Insurers beware: Why your settlements may not be secure

A record-keeping blunder more than 50 years ago means London, Ont.’s Catholic diocese faces a new multi-million-dollar lawsuit over sexual abuse during the early 1970s of an elementary school student by a priest.

The Supreme Court of Canada announced Feb. 11 it will not hear an appeal by the Roman Catholic Episcopal Corporation of the Diocese of London in Ontario of Deschenes v. Lalonde, released May 20, 2020, by the Court of Appeal for Ontario.

As a result, the church cannot have a lawsuit against it dismissed on the grounds that the plaintiff agreed to settle more than 20 years ago.

Former priest Charles Sylvestre was sent to jail for sexual assault, but allegations of vicarious liability against other defendants in the case have not been proven in court.

For risk managers and insurers, a key takeaway from Deschenes is that if a plaintiff relies on an innocent misrepresentation by a defendant to settle a lawsuit, the settlement could ultimately be quashed if the plaintiff later learns the truth.

Sylvestre pleaded guilty in 2006 to sexually assaulting 47 girls under the age of 18. When Sylvestre abused Deschenes during the early 1970s, she was a student at St. Ursula elementary school in Chatham. At the time, Sylvestre was a priest at St. Ursula’s Roman Catholic parish. As such, Sylvestre’s employer was the London diocese.

Deschenes is seeking $4.83 million in damages, the CTV News reported last week.

Sylvestre died in jail in 2007 at the age of 84, the CBC reported at the time.

Initially in 2000, Deschenes agreed to settle a lawsuit against several defendants – including the London Diocese, which paid Deschenes $100,000. Before they settled, Deschenes and her lawyer had been told by a church official that the London diocese was not aware of allegations against Sylvestre until at least 1989 –  more than 15 years after Sylvestre abused Deschenes.

But after the settlement, a church employee stumbled upon a 1962 City of Sarnia police report detailing sexual abuse complaints from three girls against Sylvestre. It turns out that Sarnia police sent their reports to Catholic Social Services in Sarnia, who in turn forwarded those reports to London Bishop John Cody, who died in 1963. Bishop Cody’s estate is one of the named defendants.

The police reports were found in 2006 in an accounting file cabinet, not in a personnel file, the CBC reported. London Bishop Ronald Fabbro made the discovery public.

In 2008, Deschenes filed a second lawsuit against the London Catholic diocese. Deschenes said she would not have settled in 2000 had she known the diocese was made aware of abuse complaints against Sylvestre years before Sylvestre started to abuse Deschenes.

The diocese asked Ontario Superior Court Justice David Anston to dismiss Deschenes’ new lawsuit. But in a 2018 decision, Justice Anston ruled against the church, paving the way for the second lawsuit to proceed. That ruling does not mean the church has been found vicariously liable for Sylvestre’s sexual abuse against Deschnes. It means only that the 2000 settlement agreement is rescinded.

Justice Anston’s ruling was upheld in 2020.

In August 2020, The Roman Catholic Episcopal Corporation of the Diocese of London in Ontario applied for leave to appeal. The Supreme Court of Canada announced Feb. 11, 2021, that leave to appeal is denied.

“Ms. Deschenes did not seek to resile from the settlement simply because new information had come to light which would have strengthened her case. Rather, rescission was available because certain key information that was provided to Ms. Deschenes by the Diocese was false,” Justice Katherine van Rensburg wrote for the Court of Appeal for Ontario in its unanimous ruling.

Lawyers for the London Diocese argued the settlement should not be rescinded unless the court found unconscionable conduct on the part of the defendant. It is not enough for the defendant to have made an honest but mistaken statement to the plaintiff before the settlement, lawyers for the diocese argued.

The Court of Appeal for Ontario disagreed, citing case history, including Barclays Bank v. Metcalfe &Mansfield, released in 2011 by the Ontario Superior Court of Justice and upheld on appeal. Barclays was a complex legal dispute that arose from the asset-backed commercial paper crisis in 2007.

“A material misrepresentation, whether innocent or fraudulent, may be grounds to set aside a contract entered into by one party in reliance on the representation,” Justice Frank Newbould wrote in Barclays. “A fraudulent misrepresentation is a statement known to be false or made not caring whether it is true or false. For innocent misrepresentation the misrepresentation might be entirely honest and careful, there is no need for promissory intention, the negligence of the party seeking relief is no defence, and there is a presumption that a material representation did in fact cause the misrepresentee to enter into the transaction. The presumption can be rebutted by proof of no reliance on the misrepresentation.”

When she initially settled in 2000, it would have been difficult for Deschenes to prove vicarious liability on the part of the church, Justice van Rensburg wrote for the Court of Appeal for Ontario.

The diocese argued that it advised Deschenes’ lawyer in 1999 that the diocese would accept vicarious liability for Sylvestre’s actions. But there was no formal admission of vicarious liability, Justice Anston noted in his 2018 ruling.

In 2000, both on discovery and at a mediation, the diocese continued to deny vicarious liability.

Feature image via iStock.com/JHVEPhoto