Canadian Underwriter

The Spanish School Saga – A New Direction in “Claims Made” Coverage

January 1, 2005   by William Blakeney

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The federal government operated Indian schools in “partnership” with various religious organizations. Historically, the sad truth is that neither Ottawa nor the provinces had any great interest in wasting money or resources on educating Indians. On the other hand, the missionary aims of the church seemed to fit naturally into this objective.

Around the turn of the century, the Jesuit Fathers of Upper Canada were asked by Ottawa and the Diocese of Sault Ste. Marie to help operate and administer a residential school for boys, near the town of Spanish, Ontario. While the Church had long had an interest in sponsoring missions amongst the First Nations communities of Ontario, the Jesuits had been active in native communities since the early 1600s. The best-known of the early Jesuit missions was the heroic failure of St. Jean de Brbeuf and his companions in Huronia.

The Garnier Residential school was more popularly known as the “Spanish School”, given its proximity to the town of Spanish, Ontario. The Jesuits staffed and operated the facility until its closure in 1958. In its day, the school was regarded as a model facility. Indian children from across Ontario were taken from their homes by Indian agents or sent by parents anxious to ensure that their children received vocational training. For decades, the Spanish School was the only secondary school for First Nations children anywhere in the province. Without the tireless advocacy of the Jesuits it would not have existed at all.

The pathetic funding provided by the Government meant that the school had to be as self-sustaining as possible. Consequently, the students or residents were expected to participate in growing and preparing food, animal husbandry, making clothing and the physical maintenance of the facility. In times of hardship, this meant that the school took on aspects of a work farm, in keeping with its vocational objectives. The school experienced triumphs and tragedies. Children from different bands and communities across Ontario were thrown into a foreign and hostile environment. Priests and lay brothers, who may themselves have suffered at the hands of seminarians, meted out severe corporal punishment for minor infractions. Despite having some training in local dialects, priests and staff were bitterly suspicious of children speaking in their native languages. Basil Johnston, Anishnaabe writer and a former student at the school, has documented both the positive and negative aspects of the school in his excellent memoir, “Indian School Days”.


In the early 1990s, rumors of physical and sexual abuse at the school began to emerge, following revelations of terrible sexual misconduct on the part of a priest named George Epoch, at Cape Croker, near Owen Sound. The Jesuits took immediate steps to investigate these allegations, and slowly came to the realization that there was some substance to them.

In early 1994, matters came to a head. A former student, Peter Cooper, retained counsel to write a demand letter seeking compensation. Investigators hired by the Jesuits suggested that there might be dozens, or even hundreds of students affected. The Cooper statement of claim turned out to be the first of more than 100 such claims, all alleging that the Order was negligent for its administration of the Spanish school in the 1940s and 50s.

The Jesuit’s legal counsel wrote to the Guardian Insurance Co. reporting what had emerged with respect to both named and unnamed perpetrators and complainants. The Guardian had provided coverage to the Jesuits in the form of comprehensive general liability (CGL) and umbrella policies between September 30, 1988 until September 30, 1994. The CGL policy was occurrence based, with “claims made” coverage for professional services.

The details provided in the Jesuit’s letter made it obvious to the insurer that the potential claim would not be confined to Peter Cooper and that the details would generally apply to other residents of the school in that time frame. While victims of abuse were initially hesitant to come forward, by the spring of 1994, the Jesuits were well aware of the scope of the problem. While older Jesuits found the allegations difficult to believe, they accepted responsibility for how the school had been managed and the incidental damages. At the end of the day, the northern aboriginal communities expected the Jesuits to make reparations and deal fairly with the alleged victims.

The Guardian declined to defend the Jesuit fathers under the policy, and the order found itself fighting a rearguard action against the federal government as well. While Ottawa appeared to admit to responsibility for the residential schools in public apologies and ministerial proclamations, lawyers for the Crown spent millions of taxpayers’ dollars attempting to shift liability onto the churches that had administered the residential schools.

Following the settlement of many of the Spanish claims through alternative dispute resolution, the Jesuits sought a declaration that The Guardian was required to defend and indemnify them. The Jesuits argued that administration of the school could be considered “the provision of professional services” within the meaning of the policy. On the application, (and the subsequent appeal) The Guardian was represented by defense council Vernol Rogers of Cassels Brock.


In October of 2003, Justice Whitten of Hamilton, Ontario heard the coverage motion. He agreed that the Jesuits had rendered a “professional service” at the Spanish school in the training and provision of teachers and personnel necessary to feed, clothe and accommodate the students. He agreed that the failure to provide adequate supervision and administration fell within the ambit of the professional coverage under the policy. He also found that this coverage could not be negated by the “intentional acts” exclusion of the policy.

