkington, Insurance Law, 7th ed. (1981), pp. 261-63, Mut. Life Ins. Co. of New York v. Ont. Metal Products Co., 1924 CanLII 336 (UK JCPC), [1925] A.C. 344 (P.C.); Godfrey v. Britannic Assur. Co., [1963] 2 Lloyd's Rep. 515; and Murphy v. Sun Life Assur. Co. of Can., 1964 CanLII 823 (AB CA), 50 W.W.R. 581, 49 D.L.R. (2d) 412, [1965] I.L.R. 1-142 (Alta. C.A.). The test is objective in the sense that it refers to any prudent insurer in the normal practice of that sort of insurance business. The opinion or belief of the insured as to materiality is irrelevant. The reason for this is that if it were otherwise, material information could be suppressed and it would be very difficult to show that the insured Page 18 thought the information to be material; whereas if the insured's belief is not relevant, it will be in his interest to disclose all information within his reach. (Emphasis added.) [61] Of course, judge-made law is never fixed in stone. The Supreme Court of Canada has recognized that courts should incrementally adapt the common law to ensure that it is “in step with the dynamic and evolving fabric of our society” (R. v. Salituro, [1991] 3 S.C.R. 654, at 670). In Coronation Insurance the Supreme Court did just that in relation to the duty of disclosure. As such, it is useful to consider Coronation Insurance further. [62] In Coronation Insurance, Taku Air, a small commercial airline, failed to accurately disclose its accident history and understated the number of seats on its airplanes when applying for insurance. It stated that all its planes had four passenger seats. Taku Air subsequently suffered a crash in which five passengers were killed. The insurer denied coverage because of the misrepresentations. [63] The Supreme Court unanimously concluded that the insurance contract was void because of the insured’s failure to accurately disclose the number of seats, a fact which the Court found to be within the insured’s exclusive knowledge (at para. 42). Although this finding resolved the case, a majority of the Court also held that the insured had not breached its duty of disclosure by failing to disclose its accident record. [64] Taku Air was statutorily required to carry insurance for the benefit of its passengers. In these circumstances, the majority supported a “reasonable incremental change” to the common law duty of disclosure by imposing upon the insurer an obligation to be duly diligent in obtaining material information available from other sources. Justice Cory, writing for the majority, explained at 641: I believe that in the case at bar the information available in the files of the insurers and that available to the public concerning the accident record of Taku should be considered information that an insurer would be presumed to know. It is information that would readily become notorious to a reasonably competent underwriter working in the field of aviation. … [65] The other three members of the Court did not agree with the change. In particular, Justice Sopinka considered that in a heavily regulated field such as aviation insurance, any alterations of the common law principles should be left to Page 19 legislators. In his view, “[i]t does no good to alter the law of contract between insurers and insured simply to respond to an unsympathetic set of facts” (at 649). [66] In some instances, legislators have altered the law. For example, in Taylor the Supreme Court of Canada found that Ontario’s fire insurance legislation altered the common law duty of disclosure. The Court held that the inclusion in the statute of the phrase “fraudulently omits” meant that an insured could only breach the disclosure duty by omission if the insured had purposely withheld information, thus making the insured’s intention relevant. [67] Insurance is a heavily regulated industry, subject to numerous policy considerations, some of which compete. Legislators are well placed to balance these considerations and decide if change should be made. And while significant change sometimes happens in statutory law, change in judge-made law typically happens only incrementally. I would not characterize the change in the law advocated by RCEC as an incremental change. [68] The insured’s understanding of materiality has never been considered an element of the common law duty to disclose. To the extent that there has been development in the common law since Carter in 1776, it has been with respect to the insurer’s obligations. Coronation Insurance is one example. Another is Canadian Indemnity Co. v. Canadian Johns-Manville Co., [1990] 2 S.C.R. 549, at 619-620, in which the Supreme Court of Canada held that health risks associated with asbestos were sufficiently well known in the industry so as to be known to the reasonably competent underwriter. The insurer could not rely on such facts to deny coverage. [69] Requiring the insurer to establish that the insured knew the information was material, or that the insurer expected the insured to know the information was material, would be a significant change in the established common law. The policy reasons expressed in Kruska remain valid concerns as to why the insured’s understanding should be irrelevant to the material fact analysis. If RCEC’s position were to prevail, not only would it be difficult to establish the knowledge of the insured, but also, insureds might be encouraged to suppress material information. [70] In the result, I am not persuaded that the change requested by RCEC falls within the type of incremental adaptation that the common law accommodates. Nor am I satisfied that such a change is warranted on policy grounds. Page 20 c. Did the judge err by failing to consider in his assessment of materiality that Guardian had not asked RCEC any questions regarding sexual abuse when RCEC applied for or renewed the Policy? [71] There was no direct evidence about what the Broker asked RCEC during the insurance application process. More generally, Mr. Mallett testified that during the relevant period, brokers were not asking religious institutions about allegations of sexual abuse (Decision, at para. 72). Based on this indirect evidence, the judge accepted that the Broker had not asked RCEC questions about sexual abuse (Decision, at paras. 