Tell the truth. I had the same thing happen with my neighbors cat. My dog didn't kill it, but took a big chunk out of it's leg.
I think they should know the rabbit died. If they do decide to get another pet they might not be as careless.
I agree with this idea. Tell them what happened.
The "good" news for you is that it's dead. You could be looking at some very costly vet bills otherwise. Worst case is they ask you to replace it, which I wouldn't do (since it was in your yard).
Keep in mind- the fact that it was getting out of its pen meant it was doomed to die. Domestic rabbits don't live long outside of their pens. Wild rabbits are much better prepared to detect and evade "problems", but still only have a 15-20% chance of making it through the year...