2018 NBCA 64, 2018 NBCA 64

COURT OF APPEAL OF NEW BRUNSWICK COUR D’APPEL DU NOUVEAU-BRUNSWICK 82-16-CA AVIVA INSURANCE COMPANY OF CANADA APPELLANT AVIVA, COMPAGNIE D’ASSURANCE DU CANADA APPELANTE - and - - et - L’ÉVÊQUE CATHOLIQUE ROMAIN DE BATHURST RESPONDENT - and - CO-OPERATORS GENERAL INSURANCE COMPANY INTERVENER L’ÉVÊQUE CATHOLIQUE ROMAIN DE BATHURST INTIMÉ - et – COMPAGNIE D’ASSURANCE GÉNÉRALE CO- OPERATORS INTERVENANTE Aviva Insurance Company of Canada v. L’Évêque catholique romain de Bathurst, 2018 NBCA 64 Aviva, Compagnie d’Assurance du Canada c.

L’Évêque catholique romain de Bathurst, 2018 NBCA 64 CORAM: The Honourable Justice Larlee The Honourable Justice Richard The Honourable Justice Quigg CORAM : l’honorable juge Larlee l’honorable juge Richard l’honorable juge Quigg Appeal from a decision of the Court of Queen’s Bench: October 7, 2016 Appel d’une décision de la Cour du Banc de la Reine : le 7 octobre 2016 History of case: Decision under appeal: 2016 NBQB 174 , [2016] N.B.J. No. 272 Preliminary or incidental proceedings: N.A.

Historique de la cause : Décision frappée d’appel : 2016 NBBR 174 , [2016] A.N.-B. n o 272 Procédures préliminaires ou accessoires : s.o.

Appeal heard: February 14, 2018 Appel entendu : le 14 février 2018 Judgment rendered: October 18, 2018 Reasons for judgment by: The Honourable Justice Richard Concurred in by: The Honourable Justice Larlee The Honourable Justice Quigg Jugement rendu : le 18 octobre 2018 Motifs de jugement : l’honorable juge Richard Souscrivent aux motifs : l’honorable juge Larlee l’honorable juge Quigg Counsel at hearing: For the appellant: Charles A. LeBlond, Q.C. For the respondent: Mark R. Frederick and Chris T. Blom For the intervener: Danys R.X. Delaquis Avocats à l’audience : Pour l’appelante : Charles A. LeBlond, c.r.

Pour l’intimé : Mark R. Frederick et Chris T. Blom Pour l’intervenante : Danys R.X. Delaquis THE COURT The appeal having been abandoned, the cross- appeal is allowed without costs. LA COUR L’appel ayant été abandonné, l’appel reconventionnel est accueilli sans dépens. The following is the judgment delivered by RICHARD, J.A. I.

Introduction [ 1 ] While the underlying facts of this litigation are most disturbing, at its core this is a breach of contract case involving a diocese that, over the years, purchased general public liability insurance from an insurer, which, many years later, when claims were made, wrongfully denied coverage.

The question on appeal is whether the diocese is entitled to damages for breach of contract in amounts that involve the costs of, and payments made through, a conciliation process the diocese set up as a result of its insurer’s denial of coverage. [ 2 ] Between the late 1950s and the early 1980s, a large number of young people were sexually

abused at the hands of various priests in the Diocese of Bathurst. For years, most of these victims suffered in silence. It was only decades later that the abuse began to come to light. Once some victims had come forth, two of the principal offending priests were charged and convicted. When claims were advanced against the Diocese, it turned to its insurer, Aviva Insurance Company of Canada. Aviva participated in the settlement of one claim but then denied coverage.

Left to its own devices, and faced with the possibility of having to defend and/or pay a significant number of sexual abuse claims, the Diocese set up a conciliation system to address the claims. The Diocese retained a retired Justice of the Supreme Court of Canada, the Honourable Michel Bastarache, to devise and implement a process designed to both resolve the claims and seek the forgiveness of the victims. Having been informed of the Diocese’s plans, Aviva declined to participate in the process.

Many claims were resolved through this process, but many others were initiated through conventional court proceedings. Aviva denied coverage for any payment to victims, whether made to those who participated in the conciliation process or to those who had opted out of this process in favour of the conventional procedure. [ 3 ] Having paid out in excess of $7 million, the Diocese commenced an action against Aviva claiming damages for breach of contract.

The trial of the issues raised in the lawsuit was bifurcated and the parties first proceeded with the claim relating only to the amounts paid through the conciliation process. Aviva denied liability for those amounts.

Aviva maintained the claims: (1) fell outside the coverage provided under the insurance policies; (2) were for conduct that was expressly excluded by the policies; (3) did not consist of sums paid on account of liability imposed upon the Diocese by law; and that (4) in any event, any coverage was void for the failure to disclose material risks. [ 4 ] In a decision dated October 7, 2016, and reported at 2016 NBQB 174 , [2016] N.B.J.

No. 272 (QL) , a judge of the Court of Queen’s Bench held the claims against the Diocese by victims of sexual abuse fell within the grant of coverage, were not excluded pursuant to the intentional act exclusion provision of the policies, and were not void for failure to disclose a material risk. Nevertheless, the trial judge concluded the conciliation claims were not covered by the Diocese’s insurance policies. In the main, he found the payments to the victims made through the conciliation process were voluntary payments and did not constitute sums paid by reason of liability imposed by law.

The effect of the judge’s conclusion is that claims resolved through the conciliation process were not covered, but those resolved by the traditional process were covered and would be assessed in the next phase of the trial. [ 5 ] Both Aviva and the Diocese appealed the trial judge’s decision. Aviva alleged the trial judge had erred in finding all claims for sexual abuse fell within the grant of coverage, erred in holding the intentional acts exclusion did not apply, and erred in concluding the policies were not void for failure to disclose a material risk.

By cross-appeal, the Diocese effectively claimed the trial judge applied the wrong legal test in determining that the Diocese did not have a right to be indemnified for the conciliation claims. An intervenor, the Co-operators General Insurance Company, supported the position of Aviva in respect of both the appeal and the cross-appeal. [ 6 ] Shortly before the hearing, Aviva discontinued its appeal. This left only the cross-appeal to be argued.

By abandoning its appeal, Aviva left unchallenged the judge’s determination that the claims for sexual abuse were covered under policies that were not void for failure to disclose material risks, and were not excluded by the intentional acts clause. In essence, Aviva now accepts it had wrongfully denied the Diocese when it sought coverage for the sexual abuse claims.

This left for determination only the question raised in the cross-appeal, that is, whether the trial judge erred in concluding the claims resolved through the conciliation process were not recoverable as damages as they did not involve payments for liability imposed by law. [ 7 ] In my respectful view, the judge did err in this regard by applying an incorrect test. This was a claim for damages flowing from a breach of contract and not one for indemnity under the policy. The Diocese’s right to damages did not rest on it being legally obligated to make the conciliation payments.

The correct legal test is one of reasonableness; the trial judge was bound to follow this test and determine whether the conciliation process and the resulting payments were a reasonable response to breach of contract. I conclude the actions of the Diocese did constitute a reasonable response, within the boundaries of the law, to Aviva’s wrongful denial of coverage. As a result, I would allow the cross-appeal. II.

Factual background [ 8 ] In 2002, Monsignor Valéry Vienneau, then Archbishop of the Roman Catholic Diocese of Bathurst, received a notice of claim from a victim who alleged having been sexually abused by Fr. Charles Picot in the early 1980s. This claim was settled in 2003 with the Diocese and three insurance companies, one of which was Aviva, contributing to the settlement. The total settlement amount was $64,667.45. The Diocese contributed $15,917.45 to the settlement while the insurers split the remaining amount evenly in the amount of $16,250.00 per insurer.

A second claimant came forward in 2006; this time the sexual abuse was alleged to have been at the hands of Fr. Lévi Noël. The Diocese settled the claim, in the amount of $40,000.00, using its own funds. Approximately two years later, in or around 2008, a third claimant sought $2,000,000.00 from the Diocese alleging sexual abuse by Fr. Noël sometime in or around 1970-1971. The Diocese submitted the claim to Aviva, but coverage was denied. [ 9 ] In late 2009, Fr. Noël was criminally convicted of 22 counts of gross indecency and sexual assault.

