In suit claiming that
liability policy covered racial discrimination claims brought by journalist
Carl Rowan against Chicago Sun Times, Ontario Court of Appeal reads policy in
light of “fortuity principle” and concludes that it did not provide coverage
for alleged intentional discrimination
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.” She conceded
that both the D.C. Human Rights Act and the U.S. Civil Rights Act did contain
enforcement provisions providing for fines and imprisonment. Nevertheless, Mr.
Rowan had formulated his claims for compensatory and punitive damages under
sections creating private rights of action against a wrongdoer.
The judge also cited both Canadian and American authority classifying human rights legislation as “remedial” rather than “penal.” 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. This distinction is reflected by the terms of Section 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.’” [¶ 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. For example, in Solo Cup Company v. Federal Insurance Company 619 F.2d 1178 (7th Cir. 1980), the ... 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.” [¶¶ 23-24]
Finally, the Court of Appeal refers to a 1999 opinion of the Canadian Supreme Court that seems to undermine the applicability in Canada of a public policy analysis based upon indirect (disparate impact) discrimination. “However, ... 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 [British Columbia (Public Service Employee Relations Commission) v. B.C.G.S.E.U., [1999] 3 S.C.R. 3], 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.” [¶ 25]
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).
