DATE: 20040213

DOCKET: C38237

COURT OF APPEAL FOR ONTARIO

ROSENBERG, MACPHERSON and SHARPE JJ.A.

B E T W E E N:

LIBERTY MUTUAL INSURANCE COMPANY (as represented In Canada by LIBERTY INTERNATIONAL CANADA)

Brian J.E. Brock, Q.C. for the appellant

Appellant

• and -

HOLLINGER INC., HOLLINGER INTERNATIONAL INC. and THE RAVELSTON CORPORATION LIMITED

Glenn Smith and Nina Bombier for the respondents

Respondents

Heard: November 19, 2003

Additional written submissions filed January 23, 2004

On appeal from the judgment of Justice Nancy L. Backhouse of the Superior Court of Justice dated May 9, 2002.

SHARPE J.A.:

[1] The issue on this appeal is whether an insurer under a comprehensive general liability policy is obliged to provide a defence to a claim of intentional discrimination.

[2] The appellant Liberty Mutual Insurance Company (“Liberty”) issued a comprehensive general liability insurance policy to the respondents Hollinger Inc., Hollinger International Inc. and the Ravelston Corporation Limited (“Hollinger”). Carl Rowan, a well-known journalist, sued The Chicago Sun Times, Hollinger’s subsidiary, for wrongful dismissal. Rowan included in his claim allegations of intentional racial and age discrimination. Hollinger advised Liberty of the claim, retained counsel and eventually settled the case. Hollinger then tendered the claim to Liberty, requesting a contribution to the cost of defence and indemnity with respect to the discrimination claims. Liberty refused and sought a declaration that it owed no duty to defend Hollinger. Backhouse J., the application judge, ruled that Liberty was required to provide Hollinger with a defence and dismissed the application. For the reasons that follow, I disagree with the result reached by the application judge and conclude that Liberty is not required to provide Hollinger with a defence to the discrimination claims.

FACTS

(i) THE CLAIM

[3] Rowan’s amended complaint (statement of claim) advanced five causes of action:

• breach of contract;

• constructive discharge;

• racial discrimination contrary to the District of Columbia Human Rights Act;

• age discrimination contrary to the District of Columbia Human Rights Act;

• age and racial discrimination in violation of the United States Civil Rights Act.

[4] Hollinger does not suggest that Liberty is required by the policy to provide a defence with respect to the first two causes of action, but asserts the right to a defence with respect to the three claims based upon racial and age discrimination. It is apparent from the manner in which the Amended Complaint is drafted that Rowan alleged intentional discrimination in violation of the District of Columbia Human Rights Act and the United States Civil Rights Act. Rowan claimed that after the Sun Times came under the control of Hollinger, management “entered upon a calculated policy” of changing the newspaper’s orientation towards a “white” audience and “brazenly” set out to remove “Black images”, including Rowan’s columns, from the newspaper. The acts of discrimination alleged against Hollinger are described in the following manner in para. 34 of the Amended Complaint:

It was inconsistent with Defendant’s new policies for Defendant to continue publishing three (3) columns each week by Mr. Rowan, who is African-American and who was then and continues to be highly supportive of African-American and civil rights causes. Accordingly, Defendant wilfully, wantonly, maliciously, and deliberately entered upon the course of action…designed with a discriminatory purpose against Mr. Rowan on account of his race, either to terminate the Employment Contract or to force Mr. Rowan to conclude that his services for Defendant were effectively being terminated by Defendant.

Similar allegations of intentional discrimination were made with regard to age discrimination.

(ii) THE POLICY

[5] Liberty, a Canadian insurer based in Toronto, issued a comprehensive general liability policy to Hollinger for its business activities throughout the world. The policy provided coverage to Hollinger for claims made against it for bodily injury, property damage and personal injury.

9. INSURING AGREEMENTS

To pay on behalf of the Insured all sums which the Insured shall be obligated to pay by reason of liability imposed by law upon the Insured or assumed by the Insured under any written contract or agreement, or any verbal agreement for a period not exceeding 90 days while in the process of being formalized in writing, as damages including damages for care and loss of services, because of:

9. (a) BODILY INJURY COVERAGE

Bodily injury, mental anguish, shock, sickness or disease, including death at any time resulting therefrom, sustained by any person during the policy period.