He pleaded guilty to 18 of the counts in late 2009, and the other 4 in 2010. In early 2010, he was sentenced to a total of eight

years in prison. The publicity surrounding Fr. Noël’s criminal charges and subsequent convictions attracted interest from lawyers and law firms. A Nova Scotia firm advertised in newspapers seeking potential claimants while an Ontario lawyer appeared on a news program with three victims who alleged sexual abuse by Fr. Noël. The combination of willing claimants and the criminal conviction meant that, in 2009-10, the Diocese found itself in a situation where the facts indicated more claimants would likely be forthcoming.

In response, Monsignor Vienneau contacted bishops in other parts of the country who had experience with claims of sexual abuse against their priests. These bishops advised him to retain legal counsel and to deal with the issue in a transparent manner. Monsignor Vienneau conferred with counsel and located the Diocese’s insurance policies. Aviva’s predecessors, Canadian General Insurance Company and Commercial Union Assurance Company, had provided the Diocese with a number of general public liability insurance policies that covered the period during which the sexual abuse occurred.

The wording for all policies was essentially the same.

It provided coverage in the following words: TO PAY on behalf of the Insured all sums which the Insured shall become obligated to pay by reason of the liability imposed upon the Insured by law, or assumed by the Insured under contract, for damages because of bodily injury, sickness or disease, including death at any time resulting therefrom, caused by events occurring within the Policy Period and suffered or alleged to have been suffered by any person or persons. [ 10 ] There was one period, from May 1, 1960, to May 1, 1967, for which the policy wording was unavailable. [ 11 ] After locating the insurance policies, Monsignor Vienneau then contacted Aviva again seeking coverage for the claims of sexual abuse against the Diocese’s priests.

Once more, Aviva denied coverage. Left without insurance coverage, Monsignor Vienneau again consulted with legal counsel to determine the best course forward. This led to the establishment of a conciliation process to be overseen by the Honourable Michel Bastarache. The conciliation process appeared to Monsignor Vienneau to be the most financially responsible way forward, especially given the Diocese’s financial situation at the time.

Based on litigation involving other dioceses, particularly in Newfoundland and in Nova Scotia, Monsignor Vienneau concluded such an approach would allow the Diocese to avoid the high costs of litigation and ensure available monies went primarily to victims. A conciliation process would also prevent the victims from being “re-victimized” in an adversarial litigation process. Further, if the Diocese were to proceed to litigation on a claim-by-claim basis, there would not be enough money to compensate the victims and pay legal fees. Moreover, litigation would take quite a long time.

He came to believe litigation was neither in the best interest of the Diocese nor the victims, many of whom feared losing their anonymity. [ 12 ] The conciliation process was designed to do more than just settle claims. Its purposes were numerous:

a) public recognition by the Diocese and the Church of the sexual abuse and the harm done to victims by the priests involved;

b) establishing the actual incidences of abuse and what happened;

c) identifying which priests were involved so the Archbishop could ensure that they were no longer ministering;

d) providing a confidential and non-adversarial alternative forum for the victims to come forward to seek redress;

e) paying fair financial compensation to the victims if and as warranted;

f) limiting and avoiding the expense of litigation as much as possible to ensure the actual victims got most of what limited financial resources the Diocese had available to pay compensation, as opposed to having lawyers receive the bulk of the funds;

g) expeditiously paying fair compensation to the victims, many of whom were elderly, without the inordinate delays that often characterize the litigation process; and

h) seeking the forgiveness of the victims and reconciliation with the Church, if possible. [ 13 ] In line with the above objectives of truth-seeking, forgiveness, and reconciliation, the conciliation process was advertised in newspapers and through radio and television interviews with Mr. Bastarache. The purpose of these advertisements was to invite victims to come forward and have the conciliation process explained to them. Victims filled out forms and were interviewed by Mr. Bastarache so he could understand their stories as completely as possible. Mr. Bastarache confirmed facts such as the date(

s) of abuse, the abusing priest, and the parish to which the priest was assigned at the time of the abuse. Further, he addressed the issue of causation by questioning victims as to possible incidences of abuse by other persons and by searching for other causes of the problems advanced by the victims. Mr. Bastarache would then assess the appropriate amount of compensation. The amount was based on case law; victims were paid amounts similar to damages being awarded by courts to similar victims in similar circumstances.

[ 14 ] The Diocese did not have adequate funds to pay the assessed claims. As a result, it applied to the Court of Queen’s Bench to access trust funds set aside for the education and training of candidates for the priesthood. On November 29, 2010, Ferguson J. allowed the application: 2010 NBQB 400 , 371 N.B.R. (2d) 146 (“the trust decision”) . [ 15 ] The application to access trust funds generated increased attention to the conciliation process. A “second wave” of victims came forth.

These victims went through the conciliation process in the same manner as the “first wave.” In total, 83 victims participated in the conciliation process with compensation being paid to 50 of them. Twenty-six priests were identified as having committed sexual abuse: 19 identified in the conciliation process and an additional seven in separate court actions. [ 16 ] The Diocese paid the conciliation process participants a total of $4,284,000.00. Another group of victims, who opted not to participate in the conciliation process, was paid a total of $2,879,179.00. [ 17 ] The Diocese sued Aviva.

Among other relief, it claimed damages in the amount of $7 million as well as the costs of defending and/or settling court actions and those incurred through the conciliation process. [ 18 ] With regard to the payments made through the conciliation process, the Diocese recognized some of these fell partially within and partially outside the policy years. For these, the Diocese claimed only a pro-rata portion. [ 19 ] In the final analysis, the Diocese’s claim for payments made in the conciliation process amounted to $2,944,415.00.

The Diocese also claimed for counselling costs paid to victims ($6,111.00) and a portion of the conciliator’s fees ($407,738.00). Thus, the total claim for damages for breach of contract relating to the conciliation process amounted to $3,358,264.00. [ 20 ] Aviva defended the action, advancing the arguments referenced above and maintaining that, in any event, payments made through the conciliation process were voluntary payments and, as such, fell outside the scope of coverage. [ 21 ] The trial was bifurcated.

The judge was asked to first determine the coverage issues relating to all claims as well as the assessment of damages only for the conciliation claims. [ 22 ] In his decision, the trial judge addressed the five-year period for which the policy wording was unavailable. Since the wording of the policies issued both before and after that period were essentially the same, the judge concluded the policy wording for the missing years would also be the same.

Addressing each of Aviva’s arguments, the trial judge concluded the claims fell within the scope of coverage, were not caught by exclusion clauses, and were not voided by the Diocese’s failure to report known sexual abuse to Aviva. This led the judge to conclude that Aviva was obligated to indemnify the Diocese for the litigated claims. [ 23 ] Regarding the conciliation payments, the trial judge applied a voluntariness standard to determine whether the Diocese had a right to be indemnified by Aviva.

He concluded that, in order to recover damages against Aviva, the Diocese had to show the payments had been made because of “liability imposed by law.” The trial judge noted that “a reasonable settlement of a claim can also meet this requirement [of “liability imposed by law”] where an insurer wrongly denies coverage” (para. 114). [ 24 ] The trial judge went on to find Aviva was not responsible to indemnify the Diocese for the claims paid through the conciliation process because these payments were voluntary payments and not ones made on account of liability imposed by law.

The judge’s reasoning in this regard is captured in the following paragraphs of his decision: Aviva does not complain that the Diocese settled the claims without its consent. It does not allege that the Diocese's action in establishing the Conciliation Process caused it any prejudice. Nor does it contest the reasonableness of the amounts paid to claimants by the Diocese in settling the claims through the Conciliation Process.

Quite simply, it states that the claims generated, brought, settled and paid as a result of the open and public invitation to victims to bring their claims forward to be paid by the Diocese in a confidential and non-adversarial forum constitute truly voluntary payments that the Diocese was entitled to make for its own purposes, but they do not constitute payments for which the Diocese was obligated to pay due to liability imposed upon it by law.

Despite the good intentions and efforts of all who were involved in the design and implementation of this very novel and commendable Conciliation Process which sought to effectively and fairly compensate all victims of the clerics from the Diocese for over a period of thirty years, I must concur with Aviva's position that the payment of these claims were voluntary and that it has not been established that they were claims for which the Diocese was obligated to pay due to liability imposed upon it by law at the time they were claimed or made.

