The Royal Commission into Institutional Responses to Child Sexual Abuse (the Commission) has heard that a school counsellor’s office at a Queensland non-government school (School) was a ‘conveyor belt’ of abuse during the 1970s and 1980s. Until last week the School consistently denied knowledge of the events.

However, last Friday the Chairman of the School’s Board of Trustees told the Commission that the School’s headmaster at the time of the abuse and various other senior staff members may have had adequate knowledge of the abuse but concerns about the School’s insurance coverage forced them to deny such knowledge.

The case study

Case Study 34 is an inquiry by the Commission into the alleged abuse perpetrated in the 1970s, 1980s and early 1990s by two offenders: a former counsellor at the School and later at another non-government school, and a teacher who was accused of abusing students across three States.

The Study also focussed on the response of the Board of Trustees, headmasters and other members of staff at the School to complaints about the behaviour of the former school counsellor.

The denial of knowledge

The Commission heard a number of accounts from victims and their parents about specific meetings held with senior members of staff and the headmaster to discuss the alleged abuse. The School failed to act on these allegations at the time and the headmaster and his staff denied ever being told of the abuse.

The School’s refusal to admit any liability when former students brought claims for compensation for the abuse damaged the students’ ability to claim compensation. By denying any knowledge of the incidents involving the school counsellor, the School was able to escape direct liability and was instead found vicariously liable for the actions of its employees. This finding resulted in a considerably lower amount of compensation awarded to the victims, one of whom suffered brain damage as result of the abuse.

Insurers forced the school’s hand

The transcript from the Commission’s hearing on Friday 6 November reveals the Chairman struggling to maintain his composure when stating that the School had denied knowledge of the abuse and refused to admit legal liability in order to keep its insurance coverage. He acknowledged that the School had ‘done wrong’ by those students in not admitting to any legal liability.

However the Chairman stated that he found himself ‘between a rock and a hard place’ knowing that accepting legal liability could effectively cancel out the School’s insurance coverage and force the school into severe financial trouble. He said that “if the school was going to get indemnity [from the legal claims], we could not admit legal liability”.

An indemnity acts as protection for the school or director in the event of a breach of duty or negligent act, allowing a school to recover compensation or damages claimed against a school, from its insurer

During five hours of questioning before the Commission, the Chairman, a lawyer, confirmed that at the time the compensation claims were filed, there was a dispute between the School and its insurers about indemnity. The insurers contended that because of the evidence about the former headmaster’s knowledge of the abuse, the School was not entitled to be indemnified under its insurance policy. That is, the School would need to pay all settlement costs awarded to a victim in compensation mediation if they admitted to knowledge of the abuse and their consequent liability.

The Chairman told the Commission that two weeks prior to the mediations, the school’s insurers had indicated to the Board of Trustees that they intended to reduce their level of indemnity to zero if it was accepted that the school had knowledge of the abuse. While this threat didn’t eventuate, the Chairman said that the mediations would have proceeded without indemnification from their insurers because despite the school denying legal liability, the Chairman as a member of the Board, accepted moral responsibility for the acts of the counsellor.

Insurance for schools: a case study

Generally speaking, there are two types of insurance policies: claims-made policies and occurrence-based policies. Claims-made policies cover a school for liability arising from a claim filed by a third party. If the claim is made within the policy period, the insurer will indemnify the school, regardless of when the act giving rise to the claim occurred. The policy may also apply to a claim made after the policy has expired, provided that the claim arises from facts notified to the insurer during the term of the policy.

Occurrence-based policies cover schools according to when the act giving rise to a claim occurred. If the act occurred in the policy period, the insurer will indemnify the school.

As a Canadian Supreme Court case concerning abuse claims against a religious non-government school emphasised, it is important for school leaders to consider the school’s insurance policy to understand the type of coverage they are afforded and the terms and conditions of the insurance policy. The Canadian Jesuit school in that case was insured under a claims-made policy which placed specific requirements on how the school had to notify the insurer of claims against the school. After the school was closed down, a number of former students expressed intentions to bring claims for compensation for abuse against the school. The school did not meet the insurance policy’s threshold for adequate and effective notification under their policy because the school merely told the insurer that claims against the school were imminent. Shortly after this informal notification, the insurance policy expired and the school was unable to rely on that notification for indemnification against the multitude of claims from abused former students. The Catholic Church had to pay the former students out of its own funds.

What does a school’s insurance actually cover?

Most schools will have some form of student accident insurance which covers the cost of physical and psychological injuries caused by accidents that occur at the school. This does not extend to non-accidental injury, such as abuse.

Similarly, most non-government schools will have directors’ and officers’ liability insurance which protects the school’s board and officers personally by indemnifying them for losses arising from a claim against them as a result of a wrongful act committed during the course of performing their duties. This includes an indemnity for an actual or alleged breach of duty or trust, such as claims against the school for failing to protect students from sexual abuse.

Directors’ and officer’s liability insurance will not cover conduct involving a wilful breach of duty, for example wilfully ignoring allegations of sexual abuse. This restriction is why the Chairman acknowledged that ‘it was important for the school’s insurance coverage that it be demonstrated that the school did not know that [the counsellor] was perpetrating the abuse’ as it would have affected its coverage and forced the school to pay compensation it could not afford to pay.

What should schools do about insurance?

Firstly, it should be noted that no amount of insurance will allow a school to escape liability for wilful or negligent breaches of their duty of care owed to students. However, where board or council members, executive officers or employees commit a ‘wrongful act’ without intent, appropriate insurance will cover the school, and in most cases the individual, from becoming financially liable for the loss resulting from the breach or wrongful act.

In its Interim Report, the Commission flagged submissions from schools that indicated a lack of insurance or ignorance of coverage at the school. Schools should be aware of:

• what type of insurance they have (on an Insurance Register);
• the extent of coverage offered by their insurance;
• the process for validly notifying their insurers in the event that a claim for damages is made against it; and
• educating their staff and board members on what type of conduct will be excluded from any insurance coverage.