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KR & Others v Royal & Sun Alliance Plc, Court of Appeal, 3 November 2006

24 November 2006
The issues

Insurance – policy containing clause excluding liability for injury or damage resulting from deliberate act or omission of insured – sexual abuse – whether an abusers act could be regarded as a deliberate act could be regarded as a deliberate act of the insured for the purposes of an exception clause in a policy.

The facts

On the 26th June 2001, Mr Justice Connell, gave Judgment in favour of 13 of the Claimants against the company finding that there had been extensive abuse at the children’s homes owned and managed by the company. After the appeal the 13 Claimants brought proceedings against the insurer, claiming firstly that the insurer was the company’s liability insurer; secondly that the company had incurred a liability to the Claimants by the Judgment of the Judge; and thirdly that in consequence of the liquidation they were entitled to claim directly against the insurer under the third party’s (rights against insurers). The relevant policy contained an exception providing that the insurer would not be liable for injury or damage resulting from a deliberate act or omission of the insured and which could reasonably have been expected having regard to the nature and circumstances of such an act or omission. In 1981 the wording was broadened to include not just the insured but also partners, directors and managerial employees.

When the matter came before the Judge the Judge noted that the Judge who tried the actions themselves found that each individual’s injury and damage resulted from negligence on the part of the company and that there were no findings that any injury of damage had resulted in a deliberate act or omission in respect of which liability attached. The claims had succeeded on the basis of systemic neglect. Therefore the Judge had concluded that the exception policy did not bite.

Notwithstanding these findings the insurer argued that the abuse consisted of deliberate acts of abuse, whether or not there was negligence in permitting them to take place, and was part of a regime which allowed the abuse to take place. In that sense the abuse was by the insured. The second argument was that the abuse perpetrated by directors or managerial employees of the company, whose acts or omission should be attributed to the company, and thus regarded as abuse by the insured.

The decision

In respect of the first argument, the insurer was fixed with the finding of the Judge who had heard the original actions. The evidence did not support the insurers contention.

In dealing with questions of attribution it was necessary to look at the individual acts of abuse in each case to see whether the policy bit.

The starting point again was to look at the injury or damage, ie what had happened to the abused individual. The critical question was whether the person who caused that injury or damage was to be equated with the company and therefore the insured within the meaning of the policy. The issue was not one of vicarious liability. There was a clear distinction between policy rules governing vicarious liability and rules governing attribution, whereby as a matter of law an act or intention of an individual was to be treated as the act or intention of the company. The true intent of the exclusion clause was to exclude liability for damage or injury caused by deliberate acts of the person who was to be regarded as in effect to the company as opposed to the acts of those who were mere employees. It was clear from the evidence that the deliberate acts of abuse by John Allen fell to be attributed by the company. It was not just the case that he was the managing director and majority share holder; he was Bryn Alyn. He treated the company as his own and nothing of consequence happened without his saying so. Had he burnt down one of the homes we could not see that the company could recover under the policy. It did not seem to make any difference that the victims in the present case were third parties rather than the insured themselves. Suppose the company had been solvent. Most right thinking people would regard it as abhorrent that the company to be indemnified by the insurer against a liability created by the criminal acts of John Allen when he, as majority share holder, stood to benefit. Each individual case fell to be considered separately. Generally, deliberate acts of sexual and physical abuse by John Allen from 1976 when cover began, and similar acts by principals of the various homes from June 1981 when the exception to the policy was extended to include managerial employees, all fell out with the insurer’s cover. The insurer remained liable for the consequences of the other acts of abuse.

Appeal allowed to that extent.

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The content on this page is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it.

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