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Insurance - Duty to Defend

Insurance - Fortuity Principle

Torts - Malicious Prosecution

Ontario Society for the Prevention of Cruelty to Animals v. Sovereign General Insurance Company (Ont CA, 2015)

In this case the Court of Appeal considered the basic principles applicable to an insurer's duty to defend and the indemnification 'fortuity principle' (that intentionally-caused harm is not implicitly covered by liability insurance):
[16] The application judge commenced her analysis by noting that the pleadings govern the duty to defend and that if there is doubt as to whether there is coverage for the claims pleaded, this doubt must be resolved in favour of the insured. The mere possibility that a claim falls within the policy will suffice and, in this sense, an insurer’s duty to defend is broader than the duty to indemnify.


(i) General Principles Applicable to Duty to Defend

[39] As noted in Geoff R. Hall, Canadian Contractual Interpretation Law, 2nd ed. (Toronto: LexisNexis Canada, 2012), at p. 203: “The interpretation of insurance policies involves a somewhat unique blend of the general principles of interpretation applicable to all contracts and special principles applicable in the insurance context.” When interpreting insurance policies, the language of the policy is the most important factor in determining whether coverage is granted or excluded; however, in addition to the language of the policy, courts should also take into account general principles of insurance law: Somersall v. Friedman, 2002 SCC 59 (CanLII), [2002] 3 S.C.R. 109, at paras. 46 and 49. The fortuity principle is one such principle and will be discussed in more detail subsequently in these reasons. Another applicable principle is that coverage provisions should be construed broadly and exclusion clauses should be construed narrowly: Reid Crowther & Partners Ltd. v. Simcoe & Erie General Insurance Co., 1993 CanLII 150 (SCC), [1993] 1 S.C.R. 252, at p. 269.

[40] Similarly, a body of jurisprudence has developed on the principles governing an insurer’s duty to defend. To determine whether an insurer has a duty to defend, a court must construe and examine both the wording of the contract of insurance and the substance of the pleadings in issue.

[41] It is important to emphasize that the duty to defend rests on the possibility that a covered claim may succeed; there is no need for certainty: Liberty Mutual Insurance Co. v. Hollinger Inc. (2004), 2004 CanLII 10995 (ON CA), 236 D.L.R. (4th) 635 (Ont. C.A.), at para. 11. Moreover, facts in a statement of claim are assumed to be true for the purpose of the coverage analysis. The true nature or substance of the claim is determinative: Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33 (CanLII), [2010] 2 S.C.R. 245, at paras. 19-20.

[42] Where there is genuine ambiguity or doubt, the duty to defend ought to be resolved in favour of the insured: Monenco Ltd. v. Commonwealth Insurance Co., 2001 SCC 49 (CanLII), [2001] 2 S.C.R. 699, at para. 31.
(ii) Fortuity Principle

[43] The fortuity principle serves as an interpretive aid. It is a “general principle of insurance law that arises from the very nature and purpose of insurance, namely, that ordinarily only fortuitous or contingent losses are covered by a liability policy”: Hollinger, at para. 16. The principle is based on the notion that insurance makes economic sense where losses are unforeseen or accidental and that it would be undesirable to encourage people to injure others intentionally by indemnifying them for the civil consequences: Non-Marine Underwriters, Lloyd’s of London v. Scalera, 2000 SCC 24 (CanLII), [2000] 1 S.C.R. 551, at paras. 68-69.

[44] A fortuitous loss is one that is neither intentional nor inevitable: Hollinger, at para. 16; ING Insurance Co. of Canada v. Miracle, 2011 ONCA 321 (CanLII), 105 O.R. (3d) 241, at para. 23.