77, 177). [72] In the Decision, the judge cited Sagl CA for the proposition that the duty of disclosure applies even in the absence of questions from the insurer, although the absence of questions may be evidence that the insurer does not consider a fact to be material (Decision, at para. 21). [73] Although acknowledging that the judge correctly cited the law in Sagl CA, the Intervenors submit that he failed to consider, or sufficiently consider, the absence of questions in this case. The Intervenors submit that the absence of questions was highly relevant to materiality because sexual abuse of children was an emerging concern and found by the judge to be on radar for social workers and governments. The Intervenors further submit at paragraph 65 of their factum: Given that Szirt’s evidence actually supports knowledge of sexual abuse was not material until the late 1980s, this makes the absence of questions particularly relevant to the determination of whether the insurer considers a fact to be material. Does deliberately not asking questions justify a we-did-not-know state of ignorance? (Underlining in original.) [74] I will begin my analysis of the Intervenors’ argument by reviewing the trial and appellate decisions in Sagl. In that case, the insurer had denied coverage for losses sustained in a house fire on several grounds, one of which was the insured’s failure to disclose material facts. Specifically, the insurer alleged that the insured had failed to disclose that she was not the sole owner of the property, that several mortgages on the property were in default, and that she was in financial distress. The application form filled out when the insured applied for the policy was “minimal” and did not contain any questions regarding these subjects (Sagl CA, at para. 57). Page 21 [75] At trial, the judge found in the insured’s favor, holding that if any of the undisclosed facts were material, the information could have been elicited on a “proper application form” (Sagl v. Cosburn, Griffiths & Brandham Insurance Brokers Limited, 2007 CanLII 36644 (ONSC), at paras. 147-149 [Sagl Trial]). [76] The court of appeal upheld the trial judge’s decision, although clarified that the “heavy burden” on the insured to fully disclose material facts applies even in the absence of questions from the insurer (Sagl CA, at paras. 51-52). Yet the court of appeal also noted that an insurer’s failure to ask for particular information may be evidence that the information is not material to the contract: [59] … while the applicant has a duty to disclose all material facts, an insurer’s conduct may be relevant to the analysis of whether a particular fact is material. An insurer’s failure to ask a question may be evidence that the particular insurer does not consider the issue to be material, even if, objectively, the information would have been regarded as relevant by a prudent insurer: see Great Northern Insurance Co. v. Whitney (1918), 1918 CanLII 42 (SCC), 57 S.C.R. 543; see also Fordorchuk v. Car & General Ins. Corp. Ltd., 1931 CanLII 313 (AB KB), [1931] 3 D.L.R. 387 (Alta. S.C.), at p. 390, citing Newsholme Bros. v. Road Transport and General Insurance Co., [1929] 2 K.B. 356, where, at p. 363, the court stated that insurance companies “run the risk of the contention that matters they do not ask questions about are not material, for, if they were, they would ask questions about them.” An insurer who accepts the risk without requiring an answer to a question asked, for example by not pursuing an unanswered question in an application form, has been found to have waived the question: see Hamzeh v. Safeco Insurance Company of America (1988), 1988 CanLII 3466 (AB KB), 32 C.C.L.I. 83 (Alta. Q.B.). [77] The court of appeal also endorsed some of the trial judge’s comments about the insurer’s duty of utmost good faith: [62] I agree with the trial judge that it runs contrary to the good faith obligation that the insurer owes to the insured for the insurer to agree to insure a risk, whether at the binder stage or at the time the policy is issued, when it knows or should know that there is information relevant to the risk that it does not have and that it did not even inquire into or that is incomplete, and then to raise the lack of information as a defence to a claim under the policy. (Emphasis added.) [78] In Pereira v. Hamilton Township Farmers’ Mutual Fire Insurance Company, 2006 CanLII 12284 (ONCA), at paragraph 62, the Ontario Court of Appeal adopted Page 22 the following summary of the law in this area from Silva v. Sizoo, 1997 CanLII 26880 (ONCJ), which I find both helpful and succinct: In summary, these cases show that the rule that insureds are bound to disclose all material facts on pain of having the policy avoided is alive and well. It is, as it always has been, subject to some exceptions. An insured need not disclose what the insurer actually knows, nor that which is so notorious in the industry or place concerned that any competent underwriter in the field would know it. There is a duty on an insurer not to close his eyes to the obvious, to that which is tantamount to notice; and not to refrain from asking because he prefers not to know the answer to a question which stares him in the face. There may be others, I do not pretend to be exhaustive. But there is no