still hoping for an answer: is this compile error expected, and if so, what’s the rationale?

class Outer {
  sealed class Foo {}
  
  // cannot access '<init>': it is private in 'Foo'
  class Bar : Foo() {}
}

Maybe it is as rules changed in 1.1?

A sealed class can have subclasses, but all of them must be declared in the same file as the sealed class itself. (Before Kotlin 1.1, the rules were even more strict: classes had to be nested inside the declaration of the sealed class).

what do you mean by “it is as rules changed”?

I mean before 1.1 you could declare it as inner class. After — only as few classes in one file (and not as inner classes).

1.1 lifted some restrictions, it didn’t add any

Isn’t this a restriction?

all of them _must_ be declared in the same file as the sealed class itself

no

It is expected behaviour for now. In 1.0 subclasses for sealed classes was allowed only inside corresponding class, and in 1.1 we allow top-level subclasses for top-level sealed classes. We can support such cases later.