[45] In Hollinger, the insurance policy allowed for coverage for claims of discrimination but coverage for a claim alleging intentional discrimination was denied based on the fortuity principle. As Sharpe J.A. noted, at para. 16, the language of the policy:
must be read and interpreted in light of a general principle of insurance law that arises from the very nature and purpose of insurance, namely, that ordinarily only fortuitous or contingent losses are covered by a liability policy. Where an insured intends to cause the very harm that gives rise to the claim, the insured cannot look to a liability policy for indemnity. [Emphasis added.]
[46] The fortuity principle should be distinguished from rules of public policy designed to prevent tortfeasors or criminals from benefitting from their own wrongful acts: Hollinger, at para. 21; Beresford v. Royal Insurance Co. Ltd., [1938] A.C. 586 (H.L.). While the fortuity principle can overlap with various rules of public policy, the two bodies of law are distinct, since the fortuity principle is an aspect of contractual interpretation, rather than a rule of public policy: Hollinger, at para. 16; Beresford, at pp. 594-95. It is an interpretative aid that is of assistance in interpreting contracts: Scalera, at paras. 67-69.

[47] In some cases, insurers may include clauses in the insurance policy that mirror the fortuity principle. Of course, the converse is also true; an insurer may expressly agree to cover intentional acts: E.M. v. Reed (2003), 49 C.C.L.I (3d) 57 (Ont. C.A.).

[48] As Sharpe J.A. observed in Hollinger, the fortuity principle does not exclude coverage for all claims that arise from intentional acts. Absent provision in an agreement to the contrary, the critical issue when determining whether the fortuity principle aids in precluding coverage for harm caused by an intentional act is whether or not the insured intended to inflict the actual harm about which the plaintiff complains. An intended act may have unintended consequences. The fortuity principle does not preclude coverage for an intentional act with unintended consequences. Rather, it precludes coverage for an intentional act with intended consequences: see Hollinger, at paras. 18-19.

[49] Section 118 of the Insurance Act, R.S.O. 1990, c. I.8 incorporates the distinction: “Unless the contract otherwise provides, a contravention of any criminal or other law…does not, by that fact alone, render unenforceable a claim for indemnity under a contract of insurance except where the contravention is committed by the insured…with intent to bring about loss or damage…”
On the elements of the tort of malicious prosecution, the court stated:
[61] Recall that here the parties expressly contracted for coverage for malicious prosecution. As noted by Sharpe J.A. in Hollinger, the tort of malicious prosecution requires a high level of intentional conduct. The elements of malicious prosecution are as follows: (i) legal proceedings must have been initiated by the defendant; (ii) those proceedings must have terminated in favour of the plaintiff; (iii) the defendant did not have reasonable and probable cause to initiate the proceedings; and (iv) the defendant’s conduct was characterized by malice or a primary purpose other than that of carrying the law into effect: Nelles v. Ontario, 1989 CanLII 77 (SCC), [1989] 2 S.C.R. 170, at pp. 192-93; and Henry v. British Columbia (Attorney General), 2015 SCC 24 (CanLII), 383 D.L.R. (4th) 383, at para. 45.

[62] Furthermore, the target must have suffered an injury. As noted in G.H.L. Fridman’s The Law of Torts in Canada, 3rd ed. (Toronto: Thomson Reuters Canada Limited, 2010) at p. 823: “The plaintiff must incur or suffer damage in consequence of the malicious prosecution. If he does not, no action will lie.” Or, as stated in Carolyn Sappideen and Prue Vines, Fleming’s The Law of Torts, 10th ed. (Sydney: Law Book Company, 2011) at p. 706:
We have seen that a claim for malicious prosecution must be founded on actual injury. This must consist either in injury to reputation, presumed wherever the plaintiff was accused of a crime involving scandalous reflection on the plaintiff’s fair name; or injury to the person, as when the plaintiff was imprisoned or put in jeopardy of it; or damage to the plaintiff’s pecuniary interests, such as being put to expense in defending himself against the charge.
[63] In essence, malicious prosecution involves intentional conduct and malice and no action will lie in the absence of actual injury.

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