general duty owed by an underwriter to an applicant for coverage to conduct a reasonable investigation or otherwise to act as a reasonably competent underwriter. “Plaintiff may not shift the burden of truthfulness which was upon the insured into a burden of distrust and additional inquiry on the part of the defendant” (Emphasis added and citations omitted by the ONCA.) [79] Thus, an insurer who deliberately does not ask a question in order to preserve ignorance regarding a material fact may be found to have breached its duty to the insured and so not be permitted to void the policy for nondisclosure. Or, to put it in the phrasing of the Intervenors’ factum, deliberately not asking questions may not justify a “we-did-not-know state of ignorance”. [80] However, the Intervenors’ assumption that Guardian deliberately did not ask questions about sexual abuse by the clergy that it knew or should have known about, is contrary to the judge’s findings and not supported by the evidence. The judge found that the issue of sexual abuse was “not on the radar” for the underwriter who wrote the Policy and, more generally, sexual abuse was not a known insurance risk (Decision, at paras. 103, 113). He did not find that Guardian knew or should have known that children were alleging sexual abuse by clergy. He found that RCEC intentionally concealed or misrepresented the information and, further, that RCEC had adopted a practice that “has been described in some parlance as ‘a cover-up’” (Decision, at paras. 168-169). [81] The circumstances of this case are quite distinguishable from those in which an insurer’s failure to ask questions has been considered relevant to the assessment of material risk. The evidence did not establish that Guardian knew or ought to have known about allegations of sexual abuse. Nor did it establish that a reasonable and prudent underwriter would have asked questions on the topic. The evidence established that the information was solely within RCEC’s knowledge and that Page 23 RCEC did not disclose it. Reading the Decision holistically, it is clear that the judge knew that an insurer’s failure to ask questions may be relevant to the issue of materiality but that he did not consider it relevant in this case. I find no reversible error in his assessment. d. Did the judge err by ignoring Mr. Szirt’s evidence that, while he would not have issued the Policy, “that doesn’t mean that there are no other prudent and reasonable underwriters who for a variety of reasons might have accepted it”? [82] I find little merit to this argument because the judge did not ignore Mr. Szirt’s evidence as alleged by RCEC. The judge reviewed Mr. Szirt’s evidence in considerable detail in the Decision. He specifically referenced Mr. Szirt’s testimony that the disclosure of sexual abuse could be considered a management issue and that some underwriters could have accepted it as a risk, while others would have declined, but ultimately it was a matter of individual judgment (Decision, at para. 59). The judge did not cite the exact quote from Mr. Szirt that RCEC has identified, but he did not need to. His reasons demonstrate that he was alive to that evidence. [83] The reasons also demonstrate that the judge was alive to the evidence that Mr. Szirt gave towards the end of his cross-examination that was less favorable to RCEC’s position, as I have noted above. Mr. Szirt accepted that a reasonable and prudent insurer informed of the sexual abuse allegations would not have issued the Policy with the Clergy Endorsement, that is, the prudent insurer would not have issued the same policy covering the same risk. He also acknowledged that this made the information a material factor. [84] Understandably, RCEC would prefer that the judge had ascribed more weight to the portions of Mr. Szirt’s testimony that support its position, but the weighing of evidence is within the trial judge’s purview. RCEC has not shown any palpable and overriding error in his assessment of Mr. Szirt’s testimony. e. Did the judge err by failing to consider the public policy goals and key principles of Canadian insurance law? [85] The Intervenors submit that the judge failed to adequately consider key principles and policies that underlie insurance law, in particular, those addressed by the Supreme Court of Canada in Bazley; Non-Marine Underwriters, Lloyd’s of London v. Scalera, 2000 SCC 24, [2000] 1 S.C.R. 551; and Smith v. Co-operators Page 24 General Insurance Co., 2002 SCC 30, [2002] 2 S.C.R. 129, and by the Ontario Court of Appeal in MacDonald v. Chicago Title Insurance Company of Canada, 2015 ONCA 842, leave to appeal to SCC refused, 36830 (20 October 2016). [86] The Intervenors did not participate at trial, and I do not know whether similar submissions were made before the judge. If they were not, his not addressing them directly in the Decision is understandable. That said, it is appropriate for this Court to consider insurance principles and policy in reviewing the Decision so I will begin with a discussion of the key cases the Intervenors have identified. [87] In Chicago Title, the Ontario Court of Appeal summarized well-settled principles of interpretation for insurance contracts (at para. 66). Although the judge reviewed these principles early in the Decision, he did not refer to this law when he analyzed the issues. This is presumably because the judge was not required to interpret the Policy to determine the issues before him. The duty to disclose was not written into a contractual clause but rather arose from the common law. As such, the specific principles identified in Chicago Title have little application to this case. The larger insurance principles and policies that underlie the Chicago Title principles and are relevant to this case are expressed