This case related to a claim, on behalf of several children who were physically and sexually abused by staff at the Bryn Alyn children’s home, against Bryn Alyn’s insurers, Royal Insurance Plc.
Bryn Alyn was a private home intended to provide an alternative to the strict discipline and training regimes of approved schools. The majority of the children in the home were children who had been placed in the care of local authorities. Bryn Alyn became an incorporated company (the Company) and operated successfully over a 20year period in 1970s and 80s but went into voluntary liquidation in the mid 1990s. The owner and principal shareholder, John Allen, was eventually convicted of 6 offences of indecent assault and sentenced to 6 years’ imprisonment. The claimants, KR & others, brought proceedings against the Company and judgment was given in their favour. The successful claimants then brought proceedings against the defendants in this case, Royal Insurance, on the basis that they were entitled to claim directly against the insurer under s.1 Third Parties (Rights against Insurers) Act 1930, and as a consequence of the Company’s liquidation.,
The Act provides that in the case of a company passing a resolution to be wound up, liability incurred by the insured under the contract of insurance, “shall be transferred to and vest in the third party to whom the liability was incurred.” Royal Insurance raised three defences. (i) the abuse against half of the claimants occurred outside the period of cover provided. (ii) all of the claims were excluded under the terms of the policy since they excluded liability for the deliberate acts of the assured and (iii) the claims were excluded additionally on the basis that a new updated policy excluded the wrongdoing of the Company’s partners, directors or managerial employers in the context of the deliberate acts of the assured.
In relation to the first defence, there was limited evidence available to the court of the existence of any policy liability insurance by Royal Insurance. Neither the insurer nor the assured could provide evidence that any such policy existed in relation to the period of claim made by half of the claimants at all. The court held that the Company was not insured by Royal Insurance during this period and those claimants therefore failed in their claims.
For the second and third defences to be made out and for the exclusion clauses to be valid, the defendants needed to show that those who carried out the deliberate acts of assault were acting within an operational role and exercising a management responsibility. In the proceedings taken against the Company, the judge found that this was not the case. He found that the abuse was the result of the Company’s negligence in relation to the adequacy of the system, its organisation and supervision. The home was overcrowded, its staff were not properly trained, and inappropriate practices were tolerated. The court found that the wording of the new policy did not significantly change the terms of the policy. Whether the relevant negligent act or omission was the act of the Company depended on the nature of the activity, the relevant position of the person against whom the complaint was made within the Company and the relevant surrounding facts and circumstances. It held that Royal Insurance could not bring itself within the exception in that the abusers were not at the relevant times acting in managerial roles, but for their own ends, both ‘selfishly and gratuitously’. Therefore the insurer’s defence on the second and third issues failed.