I come to this conclusion for a number of reasons and with a number of factors in mind which are enumerated, in no particular order of importance, as follows: 1. The claims were sought out by the Diocese by open and public invitation in the churches of the Diocese and in the press; 2. At the time of establishing the process, there were 3 to 4 identified claimants who professed an intention to pursue claims and by the end of the process there were approximately 114 purported victims and claimants; 3. Potential claimants were assured of the resolution and payment of claims through a confidential process; 4.

The process was to be non-adversarial and indeed appears also to have been essentially non-confrontational which accords with the purpose of furthering the objectives of reconciliation and forgiveness; 5. Mr. Bastarache confirmed that one of the important premises of the process was that victims were given the benefit of the doubt in their stories unless there was something found to contradict it such as if a priest was not even ministering in the Diocese at the time of the alleged assault; 6.

Neither a legal standard of proof nor any defined standard of proof was identified or applied to assess the Diocese's legal obligation to pay any individual victim's claim; 7. The claimants being given the benefit of the doubt with respect to the validity of their claims appears to have been the extent of the standard of proof applied in evaluating the validity of their claims and the Diocese's legal obligation to pay compensation; 8.

Legal defences under the Limitation of Actions Act were not assessed and not even considered for their applicability despite the fact that time limits within which the claimants had to commence legal proceedings had presumptively expired by 2010 with their actions being barred at law, subject to potential discoverability issues. Mr. Bastarache confirmed that most of the victims told him that the single most important reason why they came forward was the confidentiality of the process that was being offered.

He also confirmed that most of the victims were abused decades before the process began and most of them had been living with the trauma. But for this process many of them told him they would not have gone through the litigation process. […] 9.

Liability and vicarious liability was presumed with no apparent Bayzley analysis conducted to determine whether or not each alleged instance of abuse occurred in circumstances where either direct liability or vicarious liability on the part of the Diocese could or would likely be established. [paras. 124-125] [ 25 ] In the trial judge’s view, the issue he had to determine was “whether it has been established that the Diocese was obligated to pay the claims by reason of liability imposed upon it by law” (para. 127).

He explained that the claims settled through the conciliation process had not been subjected “to any reasonable legal analysis or rigour to determine” whether there was a reasonable likelihood each claim would have to be paid on account of “liability imposed by law.” He therefore concluded liability imposed by law had not been established with respect to the payments made through the conciliation process. III. Issues on appeal [ 26 ] Aviva appealed the trial judge’s conclusions that the claims were: (1) within the scope of

coverage; (2) not caught by exclusion clauses; and (3) not voided by the Diocese’s failure to report known sexual abuse to Aviva. By cross-appeal, the Diocese appealed the judge’s decision that Aviva was not liable for damages amounting to the value of the conciliation payments and its costs. [ 27 ] Before the hearing, Aviva abandoned its appeal. By doing so, the trial judge’s ruling that the claims against the Diocese for sexual assault by its priests were in fact covered by the insurance policies remains unchallenged.

In other words, Aviva no longer contests the finding that it had wrongfully denied coverage to the Diocese. [ 28 ] While the appeal was abandoned, the Diocese proceeded with its cross-appeal. In its notice of cross-appeal, the Diocese enumerated several grounds; however, these can be effectively consolidated into two simple questions: (1) did the trial judge apply the wrong legal test in determining whether Aviva was liable to pay damages for breach of contract; and (2) if so, then, on application of the correct test, should Aviva have been ordered to pay damages to the Diocese? IV. Analysis A .

Standard of review [ 29 ] The standard of appellate review for an appeal such as this one is well-known. The determination of the appropriate legal test to determine whether Aviva was liable for damages for breach of contract raised a question of law. It is trite law that such a question is reviewable on the standard of correctness. B. Governing principles: the correct legal test [ 30 ] As stated at the outset, this is a simple case of breach of contract. As a matter of first principle, an insurer who wrongfully denies coverage is in breach of the insurance contract.

Therefore, an insured who sues its insurer for wrongful denial of coverage does so on the common law doctrine of breach of contract. [ 31 ] Over the years in question, the Diocese purchased insurance from Aviva pursuant to which Aviva agreed, inter alia , to pay on behalf of the Diocese all sums the Diocese would become obligated to pay by reason of the liability imposed upon it by law for damages because of bodily injury resulting from events occurring during the period the insurance policy was in place.

In addition, Aviva agreed to defend any suit brought against the Diocese to recover such damages “even if such suit is groundless, false or fraudulent.” The Diocese fulfilled its obligations under the contract: it paid the premiums. On the other hand, Aviva did not fulfill its obligations under the contract.

When the Diocese faced claims for damages for bodily injury alleged to have been caused during the policy period, Aviva refused to defend the Diocese and left it to its own devices to handle the claims. [ 32 ] By withdrawing its appeal in the present case, Aviva is now leaving unchallenged the judge’s conclusion that Aviva had wrongfully denied the Diocese coverage. Aviva is effectively conceding it should have defended all claims made against the Diocese for damages alleged to have been caused by the Diocese during the policy periods.

Had it defended these claims, Aviva would have been in a position to assess each claim to determine its merits and decide whether to vigorously defend it or try to resolve it by settlement.

In assessing each claim, Aviva would have undoubtedly asked itself whether or not the facts likely to be proven made it probable that, at law, the Diocese would be liable for the damages claimed. [ 33 ] Having breached the contract of insurance by wrongfully denying coverage, Aviva is now saying it is only liable to reimburse the Diocese in respect of claims that were resolved through a process similar to what Aviva would have followed if it had not breached the contract.

Aviva claims the Diocese, having been left to its own devices as a result the breach of contract, should have assessed each claim to determine its merits, resolved those where it was likely that liability would attach, and defended the others. In other words, Aviva argues the Diocese had to subject each claim to a rigorous examination in order to determine whether it might be successfully defended. Only then could it be determined whether or not the claim was one for which the Diocese was obligated to pay on account of liability imposed by law.

Failure to have subjected each claim to such an examination, Aviva submits, is fatal to the Diocese’s claim because any payment made to a claimant amounts to a voluntary payment and not one paid on account of liability imposed by law. The trial judge agreed with Aviva. [ 34 ] In my view, an insurer’s obligation to its insured resulting from a wrongful denial of coverage is

a simple matter of contract law and is not dependent on the actual legal liability the insured may or may not have incurred for the claimsbrought against it. The test is a simple one. It is whether the insured, having been denied coverage and left to its own devices, actedreasonably in the resolution of the claim(

s) that should have been defended by the insurer and for which the insured would have beenindemnified if it were found the insured was at law liable for the damages claimed. [35] A number of cases have recognized and applied such a test. It was articulated in the dissentingreasons of Locke J. in Stevenson v. Reliance Petroleum Limited /Reliance Petroleum Limited v. Canadian General Insurance Company, (SCC), [1956] SCR 936.

In that case, an employee of Reliance Petroleum negligently allowed the overflow of gasolinefrom a company truck, resulting in a fire and damage to the service station at which the truck was stopped. Reliance was insuredpursuant to both an automobile liability policy and a general liability policy. Both insurers denied coverage. Reliance sued the insurers.The Supreme Court unanimously held the company was entitled to recover under the former policy; however, according to the majority,not under the latter. Locke J., on the other hand, held the loss was covered by both.

Under a non-waiver agreement, the automobileliability insurer had taken

part in both the defence of actions by those claiming loss of personal property resulting from the fire and theensuing settlement negotiations. The general liability insurer, however, had declined to take any

part in the matter, standing on itsassertion the policy did not insure a risk of the kind that had materialized. [36] Since the majority of the Supreme Court held there was no coverage under the general liabilitypolicy, it was not necessary for those judges to address the insurer’s arguments to the effect the insured had admitted liability in violationof the conditions of the policy and had paid the claims “the extent of which had not been finally determined by judgment after an actualtrial of the issue of negligence” (p. 948).

Locke J., however, being of the view there was coverage under the general liability policy, hadto address these arguments. He agreed with the trial judge, Spence J. (as he then was), who held that an insurer that had refused todefend an action, when it in fact had liability under the policy, had repudiated the contract and could not rely upon its terms to later denyliability to its insured: [1953] O.J. No. 340 (QL).

Locke J. opined as follows: If, as I think to be the case, the risk was insured, the insuring company committed a breach of its contract in declining to investigate theclaims, to conduct the defence of the litigation and to pay the judgments to the extent the policy provided. The action is one for damagesfor breach of the contract and, in my opinion, the conduct of the insuring company amounted in law to a waiver of its right to insist uponcompliance by the insured in these respects with the terms of the contract, as was found in similar circumstances by the Supreme Courtof the United States in St.