in the other decisions the Intervenors have cited. [88] Chronologically, the first of those decisions is Bazley. As previously noted, Bazley addressed the circumstances under which an employer should be held vicariously liable for an employee’s unauthorized and intentional wrongs. In Bazley, a non-profit foundation that operated residential care facilities for children was held vicariously liable for sexual abuse by its employee. At paragraph 29, the Supreme Court identified two main, and related, policy considerations that underlie the imposition of vicarious liability on employers: (1) provision of a just and practical remedy for the harm, and (2) deterrence of future harm. [89] The first policy consideration recognizes that, most often, an employer employs someone to advance the employer’s own economic interests, and so fairness dictates that the employer should have a corresponding liability for losses incurred because of the enterprise. Vicarious liability transfers risk created by the employment enterprise to the employer. It also helps ensure effective compensation by improving the chances that a victim can recover judgment if the tortfeasor is impecunious (Bazley, at paras. 30-31). Page 25 [90] The second policy consideration, deterrence of future harm, recognizes that employers can often reduce the risk of intentional wrongs occurring by efficient organization, supervision, and even discipline. Holding them responsible motivates employers to take steps to reduce the risk (Bazley, at paras. 32-33). [91] The next case is Scalera. In Scalera, the Supreme Court considered a clause in an insurance contract that excluded coverage for bodily injury caused by “any intentional or criminal act”. The insured sought to have the insurance company defend him in a civil action for claims arising from alleged sexual assaults. The Court held that the exclusion applied because sexual battery is an intentional act. In so deciding, the Supreme Court addressed the economic rationale of insurance. Of relevance to the present case, is how the Court linked the economic rationale to public policy, at paragraph 69: … This economic rationale takes on a public policy flavour where, as here, the acts for which the insured is seeking coverage are socially harmful. It may be undesirable to encourage people to injure others intentionally by indemnifying them from the civil consequences. On the other hand, denying coverage has the undesirable effect of precluding recovery against a judgment-proof defendant, thus perhaps discouraging sexual assault victims from bringing claims. [92] Finally, there is Smith, which involved statutory accident benefits and considered when a limitation period began to run. The Intervenors have cited it for the proposition that one of the main objectives of insurance law is consumer protection, particularly in the field of automobile and home insurance. Consumers in this context are usually considered to be consumers of insurance products, that is, those buying insurance. While the proposition is sound, I do not find that it has as much relevance to the present case as do the policy grounds discussed in Bazley and Scalera. [93] The Intervenors make a policy-based argument. They submit that voiding the Policy has the undesirable effect of precluding recovery against a judgment-proof defendant and therefore potentially discourages sexual assault victims from bringing claims. They argue that the judge’s holding does not advance the policy goal of providing a just and practical remedy for the harm done. [94] The policy goals that the Intervenors advance are recognized in Bazley and Scalera. They are important objectives. And while legal principles are needed to lend certainty to the law and guide future applications, there is also a place for Page 26 policy-driven perspectives of the law, particularly in areas of developing or evolving jurisprudence (Bazley, at paras. 27-28). [95] However, in the present case, there are countervailing policy objectives to consider as well. Importantly, the objective of deterring future harm from occurring and encouraging prompt and full reporting of allegations of abuse when they arise. The benefit to victims of these objectives is clear. Yet, if RCEC ultimately benefits from not disclosing sexual abuse allegations, these policy goals are impeded. [96] The benefit to RCEC of having the Policy upheld is not so apparent in this case because the sexual abuse claim amounts are so high that even if the Policy was not voidable and was paid out to the policy limit, RCEC’s assets would still have been at risk. But in principle, there is a benefit to the insured of upholding the Policy, not just to the victims who have suffered harm. Although the Intervenors have characterized RCEC as “judgment-proof”, this characterization does not recognize that, as of March 2025, approximately $44,000,000 had been raised from selling RCEC’s assets in order to pay sexual abuse claims (Intervention Decision, at para. 11). [97] In essence, the Intervenors seek an amendment to the law of the duty of disclosure that would permit recovery to victims in cases in which material facts have been withheld by the insured. As already noted, such change, and the necessarily incidental weighing of policy considerations involved in making it, is best left to the legislative branch. I would not allow the appeal based on the principles and policy considerations raised by the Intervenors. f. Did the judge err by failing to follow L’Évêque Catholique Romain de Bathurst, in which the court found that a comprehensive general liability policy was not void because of the archdiocese’s failure to disclose allegations of sexual abuse? [98] The Intervenors submit that the judge misinterpreted L’Évêque, a decision of