9. (b) PERSONAL INJURY COVERAGE

(i) False arrest, detention or imprisonment, malicious prosecution, libel, slander, defamation of character, invasion of privacy, wrongful eviction or wrongful entry sustained by any person or organization during the policy period.

(ii) Discrimination, except in such jurisdiction where by legislation, court decisions or administrative ruling such insurance is prohibited or held to violate the law or public policy of any such jurisdiction.

[6] The Policy contains the following exclusions:

11. EXCLUSIONS

This policy does not apply:

11. (a) PERSONAL INJURY COVERAGE EXCLUSIONS

Under item 9(b) Personal Injury Coverage only, to claims arising out of:

(i) The wilful violation of a penal statute or ordinance committed by or with the knowledge or consent of any Insured

(ii) Any advertising, publishing, broadcasting or television activities by or for the Insured.

[7] The Policy requires the insurer to provide the insured with a defence in the following terms:

10. ADDITIONAL INSURING AGREEMENTS

With respect to such insurance as is afforded by this policy the Insurer shall:

10 (a) DEFENCE – SETTLEMENT

Defend in the name and on behalf of the Insured any suit against the Insured alleging such injury, sickness, disease or destruction and seeking damages on account thereof, even if such suit is groundless, false or fraudulent but the Insurer shall have the right to make such investigation, negotiation and settlement of any claim or suit as may be deemed expedient by the Insurer;

JUDGMENT OF THE APPLICATION JUDGE

[8] Before the application judge, Liberty’s case essentially rested on the exclusion for claims arising from “the wilful violation of a penal statute.” The application judge found that the discrimination claims were framed as wilful discrimination but that as the claims were not based upon “a penal statute” they were covered. She held that while both the District of Columbia Human Rights Act and the United States Civil Rights Act contained enforcement provisions providing for fines and imprisonment, Rowan’s claims for compensatory and punitive damages were advanced under provisions allowing for private rights of action against a wrongdoer. She referred to both Canadian and American authority classifying human rights legislation as remedial rather than penal. She relied on the principle that if there is a “mere possibility” that the allegations as pleaded fall within the coverage of the policy, the insurer is required to provide a defence (Nichols v. American Home Assurance Co., 1990 144 (SCC), [1990] 1 S.C.R. 801) and noted that any uncertainty on the issue of coverage must be resolved in favour of the insured (Slough Estates Canada v. Federal Pioneer Ltd (1995), 1994 7313 (ON SC), 20 O.R. (3d) 429).

ISSUE

[9] Does the policy require the insurer to provide a defence to the claims of intentional discrimination?

ANALYSIS

[10] It is common ground that the Policy is governed by the law of Ontario. Hollinger is “a person resident in Ontario” and the contract was executed and delivered in Ontario. Section 123 of the Insurance Act, R.S.O. 1990, c. I.8 provides that in these circumstances, the contract shall be construed according to the law of Ontario.

[11] It is also common ground that the test laid down in Nichols, supra at 810, applies and that while “the duty to defend arises only where the pleadings raise claims which would be payable” under the policy of insurance, “it is not necessary to prove that that obligation to indemnify will in fact arise to trigger the duty to defend. The mere possibility that a claim within the policy may succeed suffices.”

[12] Before this court, Liberty’s contention that acts of intentional discrimination are not covered rests on three grounds: first, by its terms, such claims are excluded under Article 11(a)(i) as a “wilful violation of a penal statute”; second, according to the “fortuity principle”, indemnity insurance covers only fortuitous acts of the insurer and intentional harm is excluded; and third, it would be contrary to public policy to permit insurance coverage for intentional discrimination. In fairness to the application judge, I would point out that the second two grounds do not appear to have been the focus of Liberty’s submission below. I also observe here that no issue is raised with respect to estoppel or non-waiver despite the fact that the duty to defend issue was not presented until after the Rowan action had been settled.