Louis Dressed Beef and Provision Company v. Maryland Casualty Company [(1906), 201 U.S. 173]. [p. 949] [37] American cases effectively hold that once an insurer denies coverage and refuses to defend itsinsured, the insured is “entitled to use all reasonable means of avoiding personal liability”: Metcalf v. Hartford Accident & IndemnityCo., 176 Neb 468 (SC of Nebraska 1964), at p. 475. See also Hyatt Corp. v. Occidental Fire and Cas.

Co., 801 S.W. 2d 382 (MissouriCourt of Appeals, Western District 1990), where it is said that “[i]t is well established that after a denial of coverage the insured has a‘free hand to proceed, as soon as practicable, in his own way’ and ‘make the best settlement he can’” (p. 388). According to these cases,in the absence of fraud, collusion or bad faith, an insurer who has wrongfully denied coverage will be bound by such a settlement andmay not again litigate the underlying matter.

In other words, an insured seeking damages following a wrongful denial of coverage doesnot need to prove he or she was in fact liable for the settled claims. All the insured must have done is taken “into consideration thelikelihood of success or failure, the cost, uncertainty, delay and inconvenience of trial as compared with the advantages of settlement”(Hyatt, at p. 288). In short, the insured must have acted reasonably. See also Missionaries of Co. of Mary Inc. v. Aetna Casualty & SuretyCo., 230 A. 2d 21 (1967); Solo Cup Co. v. Fed. Ins. Co., 619 F. 2d 1178 (1980); Servidone Const. Corp. v. Security Ins.

Co. of Hartford,477 N.Y.S. 2d 725, all quoted in Cansulex Ltd. v. Reed Stenhouse Ltd., [1986] B.C.J. No. 3125 (S.C.)(QL). [38] Reasonableness is also the basis upon which claims for damages resulting from a wrongfuldenial of coverage are assessed in Canada. Shore Boat Builders Ltd. v. Canadian Indemnity Co., [1974] B.C. J. No. 763 (S.C.)(QL), is anexample. In that case, the insurer had agreed to pay “[a]ll sums resulting from liability imposed by law upon” its insured for certaindamages.

When damages materialized, the insurer denied coverage and the insured, at its own expense, made good for the loss byrepairing the damages.

When the insured turned to its insurer for indemnification, the insurer argued the sums spent by its insuredconstituted a voluntary payment and had not resulted from “liability imposed by law.” Hutcheon J. applied Reliance Petroleum inholding that “if the settlement made by the insured is a reasonable one the insurer may not oppose the claim on the ground that theinsured made the payment in anticipation of the outcome of a trial of the issue of the liability of the insured” (para. 6). [39] Murphy Oil Co. Ltd. et al. v. Continental Insurance Co., [1981] O.J. No. 3095 (Co.

Ct.)(QL), isanother example where reasonableness was held to be the critical factor in determining whether an insurer, which had wrongfully deniedcoverage, would have to pay sums paid out by its insured in settlement of a claim. In that case, Murphy Oil sued its insurer to recover theamount paid out upon the settlement of an action by the owner of land upon which oil or gas had escaped. The insurer had denied theloss was covered under its policy and had declined to defend its insured and participate in settlement negotiations. Fogarty Co. Ct. J.held coverage had been wrongfully denied.

The judge then turned to the matter of the insured’s settlement of the underlying claim,which, on its face, violated a clause in the policy pursuant to which an insured could not bring an action against the insurer unless, as acondition precedent, the amount of the insured’s obligation to pay had been finally determined “either by judgment against the insuredafter actual trial or by written agreement of the insured, the claimant and the company” (para. 20). Fogarty Co. Ct. J. turned to Locke J.’sdicta in Reliance Petroleum and to the words of Hutcheon J. in Shore Boat Builders to resolve that argument.

He held that the insurer’s

wrongful failure to defend the claim “constituted a breach of the policy of such character as went to the root of the contract of insurance between the parties” (para. 31). He explained as follows: A party does not obtain insurance coverage merely to contribute to the revenue of an insurance company. He seeks protection from the risks of certain perils. He is entitled to expect that his insurer who has obligated itself by a covenant (as there exists in this case) to defend a claim against him and to pay that claim if legally liable to the claimants will respect that obligation.

If an insure[r] is entitled of its own volition to pick and choose, without just cause, to defend or not defend and then fault the insured for entering into a settlement (however reasonable) with the claimant and thereby avoid liability, there is no purpose in having an insurance policy for the coverage could be avoided at the whim of the insurer.

It is for this reason that I find this refusal to defend (and to pay) on the part of the insurer is such conduct as would void the contract since it is a breach which renders the contract useless for the protection of the insured and this, surely, must be deemed to go to its very root. In passing I would think that such conduct is highly questionable, from a procedural point of view, since it places the insurer in the position of judge in its own cause and offends one of the four tenets of natural justice.

From the substantive point of view, it offends against a basic sense of fairness. [para. 31] [ 40 ] He continued by stating that, when an insurer opts to deny coverage and refuses to defend an action, the insurer makes a judgment call, adding as follows: If its position of non-liability is valid and is upheld [then] its conduct is justified and it has succeeded. If not, then it must face the consequences for it has lost on the merits.

Those consequences must be that it must reimburse the insured for moneys it obligated itself to pay under a reasonable settlement, in which the insurer had deliberately taken no interest. In this situation the insurer had made a choice, has lost and must assume the risk of that choice -- a situation not unknown in the insurance industry. The law which applies to an insurer under a policy of insurance is the same as that which applies to any other party under a contract.

If a party refuses to perform a serious or important obligation on his part under his contract and such failure goes to the very root thereof there is a fundamental breach and he is disentitled to rely on exclusionary clauses in the contract which he himself, by his conduct, repudiated. [paras. 34-35] [ 41 ] In Cansulex , McEachern C.J.S.C. (as he then was) captured the essence of the governing principles in the following passage: In my view, an insured in the position of Cansulex [which had been abandoned by its insurers] is entitled to settle any insured claim brought against it on any reasonable basis and for any reasonable amount, and to recover such amount from its insurers not necessarily as indemnity, as such may only be payable in discharge of a liability which may not have existed, but as damages for breach of contract.

In this connection it is my view that an insured who has been abandoned by his insurer is entitled to buy peace at a reasonable price even though he denies his liability. The fact that he pays the claimant $"X" and pays his solicitors $"Y" does not make the two payments intrinsically different. They are amounts he must pay in order to defend and protect himself from greater loss or expense.

These amounts, if reasonable, are payments which the insurers might themselves have paid if they had not wrongly repudiated their liability to the insured, and they cannot insist as a condition of indemnity or reimbursement that the insured stubbornly maintain a denial of liability all the way to judgment in order to obtain the protection of the policies which has been wrongly denied. [para. 188] [ 42 ] McEachern C.J.S.C. concluded that an insured who is ultimately found to have been “entitled to indemnity for damages or costs is entitled to make a reasonable settlement and to recover the amount so paid where the insurer denies its liability under the policy, even though the liability of the insured to the claimant has not been determined by judgment” (para. 201).

He stated that an insured wrongfully denied coverage “need only establish the fact of coverage, the denial of liability by the insurer and the reasonableness of the settlement, subject, of course, to any other policy defences which may be available to the insurers” (para. 196). [ 43 ] Although dealing with a different legal question, Scott C.J.M. in McMurachy v. Red River Valley Mutual Insurance Co. , [1994] M.J.

No. 220 (C.A.) (QL) , also recognized “the now well-established principle that when an insurer wrongly denies coverage to the insured, the insured is free [to] make a reasonable settlement” (para. 21). [ 44 ] What constitutes a reasonable settlement will be fact dependent. Little guidance is found in the case law, although two particular appellate decisions are instructive. [ 45 ] In Wright Engineers Limited v. United States Fire Insurance Company , [1986] B.C.J. No. 129

(C.A.) (QL) , the insurer, which had denied coverage and thus repudiated its contractual obligations in respect of a certain loss, accepted it could not “rely upon the policy conditions which provide that the insured’s obligation to pay must be finally determined either by judgment after trial or a written agreement joined in by U.S.