the New Brunswick Court of Kings Bench, which considered facts similar to those of the present case. The Intervenors state that the judge’s finding of material fact cannot be reconciled with the findings made in L’Évêque. [99] In L’Évêque¸ the insurer, Aviva, claimed that the Catholic Diocese of Bathurst had failed to disclosure material facts, namely its knowledge of sexual abuse by its Page 27 clergy, and that the policy was void as a result. The trial judge found that the insurer did not meet its burden of establishing its claim. The judge wrote: [139] In support of its position on materiality, for which it bears the burden of proof on the balance of probabilities, Aviva has led no evidence on the issue through: (a) Any witness or witnesses with any knowledge of the underwriting policies of the insurers involved during the relevant time periods (late 1950's - early 1980's); (b) Any records, documents, underwriting policies or manuals of the insurers for those same periods as they were apparently all destroyed sometime prior to Aviva ever becoming aware of any potential claims in this action; (c) Any applications or copies of applications in relation to the policies issued or the renewals thereof; (d) Any witness or representative of Aviva or its predecessors with actual knowledge who could say that either of the insurers would have considered the undisclosed information as material facts; and (e) Of an objective source, an expert, in the field of underwriting who could testify as to the standard insurance industry practices at the relevant periods of time and as to whether or not a reasonable insurer would have considered the non-disclosed information as material facts with respect to its decisions relating to issuing the policy, defining the scope of coverage or setting a higher premium to be charged. [100] The Intervenors allege that the judge appears to have misinterpreted the above passage by accepting it as a list of “hypothetical necessities” for Guardian’s evidentiary burden. They further allege that this resulted in his drawing conclusions that cannot be reconciled with L’Évêque, even on a different evidentiary record. The Intervenors state, “something is either material to the insurance industry or is not”. [101] I cannot agree. First, I am not persuaded that the judge made any error in interpreting L’Évêque. RCEC argued the precedential value of L’Évêque at trial, and the judge considered it at some length in the Decision. He distinguished it primarily because the evidentiary record before him was stronger than it was in L’Évêque and met the insurer’s evidentiary burden. He found paragraph 139 of L’Évêque, cited above, instructive: [126] I find McNally, J.’s analysis of the evidentiary necessities for materiality to be instructive and conclude that Guardian has met the evidentiary threshold needed, namely that the collective evidence of Szirt and Mallett addressed items (a), (d) and Page 28 (e). Item (b) was addressed in the Joint Book of Documents, Consent Exhibit #2, which contained the Policy wording and the clergy endorsement wording. This evidence was supplemented by Mallett’s testimony about Guardian’s underwriting policies (Transcript, p. 50). Item (c) could not be addressed as there was no record of the submission to Guardian by Marsh on behalf of RCEC. [102] He also noted that in L’Évêque neither party had addressed the insurer’s exposure for direct liability for the Diocese: [123] In L’Eveque neither party addressed Aviva’s potential exposure for the direct liability of the Bathurst Diocese for failing its duty to protect children of the Diocese. Specifically, they failed to focus on the following arguments: (i) the potential liability from its “error in judgment” in allowing its priests to continue to commit criminal sexual abuse between 1975 and 1980; and (ii) the existence of a moral hazard or the existence of a morality issue in providing coverage for such known criminal acts. [103] As already discussed, the judge had considered exposure for RCEC’s direct liability as well as its vicarious liability. [104] It is not the case that “something is either material to the insurance industry or is not”. Materiality is a matter of fact to be decided by a trial judge based on the evidence presented. In this case, the judge applied the same legal test for material fact as did the judge in L’Évêque but came to a different conclusion based on a different evidentiary record. He made no reversible error in doing so. ISSUE 2: Did the judge err in finding that if Guardian voids the policy, it is not required to return the premiums paid by RCEC? [105] RCEC makes two major arguments with respect to this issue. RCEC’s first argument is that Guardian has already declared the Policy void without returning the premiums, and so it has either now waived its right to repudiate the contract or is estopped from doing so. [106] RCEC’s second argument is that the judge erred in applying the test for civil fraud set out in Bruno Appliance and Furniture, Inc. v. Hryniak, 2014 SCC 8, [2014] 1 S.C.R. 126. [107] I will address each of these arguments in turn. Page 29 a. Has Guardian waived its right to repudiate the contract, or is it estopped from doing so because it has already declared the Policy void without returning premiums? [108] In March 2010, Guardian sent RCEC’s lawyer a reservation of rights letter in which it advised that although it would provide a defence to RCEC in relation to a legal action claiming damages for sexual abuse during the period of the Policy, it would not offer RCEC indemnity “at this time” or “until such time as it is determined conclusively whether or not RCEC is entitled to indemnity”. [109] The letter referred to allegations made in the legal action that “RCEC was specifically