[13] I agree with the application judge that the claims do not fall within the exclusion for claims arising out of the “wilful violation of a penal statute”. Although both the District of Columbia Human Rights Act and the United States Civil Rights Act both provide for fines and imprisonment in certain instances, the claims at issue here cannot fairly be characterized as penal in nature. The application judge aptly disposed of this issue in the following passage at para. 6:

The enforcement provisions of both the District of Columbia Human Rights Act and the United States Civil Rights Act provide for fines and imprisonment. The statutes also provide a private right of action against a wrongdoer. The Rowan claim does not refer to specific sections of either statute. It claims “compensatory damages” and does not seek to enforce a penalty. Where a statute is both penal and remedial, authority exists for considering it a “remedial statute” when it is sought to enforce the civil remedy and as a “penal statute” when it is sought to enforce the penalty. (Collins v. Kidd, 38 F.Supp. 634, 637). Similar legislation in Canada has been found to be remedial legislation. (Ontario Human Rights Commission v. Ontario (1994), 1994 1590 (ON CA), 19 O.R. (3d) 387 at 394 (C.A.); Westend Construction Ltd. et al v. Ontario Human Rights Commission et al (1989), 1989 4088 (ON CA), 62 D.L.R. (4^th) 329).

[14] This analysis coincides with that of Dickson C.J.C. in Action Travail des Femmes v. Canadian National Railway Co. et al. (1987), 1987 109 (SCC), 40 D.L.R. (4^th) 193 at 206-207: “The purpose of the [Canadian Human Rights] Act is not to punish wrongdoing but to prevent discrimination…there is no indication that the purpose of the Canadian Human Rights Act is to assign or to punish moral blameworthiness.”

[15] I will next consider Liberty’s argument that the Policy does not cover claims of intentional discrimination. Apart from the exclusion clause, there are certain features of the Policy that would appear, on their face, to allow for coverage for claims of intentional discrimination. Claims of discrimination in Article 9 are but one aspect of a broader category of claims for “personal injury” and several of the itemized categories falling within that general category involve intentional wrongdoing. For example, coverage is provided for claims for false arrest, detention or imprisonment, and malicious prosecution. These causes of action are intentional torts and ordinarily require a high level of intentional conduct.

[16] However, I agree with Liberty that this language 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. This principle was explained by Iacobucci J. in his concurring judgment in Non-Marine Underwriters, Lloyld’s of London v. Scalera, 2000 SCC 24, [2000] 1 S.C.R. 551 at paras. 68-69:

It is important to keep in mind the underlying economic rationale for insurance. C. Brown and J. Menezes, Insurance Law in Canada (2nd ed. 1991), state this point well at pp. 125-26:

Insurance is a mechanism for transferring fortuitous contingent risks. Losses that are neither fortuitous nor contingent cannot economically be transferred because the premium would have to be greater than the value of the subject matter in order to provide for marketing and adjusting costs and a profit for the insurer. It follows, therefore, that even where the literal working of a policy might appear to cover certain losses, it does not, in fact, do so if (1) the loss is from the inherent nature of the subject matter being insured, or (2) it results from the intentional actions of the insured.

In other words, insurance usually makes economic sense only where the losses covered are unforeseen or accidental: "The assumptions on which insurance is based are undermined if successful claims arise out of loss which is not fortuitous" (C. Brown, Insurance Law in Canada (3rd ed. 1997), at p. 4). This economic rationale takes on a public policy flavour where, as here, the acts for which the insured is seeking coverage are socially harmful. It may be undesirable to encourage people to injure others intentionally by indemnifying them from the civil consequences. On the other hand, denying coverage has the undesirable effect of precluding recovery against a judgment-proof defendant, thus perhaps discouraging sexual assault victims from bringing claims. See B. Feldthusen"The Civil Action for Sexual Battery: Therapeutic Jurisprudence?" (1993), 25 Ottawa L. Rev. 203, at p. 233.

[17] I agree with Liberty’s submission that by its terms, the Policy is an occurrence based liability policy that only covers accidental or fortuitous losses. Article 14(d) provides that “[w]hen an accident or occurrence takes place”, the insured is required to provide written notice “of such accident or occurrence”. Article 12 also limits the liability of the insurer by certain specified amounts “for any one occurrence or accident or series of occurrences or accidents arising out of one cause”. For the purposes of liability insurance, the Supreme Court of Canada in Stats v. Mutual of Omaha Insurance Co., 1978 38 (SCC), [1978] 2 S.C.R. 1153 and this court in Murphy v. Lloyd’s of London (2000), 2000 16899 (ON CA), 137 O.A.C. 10 adopted the meaning attributed to the word “accident” by the House of Lords in Fenton v. J. Thorley & Co. Ltd., [1903] A.C. 443 at 448: “[T]he expression ‘accident’ is used in the popular and ordinary sense of the word as denoting an unlooked-for mishap or an untoward event which is not expected or designed.” The word “occurrence” as used in the policy, is defined at Article 9(c) as “an event or a continuous or repeated exposure during the policy period to conditions which, from the standpoint of the Insured, unexpectedly causes injury”. Like the definition of “accident”, this definition emphasizes the fortuitous and unexpected nature of the covered loss.

