Coverage Required for Intentional Acts with Unintentional Consequences
Ontario Society for the Prevention of Cruelty to Animals v. The Sovereign General Insurance Company, 2015 ONCA 702 – This is an appeal from the Order of C.J. Brown J. of the Ontario Superior Court of Justice granting a declaration that the insurer had a duty to defend the three actions in question.
The Ontario Society for the Prevention of Cruelty of Animals (the “OSPCA”) was sued by three separate Plaintiffs: St. Amand, Sheridan, and Smith for various torts arising out of animal cruelty investigations and prosecutions. St. Amand claimed for, malicious prosecution, negligent investigation, and negligence; Sheridan claimed for false imprisonment, malicious prosecution, and slander; and Smith claimed for false imprisonment, malicious prosecution, and defamation. The OSPCA was insured by Sovereign General Insurance Company (“Sovereign”) at the time of these claims: it was insured under a Form 0.8 policy during the period that gave rise to the first two actions and it was insured under a Form 0.9 policy during the period that gave rise to the Smith action. Sovereign denied coverage, relying on exclusion clauses contained in the policies and the application of the fortuity principle. More specifically, it maintained that the exclusion for personal injury arising out of the willful violation of a penal statute or ordinance applied to the first two claims and the exclusion for knowingly violating the rights of others applied to the Smith claim.
The OSPCA brought an application seeking a declaration that Sovereign had a duty to defend the actions. The application judge found that neither the exclusion clauses nor the fortuity principle applied to any of the actions and allowed the application. Sovereign appealed.
There were two issues before the Court of Appeal: (1) whether the application judge erred in concluding that the exclusion clauses contained in the insurance policies were inapplicable; and (2) whether the application judge erred in concluding that the fortuity principle was applicable.
In writing for the Court, Pepall J.A. stated that 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.” The Court made it clear that the fortuity principle does not exclude coverage for all claims that arise from intentional acts. Rather, it precludes coverage for an intentional act with intended consequences. In determining whether the fortuity principle aids in precluding coverage for harm caused by intentional acts is the issue of whether or not the insured intended to inflict the actual harm about which the plaintiff complained.
With these principles in mind, the Court held that the application judge correctly concluded that neither the exclusion provisions at issue nor the fortuity principle were applicable to the three claims.
With respect to the St. Amand claim, the Court found that the exclusion for personal injury arising out of the willful violation of a penal statute or ordinance did not apply as the Ontario Society for the Prevention of Cruelty to Animals Act was not a penal statute. Although the Act contained various penal sanctions, the purpose of the act was not penal. Rather, it was designed for animal protection and the prevention of cruelty to animals. The Court also found that the fortuity principle did not apply because the pleadings did not allege that the OSPCA intended to cause the harm that was allegedly caused. Moreover the definition of personal injury in the policy includes torts or offences, which involve intentional conduct. Thus, the Court found that Sovereign could not rely on the fortuity principle so as to preclude coverage that it had already agreed to provide.With respect to the Sheridan claim, Sovereign alleged that in completing its investigation against Sheridan, the OSPCA obtained and executed a deficient search warrant. As a result, Sovereign claimed that the exclusion for personal injury arising out of the willful violation of a penal statute. The Court held that the exclusion did not apply because exceeding the scope of a search warrant was not an offence or violation under the Criminal Code. Consequently, there was no penal statute that triggered the exclusion. The Court also found that the fortuity principle did not apply for the same reasons as the St. Amand claim. Finally, with respect to the Smith claim, the Court held that the exclusion for knowingly violating the rights of others did not apply. Although the exclusion would technically exclude coverage, the Court found that it would defeat the main object of the policy. The Court concluded that an exclusion clause should not be enforced by the courts when the result would be to defeat the main object of the policy or virtually nullify the coverage sought for protection from anticipated risks. The Court also found that the fortuity principle did not apply for the same reasons discussed above.
Ultimately, the Court dismissed the appeal in its entirety and ordered Sovereign to pay $9,000.00 in costs to the OSPCA.
What the Insurer Should Know
Coverage may be afforded to an intentional act if the consequences of that act are unintentional. The exclusion for personal injury arising out of the willful violation of a penal statute or ordinance requires an analysis of the violated statute or ordinance. The statute or ordinance must be of a punitive nature as opposed to having some other overarching purpose.