aware of the sexual misconduct of [clergy] within the Diocese of St. John’s and within the Province of Newfoundland and Labrador”. It continued to state that “if the allegations are found to be true” RCEC’s failure to disclose the information was a material non-disclosure or material misrepresentation, which voids coverage for any claim for indemnity. [110] At trial, RCEC argued that if an insurer is allowed to take an ambiguous position and wait for a court to declare whether it has grounds to void a policy, then this effectively grants a license to insurers to take an unclear position, or no position, which is contrary to the nature of an insurance contract as one of good faith and fair dealing. It argued that part of the insurer’s good faith obligation to the insured is to declare its position when coverage is in issue and return the premium that it had received in return for its policy commitment (Decision, at para. 145). [111] In response to this argument, Guardian argued at trial that its reservation of rights letter outlined its position to RCEC when the coverage issue arose. It further noted that up to the beginning of trial when the parties submitted an agreed statement of facts, RCEC had maintained its denial of any knowledge surrounding sexual abuse by its clergy. As such, Guardian argued that if it had declared the Policy void prior to this point, then it would have opened itself to an argument of bad faith because it had previously advised RCEC that it would reserve its right to indemnify until such time as entitlement to indemnity was determined conclusively (Decision, at paras. 146-147). [112] Although the judge did not make a direct finding in relation to this dispute, it is evident from the Decision as a whole that he resolved the issue in Guardian’s favour. Based on his finding regarding material fact, he held that “Guardian is entitled to void the Policy at common law” (Decision, at para. 139). He further found Page 30 that Guardian was not required to return the premiums (Decision, at para. 181). He did not find that Guardian had waived its right to void the contract or was now estopped from doing so. [113] RCEC has not shown that the judge made any reversible error with respect to this conclusion. The reservation of rights letter took a “wait and see” position while the facts that would allow Guardian to void the Policy were in dispute. RCEC should not have been in any doubt that Guardian was reserving its right to void the Policy if a material non-disclosure or material misrepresentation were established. [114] Before this Court, RCEC raises an additional point in relation to this argument. It notes that Guardian stated that the Policy was “void” in its statement of defence, not simply voidable if a material fact had been withheld. As such, it asserts that Guardian has already voided the Policy without returning premiums. This information does not change my assessment. In court pleadings, parties set out the facts they intend to establish by evidence at trial. In this case, the parties understood that if Guardian did not establish a material misrepresentation or omission, the Policy would remain valid. Neither side believed that the Policy was voided by allegations made in the statement of defence. b. Did the judge err in applying the test for fraud? [115] An insurer is entitled to void a policy for material misrepresentation or omission without establishing fraud by the insured. However, upon voiding the policy, the insurer is required to refund to the insured the premiums paid unless the insured’s misrepresentation or non-disclosure is shown to have been fraudulent (Moscarelli v. Aetna Life Insurance Co. of Canada, 1995 CanLII 7076 (ONSC), aff’d 1995 CarswellOnt 1070, [1995] O.J. No. 3997 (ON Div Ct); Lloyd's London, Non-Marine Underwriters v. National Armoured Ltd., 1996 CanLII 8104 (ONSC), aff’d 1999 CanLII 2590 (ONCA); Intermunicipal Realty & Development Corp. v. Gore Mutual Insurance Co., 1980 CanLII 4252 (FC); and Denis Boivin, Insurance Law, 2nd ed, (Toronto: Irwin Law, 2015), at 189). [116] The judge identified this as the applicable law, and the parties do not allege any error in his doing so (Decision, at paras. 150-153). As such, the critical question before the judge with respect to the premiums was whether Guardian had established fraud. Page 31 [117] The judge identified the elements of civil fraud set out in Bruno Appliance: (1) a false representation made by the defendant; (2) some level of knowledge of falsehood by the defendant or recklessness in making the representation; (3) the false representation caused the plaintiff to act; and (4) the plaintiff’s actions resulted in a loss (Decision, at para. 156). [118] The judge further noted that the elements articulated in Bruno Appliance implicitly include a requirement that the plaintiff prove intent on the part of the defendant making the false statement or misrepresentation (Decision, at para. 160). I note that in Walsh v. TRA Company Limited, 2023 NLCA 23, this Court expressly included a fifth element in the test for civil fraud, which is that the defendant intended that the plaintiff act in reliance on the false statement or misrepresentation (Walsh, at paras. 48-49; see also Midland Resources Holding Limited v. Shtaif, 2017 ONCA 320, at para. 162, leave to appeal to SCC refused, 37653 (21 December 2017), and Ultracuts v. Magicuts, 2023 MBCA 71, at paras. 