[18] The fortuity principle does not exclude coverage for all claims that arise from intentional acts. An intentional act may have unintended consequences. If the unintended consequence falls within the terms of the policy, it will be covered even if it was caused by the intentional act of the insured. This distinction is reflected by the terms of s. 118 of the Insurance Act, which provides that the “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”. The fortuity principle is explained in relation to claims for discrimination by F.J. Mootz, “Insurance Coverage of Employment Discrimination Claims” (1997) 52 U. Miami L. Rev. 1 at 32,38:

The general rule in this regard, known as the principle of “fortuity,” is that “a contract of insurance to indemnify a person for damages resulting from his own intentional misconduct is void as against public policy and courts will not enforce such a contract.” In this context, it is important to read “intentional” narrowly. Many courts recognize that public policy does not prohibit insurance coverage for all liabilities incurred due to intentional torts, but instead precludes coverage only for liabilities arising out of conduct intended to cause harm. Put differently, public policy is implicated only when an employer seeks indemnification for injuries that it intended to inflict, and not when an employer seeks coverage for intentional actions that have resulted in injuries. If it is accurate to say that courts “make insurance” with the doctrine of reasonable expectations, then it is no less accurate to say that they also “unmake insurance” with the public policy limitation on enforcement of policy terms.

[I]f the wrongful act amounts to a purposeful effort by the employer to cause injury to the employee, courts generally will still refuse to enforce otherwise available insurance for reasons of public policy.

A similar statement on the distinction between intentional acts and intentional harms is found in C. Brown et al., Insurance Law in Canada, looseleaf (Toronto: Carswell, 2002) at 18-178 to 18-179: “The courts will be alert to the distinction between the intention to cause the injury itself… and the intention to commit the act that causes injury…the exclusion applies to the former, but not necessarily to the latter.” See also Hodgkinson v. Economical Mutual Insurance Co., 2003 36413 (ON CA), [2003] O.J. No. 5125 (C.A.), where Morden J.A. found that it is the presence or absence of an intent to injure that is determinative when deciding whether coverage should be excluded.

[19] In my view, Rowan’s claims of discrimination cannot be described as claims for accidental or fortuitous loss nor can they be qualified as claims for the unintended consequence of an intentional act. They are, rather, claims of intentional wrongdoing and arise from allegations that Hollinger intended to inflict the very wrong of which Rowan complains. It follows that Rowan’s claims fall outside the terms of the Policy and that Liberty is not required to provide Hollinger with a defence.

[20] Hollinger argues that while Rowan’s claim is framed in terms of intentional discrimination, it pleads underlying facts that could result in a finding of unintentional or disparate impact discrimination, and that therefore the duty to defend does arise. I am unable to accept that argument. As explained by Iacobucci J. in Scalera at paras. 50-52, when determining whether a claim triggers the duty to defend there is a three-step process. First, the court must assess the pleading and “look beyond the choice of labels, and examine the substance of the allegations contained in the pleadings.” As I have already explained, there can be little doubt that the substance of Rowan’s claims is an allegation of intentional discrimination. The second step is to determine whether any claims are derivative in nature: “If the alleged negligence is based on the same harm as the intentional tort, it will not allow the insured to avoid the exclusion clause for intentionally caused injuries.” In this case, any suggestion of indirect or adverse impact discrimination in the claim is, in my view, entirely derivative of the claim of intentional discrimination. The third step is to determine “whether any of the…non-derivative claims could potentially trigger the insurer’s duty to defend”. For reasons I have already explained, I have concluded that none of the non-derivative intentional discrimination claims qualify in this regard.