Fire.” This, because the insurer recognized it had “left the insured to its own devices in dealing with the risks of litigation” and because “[i]t is well settled that, in these circumstances, the insured is not required to fight to the end and sustain judgment against it.” As Esson J.A. for the Court observed, if, in these circumstances, the insured “chooses to settle, and if the settlement is in all the circumstances a reasonable one [the insured] is entitled to be indemnified by its insurer if it turns out that the denial of coverage was wrong.” [ 46 ] Thus, the determination of what constitutes a reasonable settlement requires examination of all the circumstances.

It also may include regard for what others might have done in similar circumstances. In Nova Scotia (Attorney General) v. Royal & Sun Alliance Insurance Co. of Canada , 2004 NSCA 150 , [2004] N.S.J.

No. 483 (QL) , the Court dismissed an appeal on the grounds the judge had applied the correct principles of law in exercising his discretion not to require answers to certain interrogatories, but, in doing so, the Court distanced itself from the judge’s view that the issue of the reasonableness of the insured’s process for settling certain claims “is not to be determined according to what some other party would have done” (para. 6).

Bateman J.A., for the Court, observed that, “[i]n seeking to demonstrate that the process used by the [insured] to settle the claims was a reasonable one, it may well be relevant to adduce evidence on methods of settlement used in like situations” (para. 6). [ 47 ] In my view, the approach taken in the above-referred cases is consistent with the general principle governing the assessment of damages in breach of contract cases. In Fidler v.

Sun Life Assurance Co. of Canada , 2006 SCC 30 , [2006] 2 S.C.R. 3 , McLachlin C.J.C. and Abella J., for the Court, summarize this principle as follows: Damages for breach of contract should, as far as money can do it, place the plaintiff in the same position as if the contract had been performed. However, at least since the 1854 decision of the Court of Exchequer Chamber in Hadley v.

Baxendale (1854), 9 Ex. 341 , 156 E.R. 145 , at p. 151, it has been the law that these damages must be "such as may fairly and reasonably be considered either arising naturally ... from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties". [para. 27] [ 48 ] An abandoned insured is left entirely vulnerable when he or she must proceed in the absence of coverage. The abandoned insured faces possible protracted litigation and high legal fees, and risks a judgment obligating him or her to pay a significant amount of damages.

Allowing an insurer to escape liability because an insured settled a claim, rather than force it to judgment, would have the effect of encouraging insurance companies to deny coverage in hopes the insured settles for the sake of expediency, cost effectiveness or simply to avoid the risks associated with litigation. Such conduct by insurers must be prevented. This is accomplished by principles of law pursuant to which an insurer assumes a risk when it denies coverage. If an insurer wants to stand on the leg that is the wrongful denial of coverage, then it must accept the reasonable consequences of such a denial.

This includes the obligation to pay damages that include any reasonable settlement the insured paid out to extricate itself from the situation created by the wrongful denial of coverage.

Any party to an insurance contract would reasonably contemplate that such damages would necessarily arise from a breach of the contract. [ 49 ] I summarize the rights of the insured upon wrongful denial of coverage as follows: an insured who has been wrongfully denied coverage may be excused from defending a claim to trial and has the right to “buy peace at a reasonable price” even where the insured might not have been liable at law for the claim.

As an alternative to defending an action or actions, an abandoned insured is free to engage in a settlement process, and/or agree to a settlement, that is reasonable considering the factual matrix at play.

Correspondingly, such an insured may recover the amount of a reasonable settlement as damages for breach of contract when it is shown coverage had been wrongfully denied. [ 50 ] In determining a claim by an insured to recover as damages for breach of contract against an insurer for the amounts paid out in settlement of an underlying claim, and inspired by Cansulex , I would adopt the following test: (1) did the underlying claim(

s) fall within the scope of coverage under the policy of insurance; (2) did the insurer wrongfully deny coverage for the claim(s); and (3) was the settlement reasonable? [ 51 ] In the present case, the trial judge did not subject the matter to such a test. Instead, the judge asked himself “whether it has been established that the Diocese was obligated to pay the claims by reason of liability imposed upon it by law” (para. 127). He concluded that, because this had not been established, the payments made through the conciliation process were in the nature of voluntary payments and were not recoverable from Aviva.

With respect, the governing principles allow for the reasonable settlement of claims by an abandoned insured even in cases where the insured would not have incurred any liability imposed by law. The question is simply whether, in the circumstances, the settlement was reasonable. In my view, the judge erred in not subjecting the diocese’s settlements to the proper test.

C. Application of the principles to the present case [ 52 ] Resolution of this appeal therefore calls for the application of the 3-step test to the facts of this case.

(1) Did the claims fall within the scope of coverage? [ 53 ] The trial judge found the sexual abuse claims against the Diocese fell within the scope of coverage provided under the policies. He began his analysis with a review of the relevant principles that apply to the

interpretation of insurance policies. He found all the policies to essentially provide that “the insurer would pay on behalf of the insured all sums for which the insured shall become obligated to pay by reason of the liability imposed upon the insured by law ... for damages because of bodily injury ... caused by events occurring within the policy period and suffered or alleged to have been suffered by any person or persons” (para. 89).

The judge noted “[t]here is no issue that the physical and/or psychological or emotional damages suffered by victims of abusive priests would constitute ‘damages ... because of bodily injury ... caused by events occurring within the policy period and suffered or alleged to have been suffered by any person or persons[’]” (para. 90). He also noted that, while it did not specifically provide coverage for sexual assault claims, the policy language did not exclude coverage for such claims.

Instead, the policies used “very broad and expansive language to capture both foreseen and unforeseen future risks and future events” (para. 91).

In the end, the judge concluded as follows: […] the claims of the victims for damages against the Diocese for bodily injury occasioned to them by the commission of sexual assaults by its priests fall clearly within the plain and ordinary meaning of the language defining the scope of the coverage provided in the policies, whether brought against the Diocese as a direct liability claim or by vicarious liability, subject of course to any applicable exclusions. [para. 93] [ 54 ] As for the exclusion clause upon which Aviva relied, the intentional acts exclusion, the trial judge reviewed the circumstances of the case and held that, no matter how negligent or reckless it may have been for the Diocese to have transferred offending priests from one parish to the next, it could not be said that the Diocese “intended to cause any injury to any of the victims” (para. 111).

The judge concluded: In my view, coverage under the policy is not excluded pursuant to the intentional act exclusion as it has not been established that the Bishops or the Diocese intentionally caused injury to the victims or that the injuries they suffered were caused at the Diocese's direction.

It goes without saying that it has not been established that the Bishops acted in any way in a criminal manner or with any intent to commit a crime in this regard or with intent to bring about loss or damage such that coverage would be excluded or unenforceable. [para. 112] [ 55 ] As mentioned at the outset of this decision, Aviva originally appealed the trial judge’s finding that the claims fell within the scope of coverage and were not excluded by the intentional acts clause. However, Aviva withdrew its appeal shortly before the oral hearing in front of this Court.

The result is that the trial judge’s finding on the scope of coverage stands. The first element of the test is therefore established.

(2) Did the insurer wrongfully deny coverage? [ 56 ] Since the claims fell within the scope of coverage and were not excluded by the intentional acts clause, the only other basis upon which it could have been found that Aviva had not wrongfully denied coverage was its claim that the policy had been voided by the Diocese’s failure to report its knowledge of sexual abuse to Aviva.

In other words, Aviva claimed the Diocese had failed to disclose material risks. [ 57 ] The trial judge analyzed this issue “in light of the evidence presented, the context of the times, the applicable law and the insurance principles engaged” (para. 134). He came to the conclusion Aviva had “not met the burden of establishing that the Diocese failed to disclose material facts relating to the risk that would warrant concluding that the policies and coverage are thereby voided for these claims” (para. 148). [ 58 ] As with the questions of coverage and of the applicability of the exclusion clause, Aviva

appealed the trial judge’s conclusion regarding the Diocese’s failure to disclose material risks, but later abandoned that appeal. Thus, the trial judge’s finding on this question also stands. [ 59 ] Since the claims for sexual assaults were found to fall within the scope of coverage and to not be excluded by the intentional acts clause, and since the policy was not voided for failure to disclose material risks, the finding that Aviva wrongfully denied coverage to its insured is inescapable. The second element of the test is therefore also established.

(3) Was the settlement reasonable? [ 60 ] Whether or not the settlement was reasonable is the threshold issue in this case. The Cansulex principle, pursuant to which a wrongfully denied insured is entitled to “buy peace at a reasonable price,” is the current state of the law in Canada.