64-67, leave to appeal to SCC refused 40980 (9 May 2024)). [119] The judge found that Guardian had established all the requisite elements and so, fraud being proven, did not have to return the premiums. [120] RCEC, supported by the Intervenors, submits that the judge erred in so deciding. Although it concedes the fourth element of Bruno Appliance, that Guardian suffered a loss, it contends that on a proper application of the law, none of the other elements are established. [121] Although I do not agree with RCEC that none of the other elements were properly established, I agree that the judge erred in finding the requisite intention for fraud. I will explain. [122] In Chenier et al. v. Madill Mercier et al. v. Plant & Anderson Ltd. et al., 1973 CanLII 478 (ONSC), the court considered fraud in the context of a statutory condition of insurance that voided the contract if the person applying for insurance “fraudulently omits to communicate any circumstances that is material to be made known to the insurer”. The court noted, at pages 21-22, that the term “fraud” can be employed in different senses and, at times, is used in the insurance context to describe a failure to disclose a material fact that is “innocent from the moral point of view”. Yet, in the context of the statutory condition requiring that the omission be made “fraudulently”, the court held that an innocent failure was not sufficient and that the mental element of fraud must be shown. In Le Lievre and Dennes. v. Gould, Page 32 [1893] 1 Q.B. 491, at 498, 68 L.T. 626, this mental element was identified colourfully as the “wicked mind”. [123] The court in Chenier recognized that the mental state required to establish fraud may vary depending on the circumstances of the case, at 24: What conditions of mind amount to that wickedness of mind necessary to constitute the mental element of fraud may vary endlessly, depending upon the circumstances of individual cases. I quite appreciate the reluctance of Judges and legal writers to attempt a comprehensive definition of it. I must consider what mental state could constitute the mental element of fraud, in the circumstances of this case. [124] Ultimately, the court articulated the mental element in the circumstances of an omission of a material fact as follows, at 25: … in the absence of knowledge of the materiality to the insurer of the circumstances, there can be no fraud in the omission to communicate them. It is my opinion therefore, that unless I can come to the conclusion on the balance of probabilities that Mrs. Chenier knew that the circumstances she omitted to communicate to the insurer were material to it to judge of the risk to be undertaken, I cannot find that such omissions were fraudulent. [125] Applying that test, the court considered not just direct evidence of Mrs. Chenier’s intention, but also evidence from which her intention could be inferred (Chenier, at 25). In the result, although the court found that Mrs. Chenier had omitted to disclose information material to the insurer, it was unable to infer her knowledge that the information was material and thus unable to conclude that the omission was fraudulent (Chenier, at 26). [126] Numerous cases have followed Chenier, holding that finding fraud by omission requires that the insured be shown to have knowledge of the materiality of the information to the insurer (see e.g. Goldshlager v. Royal Insurance Co. Ltd. and two other actions, 1977 CanLII 1306 (ONSC); Hoar's Estate, B.I.T.S. Limited and Sam Realty Ltd. v. Hudson Bay Insurance Company, 1980 CanLII 3236 (NBCA); Landmeyer v. Economical Mutual Insurance Co., 1985 CanLII 3121 (NSCA); V.K. Mason Construction Management Inc. v. Hanover Insurance Co., 1988 CanLII 3557 (ABKB); University of Saskatchewan v. Fireman’s Fund Insurance Co. of Canada, 1995 CanLII 6167 (SKQB), rev’d on other grounds 1997 CanLII 9789 (SKCA), leave to appeal to SCC refused, 26370 (19 March 1998). The principle has also been cited in legal texts (see e.g. Denis Boivin, Insurance Law, 2nd ed (Toronto: Irwin Law, 2015), at 173; Craig Brown & Thomas J. Donnelly, Insurance Law in Canada, Page 33 (Toronto: Thomson Reuters, 1999) (loose-leaf updated 2026, release 2), at 5-12 to 5-13). [127] Although the above-cited cases were decided in the context of a statutory requirement that a material omission be fraudulent to render the insurance policy void, the reasoning applies equally to the present case. Consistent with the fifth element of the test for civil fraud articulated in Walsh and Midland, to have acted fraudulently, an insured must have had the intention to deceive the insurer. This requires knowledge that the information, if disclosed, might have resulted in the policy not being issued, or being issued for a higher premium. Unlike the test for a breach of the common law duty of disclosure, which views non-disclosure through the eyes of a reasonable or prudent insurer, the test for fraud considers the insured’s subjective knowledge. [128] In Intermunicipal Reality, a case which considered the return of premiums in the context of a material misrepresentation, the court stated the intention to deceive this way, at 160: I find the material misrepresentation was fraudulent. It was wilfully made to deceive an underwriter, in order to induce him to take on the risk. [129] In the present case, although the judge correctly identified that fraud required the defendant’s intention that the plaintiff act in reliance on the material omission, he erred by failing to consider whether RCEC intended to deceive Guardian in this way. With respect to intention, he wrote: [168] I find this information was intentionally concealed or misrepresented by the Archdiocese and had it been disclosed it would, on a fair consideration of the evidence, have influenced a reasonable insurer to decline the risk. [169] The evidence further supports the finding that by the 1980s, the RCEC had adopted a practice that has been described in some parlance as “a cover-up”. As noted in Bennett, the motivation behind this practice was not to protect the offender but rather to shield the parishioners who remained