Liberty Mutual Insurance Company (Liberty) is a Canadian company with its headquarters in Toronto. In that Province, it issued a comprehensive general liability insurance policy to Hollinger Inc. of Ontario applicable to the insured’s business activities worldwide.
Carl Rowan, a respected African-American journalist highly supportive of civil rights, was writing three columns per week for The Chicago Sun Times, a recently-acquired Hollinger subsidiary. Mr. Rowan later sued the Times and Hollinger (presumably in District of Columbia federal court), in major part alleging age and racial discrimination in violation of the District of Columbia and U.S. civil rights statutes. According to his complaint, after Hollinger had taken control of the Sun Times, the paper decided to increase its appeal to a “white” readership. The upshot was that it willfully sought to terminate Mr. Rowan’s employment contract.
Hollinger notified Liberty about Mr. Rowan’s claim, retained counsel and eventually settled the discrimination case. Hollinger then tendered the claim to Liberty, requesting a contribution to the cost of defense and indemnity with respect to the discrimination claims. Liberty declined and sought a declaratory judgment from an Ontario court that it owed no duty to defend Hollinger.
The relevant personal injury items the policy covered included: “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.” The policy, however, expressly ruled out coverage for: “The wilful violation of a penal statute or ordinance committed by or with the knowledge or consent of any Insured.”
The trial judge held that the policy did require Liberty to furnish Hollinger with a defense and dismissed the application.
Noting that Mr. Rowan had cast his discrimination claims as wilful, the trial judge found that there was still coverage because the claims did not rest upon “a penal statute.” Additionally, she relied on the principle of insurance law that if there is a “mere possibility” that the allegations as pleaded lie within the policy coverage, the insurer has to provide a defense because a court has to resolve any uncertainty on the issue of coverage in favor of the insured.
The insurer filed the present appeal. The Ontario Court of Appeal agrees with Liberty’s position and unanimously allows the appeal. The parties agree that the law of Ontario controls, since Hollinger resides in that province and the parties had executed the policy there.
Liberty made three arguments to show that the policy does not cover acts of intentional discrimination. First, the policy bars claims based on a “wilful violation of a penal statute.” Second, a basic economic principle of insurance law makes policies applicable only to the insured’s “fortuitous” or nonintentional acts. Finally, it would be unsound public policy to extend insurance coverage to intentional acts of discrimination.
As to the first point, the Court of Appeal agrees with the trial judge that Mr. Rowan’s suit asked only for compensatory damages rather than the enforcement of a penalty. Of course, the statutes he invoked did have both civil and criminal aspects. Nevertheless, both Canadian and U.S. courts treat statutes as “remedial” when a plaintiff seeks only civil remedies. Mr. Rowan clearly based his action on the civil aspects of the D.C. and U.S. statutes.
Next, the Court considers 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.” [¶ 15]
“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. [Cite]”
“It is important to keep in mind the underlying economic rationale for insurance,”the Court stresses. “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.’” [¶ 16]
Liberty’s public policy contention is then taken up. “[The] 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 ... victims from bringing claims.” [Id.] Clearly, the Court observes, these two policies may potentially conflict since the former looks to narrow the scope of coverage while the latter would broaden it.“ The fortuity principle does not [however] 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.’” [¶ 18]
“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.” [¶ 19]
The Canadian courts have seemingly not considered the issue of whether insurance coverage for discrimination claims is contrary to public policy. There is, however, an extensive body of American authority on this point. Most American courts which have addressed the question have barred insurance coverage for claims of intentional discrimination. “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. [¶¶ 23-24]
Citation: Liberty Mutual Insurance Co. v. Hollinger Inc., 2004 A.C.W.S.J. 2016; 128 A.C.W.S. (3d) 1182 (Ont. Ct. App. Feb. 13).
About Jared Stolz, Esq.
Jared Stolz received his undergraduate education at Drew University in Madison, New Jersey and graduated with honors from Seton Hall University School of Law. Mr. Stolz has been the managing partner of Stolz & Associates since 2004, specializing in providing individual and customized attention to insurance carriers needs on substantial coverage disputes. Mr. Stolz has nearly two decades of experience in the insurance industry and strives to offer the clients a combination of tried and true legal analysis along with tactic, brought to it by today’s technology, with a focused eye on
expenses. Mr. Stolz has represented prominent clients in numerous noteworthy cases with published opinions and has published and given seminar on insurance law topics.
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