[21] While I would decide this appeal on the basis of the fortuity principle, Liberty’s third argument, that of public policy, should also be mentioned as it is not entirely distinct in nature. As suggested by Iacobucci J. in the passage quoted above from Scalera, there is an overlap between the fortuity principle and public policy. The fortuity principle arises from the economics of insurance, but it also has a “public policy flavour” as “[i]t may be undesirable to encourage people to injure others intentionally by indemnifying them from the civil consequences” of their wrongful conduct. On the other hand, Iacobucci J. also noted in the same passage that denying coverage may have “the undesirable effect of precluding recovery against a judgment-proof defendant”. Clearly, these two policies may potentially conflict since the former tends to narrow the scope of coverage while the latter broadens it.

[22] It is hardly necessary to cite legal authority for the proposition that discrimination is contrary to the public policy of Ontario. The preamble to the Human Rights Code, R.S.O. 1990, c. H-19 contains a clear statement to that effect:

[I]t is public policy in Ontario to recognize the dignity and worth of every person and to provide for equal rights and opportunities without discrimination that is contrary to law, and having as its aim the creation of a climate of understanding and mutual respect for the dignity and worth of each person so that each person feels a part of the community and able to contribute fully to the development and well-being of the community and the Province.

[23] Although the issue of whether insurance coverage for discrimination claims is contrary to public policy does not appear to have been considered by any Canadian court, there is an extensive body of American authority on this point. Most American courts that have considered the question have excluded insurance coverage for claims of intentional discrimination: see e.g. Boston Housing Authority v. Atlanta International Insurance Company, National Casualty Company, Covenant Mutual Insurance Company, 781 F. Supp. 80 (D. Mass. 1992); American Guarantee and Liability Insurance Company v. Vista Medical Supply, 699 F. Supp. 787 (N.D. Cal. 1988); Save Mart Supermarkets v. Underwriters at Lloyd’s London, Sphere Drake Insurance PLC, 843 F. Supp. 597 (N.D. Cal. 1993). These courts have dismissed such claims on the basis of the fortuity principle and as well on grounds of public policy: see Mootz, supra.

[24] On the other hand, the American courts have, for the most part, distinguished intentional or “disparate treatment” discrimination from unintended or “disparate impact” claims and allowed liability insurance coverage for the latter. For example, in Solo Cup Company v. Federal Insurance Company 619 F.2d 1178 (7^th Cir. 1980), the 7^th Circuit Court of Appeals held that insurance coverage of disparate impact liability is not contrary to the public interest against employment discrimination as embodied in Title VII. The court held that allowing insurance coverage for disparate impact liability would not injure the public good, and indeed might promote the objects of the legislation as insurers would likely encourage and facilitate the evaluation of employment standards.

[25] I note here that in British Columbia (Public Service Employee Relations Commission) v. B.C.G.S.E.U, 1999 652 (SCC), [1999] 3 S.C.R. 3, the Supreme Court of Canada rejected the distinction between intentional and disparate impact discrimination in the context of bona fide occupational requirements. The Court replaced the conventional categorization of discrimination as “direct” or “adverse effect” with a unified approach. Writing for the unanimous Court, McLachlin C.J.C. stated at para. 25:

However well this [conventional] approach may have served us in the past, many commentators have suggested that it ill-serves the purpose of contemporary human rights legislation. I agree. In my view, the complexity and unnecessary artificiality of aspects of the conventional analysis attest to the desirability of now simplifying the guidelines that structure the interpretation of human rights legislation in Canada.

McLachlin C.J.C.’s statement would appear to undermine the applicability in Canada of a public policy analysis based upon a distinction between direct and indirect discrimination. However, as I have already observed, for the purposes of insurance law, there is a well-recognized distinction to be drawn between fortuitous or accidental harm and harm that is caused intentionally. I do not consider that distinction to be affected by the holding in B.C.G.S.E.U., even in relation to discrimination claims. I would, therefore, decide this appeal on the basis of the fortuity principle and leave the broader public policy issue of insurance coverage for claims of discrimination for another day.

CONCLUSION

[26] For these reasons, I would allow the appeal and grant an order declaring that Liberty is not under a duty to defend Hollinger under the Policy with respect to the Rowan claims. I would award the appellant costs of the appeal fixed at $17,000 inclusive of GST and disbursements.

“Robert J. Sharpe J.A.”

“I agree M. Rosenberg J.A.”

“I agree J.C. MacPherson J.A.”

Released: February 13, 2004