faithful to the Catholic Church. [170] I conclude this non-disclosure by RCEC to be a reckless dismissal of the truth of these allegations and demonstrates an intentional failure to discharge its duty to protect the children of its parishes. RCEC knowingly risked exposure to provable civil claims and placed itself directly liable to the children who were sexually abused. Page 34 [130] However, that RCEC intended generally to conceal allegations of sexual abuse during the same time that it applied for or renewed the Policy, does not mean that RCEC intended to defraud Guardian. It is not enough to show that if the information was disclosed it would have influenced a reasonable insurer to decline the risk. As already discussed, that is the test for a breach of the duty of disclosure, for which the intention of the insured in failing to disclose the information is irrelevant. [131] Nor does the judge’s finding that RCEC was reckless as to the truth of the allegations or that its recklessness may be evidence of its failure to discharge its duty to the children of its parishes, establish an intention to defraud Guardian. The recklessness relevant to establishing fraud must relate to RCEC’s knowledge of the risk of harm to Guardian in agreeing to a policy to which it would not have otherwise agreed, not that RCEC was reckless in relation to the presence of abuse within its walls. [132] Finally, although the judge concluded that RCEC knowingly risked exposure to provable civil claims by the victims, not only is it unclear upon what evidence this finding is based, this in and of itself does not establish that RCEC knew that it would seek to have Guardian indemnify it for any liability. [133] In order to be satisfied that RCEC intended to commit fraud, the judge had to consider whether RCEC knew that the allegations it failed to communicate to Guardian were material to Guardian in its decision to issue the Policy. This would require RCEC’s knowledge that the information, if provided, might have resulted in the Policy not being issued, or a higher premium being stipulated. RCEC must be shown to have wilfully deceived Guardian in order to induce it to issue the Policy. [134] Yet the judge did not consider RCEC’s intention as it related to whether RCEC induced Guardian to enter the Policy. The judge made no finding about RCEC’s knowledge of the materiality of the allegations to the insurer. Because of this error, I would overturn his finding of fraud. The appropriate remedy [135] In the case of an error by the court below, this Court can make its own assessment of the evidence on the record rather that ordering a new trial when circumstances warrant such a result (Madsen Estate v. Saylor, 2007 SCC 18, [2007] Page 35 1 S.C.R. 838, at para. 24; Matchim v. BGI Atlantic Inc., 2010 NLCA 9, at paras. 93- 109, leave to appeal to SCC refused, 33660 (22 July 2010)). [136] The events giving rise to the present appeal occurred over forty years ago. The victims are no longer children; those who survive are middle-aged adults. There may not be sufficient funds to pay their claims in full and a retrial will cause additional delay and expense. There is only one discrete issue that must now be decided. Importantly, the record before this Court and the factual findings made by the judge are sufficient for this Court to make the assessment. In such circumstances, I am satisfied that it is both practically feasible and in the parties’ interest for this Court to decide whether RCEC’s fraudulent intention has been established. Analysis of fraudulent intent [137] There was no direct evidence of RCEC’s knowledge of the materiality of the allegations of abuse when it applied for the Policy or its renewals. The only witness from the RCEC hierarchy was the current Archbishop who was not involved in the historical events. He testified that he was unable to speak to the mindset of RCEC’s hierarchy at the relevant time (Decision, at para. 45). [138] There was no expert evidence as to what a reasonable insurance applicant would have considered to be relevant to an insurer at the relevant time. To the extent that there was evidence about general public knowledge, it did not support an inference that RCEC ought to have known that allegations of sexual abuse were material facts. [139] As already noted, the judge found that (a) societal understanding of sexual abuse in the early 1980s was limited; (b) there was no understanding of its impact from an underwriting perspective; (c) in the late 1980s there was a sea change in both societal understanding and the way insurance underwriting responded to it; and (d) there were no civil claims for sexual abuse in which an employer was held liable in negligence or vicariously liable prior to 1986 (or indeed, much later) (Decision, at para. 103). Such findings do not support an inference that RCEC knew that the allegations of abuse would have been considered material by Guardian. [140] As a result, I would find that Guardian has not established fraud on the part of RCEC and so must refund the premiums if it opts to void the Policy. Page 36 CONCLUSION AND DISPOSITION [141] The judge did not err in finding that Guardian is entitled to void the Policy because RCEC failed to disclose the allegations of sexual abuse. [142] However, because the judge erred in finding fraud on the part of RCEC, I would allow the appeal on that basis. I would further hold that fraud has not been established and so, if Guardian voids the Policy, it is required to return the premiums paid by RCEC. [143] In light of this mixed result, I would not make any order as to costs. _______________________________ K.J. O’Brien J.A. I concur : _____________________________ W.H. Goodridge J.A. I concur : _____________________________ F.J. Knickle J.A.