The court noted that the duty to defend arises if there is a “mere possibility” that a claim within the policy may succeed. Having found that the essential nature of the alleged negligence of the Jesuits fell within the policy, the question then became whether or not “claims” were made for that coverage within the temporal limits of the policy. When considering when a claim has been made, all of the Canadian authorities have distinguished between a communication of a demand or assertion of liability sufficient to trigger coverage and:

* Mere requests for information;

* Filing of a lawsuit without serving it upon the insured; and

* Expressions of dissatisfaction that are clearly not meant to convey a demand for compensation for the damages.

A “demand or assertion of liability” must be communicated in order for a claim to be made. Justice Whitten found that given the context of what the Jesuits faced in the early part of 1994, there was no doubt that the Peter Cooper demand letter was literally a “claim” within the policy, temporally and otherwise. He went on to rule that potential claims on behalf of additional named victims in the Zimmerman letter in March of 1994, could also be described as “claims made” within the policy. Accordingly, he found that there was a duty to defend these as well.

Justice Whitten went on to rule that “claims made on behalf of plaintiffs/complainants not described during the policy period are not ‘claims’ for the purpose of the coverage, as they are neither ‘first made’ during the policy period as is required by the policy, nor were they discovered as such during the policy period”.

A general belief as to the possible existence of further complaints “out there” lacks the specificity required for the basis of a claim under the policy. On the face of it, Justice Whitten’s reasons appeared to be contrary to the decision of the Supreme Court of Canada in the landmark 1993 decision Simcoe & Erie General Insurance Co. vs. Reid Crowther & Partners Ltd. Fo
r more than a decade, Reid Crowther has stood for the rule that when a claim is brought home to an insured under a “claims made” policy, there is no pre-requisite that a claim be reported during the temporal period of the policy, as there is under a “claims made and reported” form.

In addition, Reid Crowther appeared to suggest that once a claim is made, known contingent liabilities arising from the same act of negligence are also covered under the policy. The far-reaching implications of Reid Crowther, in fact, led the Canadian insurance industry to abandon the common use of “claims made” policies for the safer “claims made and reported” form. Justice Whitten indicated, however, that this did not accord with his reading of the case.

Does Reid Crowther say that all damages which flow from negligence discovered during the policy period automatically become claims within the meaning of the policy? No, Reid Crowther stands for the proposition that damages discovered during the policy period may constitute a claim in a particular context. To hold otherwise, and to say that damages discovered beyond the policy period, albeit a function of negligence discovered in the policy period, are claims, is to convert a claims made policy into an occurrence-based policy. Reid Crowther does not make for coverage “ad infinitum”.


In November of 2004, the Ontario Court of Appeal unanimously upheld Justice Whitten’s decision, agreeing with his interpretation of Reid Crowther and finding that coverage was not available for the contingent claimants. Costs were awarded to The Guardian. In Reid Crowther, the Supreme Court of Canada held that a subsequent claim for damages that arose from the original negligence did not constitute a “different” claim. It ruled that the claim had been made within the policy period, as required.

The Supreme Court stated that, to hold that damages claimed after expiry of the policy are not part of the original claim, would be to endorse a situation where an insured could in some circumstances find it impossible to obtain indemnity for a loss. The court used the example of the discovery by a manufacturer, by reason of the claim of a single consumer, that it had produced thousands of units of a hazardous product. It opined that to exclude the known contingent liabilities could lead to the “absurdity” that an insured might have no coverage at all for the damages discovered within the policy period of the claims made policy.

Where the decision in Reid Crowther appeared to broaden coverage to include known contingent liability, the Jesuit fathers decision now limits the coverage to claims that are effectively made and identified within the temporal period of the policy. This has the practicable effect of turning a claims made policy into claims made and reported coverage in many fact situations.

While it is highly unlikely that there will ever be another case involving similar facts to the Jesuit fathers, the case has profound implications for the insurers of manufacturers or corporations facing class actions or mass tort claims. Extrapolating the court’s reasoning, if a representative claim was made against a insured during the policy period, there would be no coverage if a class of plaintiffs was identified and/or certified after coverage was cancelled or non-renewed (as was the case with the Jesuits fathers, where The Guardian prudently got off the risk after notice of the Spanish School claims). The insurer would be obliged to defend the action brought by the original claimant or claimants only.

It will be of great interest to see if the Supreme Court of Canada agrees to hear the appeal and whether the courts in western Canada will follow the Ontario decisions. In the interim, the case appears to soften much of the impact of Reid Crowther that lead the Canadian insurance industry to abandon the claims made form more than a decade ago.