If a wrongfully denied insured engages in a reasonable settlement, then he or she is entitled to recover as damages for breach of contract both the amounts paid in settlement and the attendant costs. [ 61 ] As the trial judge noted, Aviva neither complained the Diocese had settled claims without its consent nor did it allege it had suffered any prejudice as a result. Moreover, Aviva did not “contest the reasonableness of the amounts paid to claimants by the Diocese in settling the claims through the [c]onciliation [p]rocess” (para. 124).

Aviva’s only argument, maintained on appeal, was that the claims paid through the conciliation process “constitute truly voluntary payments that the Diocese was entitled to make for its own purposes, but they do not constitute payments for which the Diocese was obligated to pay due to liability imposed upon it by law” (para. 124). [ 62 ] With respect, Aviva misled the judge into adopting an incorrect test. Aviva argued it could only be liable for the settlements reached through the conciliation process if it were shown these payments were made on account of liability imposed by law.

The flaw in that reasoning is that it approaches the issue from the perspective of a duty to indemnify rather than from an obligation to pay damages on account of a breach of contract. It is true that if Aviva had not breached the contract by wrongfully reneging on its duty to defend the Diocese, it would have only had to indemnify the Diocese where liability imposed by law was proven or acknowledged. However, Aviva breached its duty to defend, which is quite distinct from the duty to indemnify.

Thus, Aviva does not get to rely on the wording of the coverage provision of the insuring agreements when it is later determined that Aviva had wrongfully breached the contract. As indicated above, the Diocese was not required to demonstrate that each claim it settled was on the basis of there being liability imposed upon it by law. Clearly, there was a risk liability would be found just as there would have been significant costs associated with the determination of the issue. The Diocese was not required to “roll the dice” and proceed to trial.

Having been abandoned by its insurer and left to its own devices, the Diocese was entitled to buy peace at a reasonable price. The question is whether the actions of the Diocese in buying peace through this particular conciliation process were reasonable. [ 63 ] Certain arguments can be extrapolated from Aviva’s wrongly held position regarding liability imposed by law and transposed into arguments regarding the reasonableness of the Diocese’s conciliation process.

With regard to the claims resolved through this process, these were not settlements reached in the normal course of making a claim through the court process. Instead, for the most part, these claims materialized as a result of an open and public invitation and were resolved in a non- adversarial and non-confrontational process that assured confidentiality and in which the benefit of the doubt was given to the claimant.

In addition, the claims were resolved without a full assessment of the Diocese’s legal obligation to pay any individual claimant, including an assessment of the validity of legal defences such as those under applicable limitation of actions legislation. [ 64 ] This case is distinguishable from all of those that establish the principle pursuant to which the Diocese might recover from its insured for claims settled. In each of those cases, the claimants were advancing their claims through a conventional process.

What Aviva submits is that the Diocese should have awaited the presentation of claims through the conventional process before engaging in any type of settlement. Only then could the settlements reached have been properly subjected to the reasonableness test. [ 65 ] Admittedly, this case is one of first impression. In essence, the question is whether, in application of the Cansulex principle, an insured must react to individual claims traditionally advanced or whether the insured can preempt an onslaught of such claims by setting up an alternative means of resolution.

In my view, the answer depends on the circumstances of each case. In some instances, reasonableness will dictate the former while in others the latter. The test of reasonableness is objective-subjective; it requires a consideration of what a similar entity might have done in the Diocese’s circumstances. Would such an entity, considering the legal landscape and the factual matrix at play, have undertaken a conciliation process? [ 66 ] I begin with an examination of the factual matrix.

First, the Diocese had already reached settlements with two victims and had received a settlement demand from a third who alleged sexual abuse by Fr. Noël and was claiming $2M. At this point, the Diocese learned it was being abandoned by its insurer: coverage was denied.

[67] This third claimant indicated there were more victims of Fr. Noël and said he intended to informthe Royal Canadian Mounted Police (RCMP) of the abuse he had experienced. A short time later, Monsignor Vienneau received a callfrom the RCMP informing him they were investigating Fr. Noël. While the Diocese did not pay any amount to the third claimant,Monsignor Vienneau was concerned there would be further claims. He based this on both the assertion made by the third claimant to thateffect and the fact the RCMP were now investigating Fr. Noël.

Monsignor Vienneau became even more concerned about additionalclaims when, during Fr. Noël’s trial on criminal charges, a lawyer from Ontario appeared on the local news with three alleged victims.The concern was that this lawyer would try to organize a class-action lawsuit against the Diocese.

There was also a group of lawyersfrom Nova Scotia who had put advertisements in newspapers seeking out victims. [68] Monsignor Vienneau also had knowledge of claims for widespread sexual abuse going tolitigation in Antigonish, NS, and Corner Brook, NL. [69] Monsignor Vienneau was aware other dioceses, which had gone through the traditional courtprocess over sexual abuse claims, had incurred significant costs. In some instances this had even led to the sale of their properties.

Fromspeaking with other bishops, Monsignor Vienneau was informed that a large portion of the costs related to paying for legal counsel.Avoiding legal costs and ensuring the Diocese had enough money to pay the victims appeared to be “the way to go,” especially given theDiocese’s financial state. [70] After consulting with legal counsel, Monsignor Vienneau decided the best approach would be toestablish a conciliation process for the resolution of these claims. The Hon.

Michel Bastarache, retained to design and implement theconciliation process, was of the view “there was no way there would be enough money to compensate that number of people goingthrough the legal process, it would cost just too much, and it would drag on for years.” [71] As a result, the Diocese decided to proceed with a conciliation process on the basis of financialresponsibility in order to avoid claim-by-claim litigation that could force the Diocese into financial ruin. The Diocese’s objectives ininstituting the conciliation process, as articulated by the trial judge, confirm as much.

The Diocese chose the conciliation process for thepurpose of “limiting and avoiding the expense of litigation as much as possible to ensure that the actual victims got most of what limitedfinancial resources the Diocese had available to pay compensation as opposed to lawyers receiving the bulk of the funds” (para. 34). [72] In assessing its financial situation against the likely costs of proceeding with the litigationprocess, one can reasonably look at costs incurred by other dioceses in similar situations.

In the trust decision, Justice Ferguson made thefollowing observation: Although the possible financial demise of the Diocese of Bathurst may seem to some too remote to be real, it must be noted that religiouscorporation bankruptcy has recently become part of the legal landscape in Canada. In almost every instance it has been brought on by therevelation of sexual abuse scandals in circumstances that are very similar to this case. See, for example: Re Christian Brothers of Irelandin Canada (supra); Re Oblats de Marie Immaculee du Manitoba [2004 MBQB 71,] 2004 MBQB 71 , [2004] M.J.

No. 112; ReRoman Catholic Episcopal Corp. of St. George's [2007 NLCA 17, [2007] NJ No 100 (QL)]. As well, recently, in Nova Scotia the Roman Catholic Diocese in the Antigonish area has been faced with raising approximately$15,000,000 to pay claims arising from a similar sexual abuse scandal settlement achieved by out of court negotiations. Thecongregations of the churches in the various parishes of that diocese have been asked to shoulder a potentially crushing financial burdenas a result of the agreement reached.

It is clear that "donor fatigue" may be a distinct possibility if such a [sic] oppressive financialobligation of the diocese becomes that of the individual members of that diocese. [paras. 66–67] [73] By comparing the Diocese’s situation to analogous situations, it is clear a conciliation processwas not only a financially responsible choice but also a financially necessary one. The Diocese’s logic was that, if they advertised forvictims and resolved the claims through conciliation, they would minimize costs as much as possible and resolve claims in an efficientmanner.

The conciliation process was, in the main, about being pragmatic. [74] In my view, it is entirely reasonable for a diocese, abandoned by its insurer and facing potentialfinancial ruin, to institute an alternative dispute resolution process that would allow for its financial survival. No church in the Diocese’s

situation should have to opt to litigate claims and risk financial devastation when it can reasonably implement an alternative process that might result in its financial survival. By using the conciliation process, the Diocese kept its costs, for that process, to $4,284,000, which paled in comparison to the $15,000,000 paid by the Diocese of Antigonish through claim-by-claim settlements. Admittedly, the comparison is nebulous without more detail, but the point remains the same.

Abandoned by its insurer, facing the likelihood of huge defence costs and either multiple judgments or settlements either on a claim-by-claim basis or through a class action, it is entirely reasonable for an entity such as the Diocese to look outside the box for a solution that would offer fair resolution of the claims, and at the same time not result in its financial ruination. This is exactly what happened in Nova Scotia, as explained in Royal and Sun Alliance . While the appeal in that case concerned only an interlocutory judgment, the underlying action was somewhat similar to the present case.

Faced with claims of widespread institutional abuse, the Province of Nova Scotia brought action against its insurers claiming they had wrongfully declined to provide a defence and coverage under policies of insurance. The action was to recover sums including amounts paid in settlements achieved through an alternative dispute resolution initiated by the Province.

The Nova Scotia case illustrates that, when an entity faces the possibility of having to respond to multiple claims and pay huge amounts, it may well resort to alternative methods of resolution when its insurance coverage, including defence costs, for which it paid premiums, is being denied. [ 75 ] The Diocese’s additional purpose of seeking forgiveness and reconciliation does not render the conciliation process unreasonable. As noted, the decision to undertake the conciliation process was primarily a matter of pragmatism.

It was a decision designed to minimize costs, ensure there was enough money to pay victims, and avoid protracted litigation, all in the name of financial viability. If the Diocese could accomplish this while also achieving the objectives of forgiveness and reconciliation, then all the better; it does not affect the reasonableness of a conciliation process undertaken as a matter of financial responsibility. [ 76 ] The nature of the insured is also a relevant consideration, although not determinative. Aviva knew it was ensuring a religious entity, which had broad obligations to its parishioners and the public.

Thus, the fact the conciliation process allowed the Diocese to seek forgiveness and reconciliation, while at the same time ensuring its financial viability, would not have come as a surprise to the insurer. [ 77 ] In my view, the potentially devastating financial consequences of proceeding on a claim-by- claim basis coupled with the Diocese’s broader obligations, which would have been known to Aviva when it decided to insure the Diocese, make the conciliation process and the attendant payments reasonable in the circumstances.

Note the trial judge observed that “Aviva [did] not dispute the amounts being claimed or the reasonableness of the amounts being claimed by the Diocese as reimbursement for what it paid in compensation or the reasonableness of the actions of the Diocese in compensating the victims of its priests” (para. 21). Thus, the third element of the test is established. V. Disposition [ 78 ] For these reasons, I would allow the appeal, and set aside the trial judge’s decision on the question of Aviva’s liability to pay damages for breach of contract relating to the claims resolved through the conciliation process.

I would order judgment in favour of the Diocese in the amount of $3,358,264.00 together with pre-judgment interest. As for costs, the parties informed us that none were sought by either side; therefore, none are awarded. ___________________________________ J.C. MARC RICHARD, J.A. WE CONCUR: ________________________________ M.E.L. LARLEE, J.A. _________________________________ KATHLEEN A. QUIGG, J.A. Version française du jugement rendu par

LE JUGE RICHARD I. Introduction [1] Bien que les faits sous-jacents du présent litige soient très bouleversants, il s’agit essentiellement d’une affaire de violation de contrat se rapportant à un diocèse qui, au fil des années, a souscrit une assurance responsabilité publique et générale auprès d’un assureur qui a refusé à tort d’honorer la garantie de nombreuses années plus tard, lorsque des réclamations lui ont été présentées.

La question en appel est de savoir si le diocèse a droit à des dommages-intérêts pour violation de contrat d’une somme qui comprend le coût d’un processus de conciliation mis en place par le diocèse en raison du refus de son assureur, ainsi que les paiements effectués par l’entremise de ce processus. [2] Entre la fin des années 1950 et le début des années 1980, un grand nombre de jeunes personnes ont été victimes d’abus sexuels commis par plusieurs prêtres du diocèse de Bathurst. Pendant des années, la plupart de ces victimes ont souffert en silence.

Ce n’est que plusieurs décennies plus tard que les abus ont commencé à être dévoilés. Une fois que quelques victimes se sont manifestées, deux des principaux prêtres fautifs ont été accusés et condamnés. Lorsque des demandes ont été formulées contre le diocèse, ce dernier s’est tourné vers son assureur, Aviva, Compagnie d’Assurance du Canada. Aviva a participé au règlement d’une des demandes, mais a par la suite refusé toute indemnisation.

Laissé à lui-même et faisant face à la possibilité de devoir se défendre contre un nombre important de demandes pour abus sexuels ou indemniser les auteurs de celles-ci, le diocèse a mis en place un système de conciliation visant à traiter les demandes. Le diocèse a retenu les services de l’honorable Michel Bastarache, juge à la retraite de la Cour suprême du Canada, afin de créer et de mettre en œuvre un processus pour, à la fois, régler les demandes et solliciter le pardon des victimes. Après avoir été informée des projets du diocèse, Aviva a refusé de participer au processus.

De nombreuses demandes ont été réglées au moyen de ce processus, mais beaucoup d’autres ont été intentées dans le cadre de procédures judiciaires conventionnelles. Aviva a refusé toute indemnisation des victimes, tant celles qui ont participé au processus de conciliation que celles qui ont plutôt décidé d’intenter une action conventionnelle. [3] Après avoir versé plus de 7 millions de dollars, le diocèse a intenté une action contre Aviva dans laquelle elle réclame des dommages-intérêts pour violation de contrat.

Le procès relatif aux questions soulevées dans la poursuite a été séparé en deux étapes et les parties ont d’abord procédé à l’instruction de la demande portant uniquement sur les sommes versées pendant le processus de conciliation. Aviva a nié toute responsabilité à l’égard de ces sommes.

Aviva a soutenu ce qui suit au sujet des demandes : (1) elles étaient exclues du champ d’application de la garantie accordée en vertu des polices d’assurance; (2) elles visaient une conduite qui était expressément exclue aux termes des polices; (3) elles ne visaient pas des sommes versées en raison d’une responsabilité imposée au diocèse par la loi; et (4) quoi qu’il en soit, toute garantie était nulle en raison de l’omission de divulguer des risques importants. [4] Dans une décision datée du 7 octobre 2016 et répertoriée à 2016 NBBR 174 , [2016] A.N.-B. n o 272 (QL) , un juge de la Cour du Banc de la Reine a conclu que les demandes intentées contre le diocèse par les victimes d’abus sexuel relevaient de la garantie consentie, et que la garantie n’était ni écartée en raison d’une exclusion relative aux actes intentionnels prévue dans les polices ni annulée par l’omission de divulguer un risque important.

Néanmoins, le juge de première instance a conclu que les demandes présentées dans le cadre du processus de conciliation n’étaient pas couvertes par les polices d’assurance du diocèse. En général, il a conclu que les sommes versées aux victimes par l’entremise du processus de conciliation étaient des paiements volontaires et non des sommes versées en raison d’une responsabilité imposée par la loi.

La conclusion du juge a eu pour effet de faire en sorte que les demandes réglées au moyen du processus de conciliation n’étaient pas couvertes, tandis que celles qui ont été réglées dans le cadre d’une procédure traditionnelle l’étaient et allaient faire l’objet d’une évaluation lors de la prochaine étape du procès. [5] Aviva et le diocèse ont tous les deux interjeté appel de la décision du juge de première instance.

Aviva a allégué que le juge de première instance avait commis une erreur lorsqu’il a conclu que toutes les demandes pour abus sexuel relevaient de la garantie consentie, que l’exclusion relative aux actes intentionnels ne s’appliquait pas et que les polices n’étaient pas annulées par l’omission de divulguer un risque important.

Par voie d’appel reconventionnel, le diocèse a effectivement affirmé que le juge de première instance avait appliqué le mauvais critère juridique pour déterminer que le diocèse n’était pas en droit d’être indemnisé relativement aux demandes présentées dans le cadre du processus de conciliation. À

titre d’intervenante, la Compagnie d’assurance générale Co-operators a appuyé la position soutenue par Aviva dans l’appel et dans l’appel reconventionnel. [6] Aviva s’est désistée de son appel peu de temps avant l’audience. Il ne restait donc qu’à débattre l’appel reconventionnel. En se désistant de son appel, Aviva n’a pas contesté la conclusion du juge selon laquelle les demandes pour abus sexuel étaient couvertes par des polices qui n’étaient ni annulées par l’omission de divulguer un risque important ni écartées par l’exclusion relative aux actes intentionnels.

Essentiellement, Aviva admet maintenant qu’elle a refusé, de façon injustifiée, d’honorer la garantie consentie au diocèse lorsque ce dernier a sollicité l’application de la garantie relativement aux demandes pour abus sexuel. Cela laisse donc comme seule question à trancher celle qui a été soulevée dans l’appel reconventionnel, à savoir si le juge de première instance a commis une erreur lorsqu’il a conclu que les sommes versées pour régler les demandes présentées dans le cadre du processus de conciliation ne pouvaient être recouvrées à

titre de dommages-intérêts puisqu’il ne s’agissait pas de paiements faits en raison d’une

responsabilité imposée par la loi. [7] À mon humble avis, le juge a effectivement commis une erreur à cet égard en appliquant le mauvais critère. Il s’agissait d’une demande en dommages-intérêts découlant d’une violation de contrat et non d’une demande visant une indemnisation en vertu de la police. Le droit du diocèse aux dommages-intérêts ne reposait pas sur une obligation qui lui était imposée par la loi de verser les sommes accordées dans le cadre du processus de conciliation. Le critère juridique approprié est celui de la raisonnabilité.

Le juge de première instance était tenu d’appliquer ce critère et de déterminer si le processus de conciliation et les paiements en découlant étaient une réponse raisonnable à une violation de contrat. Je conclus que la conduite du diocèse était en effet une réponse raisonnable, qui n’outrepassait pas les limites de la loi, au refus injustifié d’Aviva d’honorer la garantie. Par conséquent, j’accueillerais l’appel reconventionnel. II.

Contexte factuel [8] En 2002, Monseigneur Valéry Vienneau, à l’époque évêque du diocèse catholique romain de Bathurst, a été informé du dépôt d’une demande par une victime qui prétendait avoir été abusée sexuellement par le père Charles Picot au début des années 1980. Cette demande a été réglée à l’amiable en 2003, le diocèse et trois compagnies d’assurance, dont Aviva, ayant tous contribué au règlement. Le montant total du règlement était de 64 667,45 $. Le diocèse a contribué pour 15 917,45 $ au règlement, alors que les assureurs se sont réparti le solde en parts égales, à savoir 16 250 $ par assureur.

Un deuxième demandeur s’est manifesté en 2006. Cette fois-ci, on affirmait que l’abus sexuel avait été commis par le père Lévi Noël. Le diocèse a réglé la demande à l’amiable en prélevant la somme de 40 000 $ sur ses propres fonds. Environ deux ans plus tard, vers 2008, un troisième demandeur a sollicité une somme de 2 000 000 $ pour de présumés abus sexuels commis par le père Lévi Noël vers les années 1970 et 1971.

Le diocèse a présenté la réclamation à Aviva, qui a refusé toute indemnisation. [9] À la fin 2009, le père Lévi Noël a été reconnu coupable, au criminel, relativement à 22 chefs d’accusation de grossière indécence et d’agression sexuelle. Il a plaidé coupable relativement à 18 de ces chefs à la fin 2009, et à quatre autres en 2010. Au début 2010, il a été condamné à une peine totale de huit ans d’emprisonnement. La publicité entourant les accusations criminelles portées contre le père Lévi Noël et les condamnations subséquentes ont attiré l’intérêt d’avocats et de cabinets d’avocats.

Un cabinet d’avocats de la Nouvelle-Écosse a fait paraître une annonce dans des journaux qui recherchait des demandeurs éventuels, alors qu’un avocat ontarien est passé à un bulletin de nouvelles en compagnie de trois autres présumées victimes qui affirmaient que le père Lévi Noël avait commis des abus sexuels à leur endroit.

La combinaison, d’une part, de demandeurs disposés à se manifester et, d’autre part, de la déclaration de culpabilité, au criminel, a fait en sorte qu’en 2009 et 2010, le diocèse s’est trouvé dans une situation où les faits indiquaient qu’il était probable que d’autres demandeurs allaient se manifester. Monseigneur Vienneau a alors communiqué avec des évêques d’autres régions du pays qui avaient déjà reçu des demandes pour abus sexuel formulées contre des prêtres de leurs diocèses. Ces évêques lui ont conseillé de retenir les services d’un conseiller juridique et d’aborder la question avec transparence.

Monseigneur Vienneau a consulté des avocats et a retrouvé les polices d’assurance du diocèse. Les prédécesseures d’Aviva, la Compagnie d’Assurance Canadienne Générale et la Commercial Union Assurance Company, avaient consenti au diocèse un certain nombre de polices d’assurance responsabilité publique et générale qui couvraient la période durant laquelle les abus sexuels ont eu lieu. Toutes les polices avaient essentiellement le même libellé.

La garantie prévue était libellée ainsi : [TRADUCTION] PAYER au nom de l’assuré la totalité des sommes que l’assuré sera obligé de payer en raison de la responsabilité que la loi lui impose ou que l’assuré a assumée par contrat, pour les dommages résultant de blessures, d’une maladie ou d’une affection, y compris le décès en découlant à quelque moment que ce soit, causés par des événements survenus pendant la durée du contrat et subis ou que l’on prétend avoir été subis par une ou plusieurs personnes. [10] Il y avait une période, à savoir du 1 er mai 1960 au 1 er mai 1967, pour laquelle le libellé de la police n’était pas disponible. [11] Après avoir retrouvé les polices d’assurance, Monseigneur Vienneau a communiqué de nouveau avec Aviva afin de solliciter une indemnisation au

titre des demandes pour abus sexuel formulées contre les prêtres du diocèse. Encore une fois, Aviva a refusé toute indemnisation. Laissé sans couverture d’assurance, Monseigneur Vienneau a de nouveau consulté des avocats afin de déterminer la meilleure façon de procéder. Cela a conduit à l’établissement d’un processus de conciliation qui allait être mené par l’honorable Michel Bastarache. Le processus de conciliation semblait être pour Monseigneur Vienneau la solution la plus responsable sur le plan financier, compte tenu surtout de la situation financière du diocèse à l’époque.

En se fondant sur des litiges concernant d’autres diocèses, en particulier à Terre-Neuve et en Nouvelle-Écosse, Monseigneur Vienneau a conclu qu’une telle démarche permettrait au diocèse d’éviter le coût élevé d’un litige et de veiller à ce que l’argent disponible puisse aller principalement aux victimes. Un processus de conciliation aurait aussi pour effet d’empêcher que les victimes soient « victimisées de nouveau » lors du processus accusatoire d’un litige.

De plus, si le diocèse devait se rendre devant les tribunaux pour régler chaque demande séparément, il n’y aurait pas suffisamment d’argent pour indemniser les victimes et payer les honoraires d’avocats. En outre, un litige prendrait beaucoup de temps. Il en est venu à penser qu’un litige n’était ni dans l’intérêt supérieur du diocèse ni dans celui des victimes, dont bon

nombre craignaient de perdre leur anonymat. [12] Le processus de conciliation n’avait pas été conçu uniquement pour régler les demandes. Ses objectifs étaient nombreux : [TRADUCTION]

a) permettre au diocèse et à l’Église de reconnaître publiquement l’existence des abus sexuels ainsi que le préjudice causé aux victimes des abus sexuels commis par les prêtres concernés,

b) établir la fréquence et le nombre réels des abus et tout ce qui s’était passé,

c) identifier les prêtres qui avaient commis des abus afin que l’évêque puisse faire en sorte qu’ils ne desservent plus aucune paroisse,

d) constituer un cadre confidentiel et non accusatoire différent des tribunaux devant lequel les victimes pourraient se présenter afin d’obtenir réparation,

e) verser une indemnité aux victimes lorsque et dans la mesure où cela serait justifié,

f) limiter et éviter le plus possible le coût d’un litige afin de garantir que les victimes effectives obtiennent la plus grande part des ressources financières limitées dont disposait le diocèse pour verser des indemnités plutôt que de voir les avocats obtenir le plus gros des sommes en question,

g) verser une juste indemnité aux victimes, dont plusieurs étaient des personnes âgées, dans les plus brefs délais, sans les retards excessifs qui peuvent accompagner la procédure judiciaire,

h) solliciter le pardon des victimes ainsi que leur réconciliation avec l’Église, si possible. [13] Conformément aux objectifs énoncés ci-dessus visant la recherche de la vérité, le pardon et la réconciliation, le processus de conciliation a été médiatisé dans des journaux et durant des en

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