Fortuity Covers Intentional Conduct Not Intentional Harm – By Alan Melamud

The principle of fortuity has been a long standing component of insurance law, providing that an insured can only recover for a loss that is neither intentional nor inevitable. In Non-Marine Underwriters, Lloyd’s of London v. Scalera, the Supreme Court of Canada described the principle as arising from the underlying economic rationale for insurance:

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 [sic] 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.[1]

While easy enough to state, an often misleading facet of the fortuity principle is the idea that it precludes recovery for “intentional actions of the insured” as opposed to the insured’s intended results. In Ontario Society for the Prevention of Cruelty to Animals v. Sovereign General Insurance Co. (“OSPCA”), the Ontario Court of Appeal recently clarified that, absent language in the insurance policy to the contrary, unintended consequences that arise from an intentional act are still fortuitous.[2]

In OSPCA, the Ontario Society for the Prevention of Cruelty to Animals (the “Society”) brought an application against its insurer, Sovereign General Insurance Co. (“Sovereign”), seeking to have Sovereign defend it in three separate actions. While all slightly different, each of the actions generally alleged claims that arise from intentional conduct, such as false arrest, false imprisonment, malicious prosecution, and defamation. Sovereign resisted the Society’s application on the basis of exclusions in the two policies at issue and the fortuity principle.

The Court of Appeal upheld the Society’s right to a defence from its insurer. On the issue of fortuity, in obiter, the Court found that the alleged losses were fortuitous because in none of the actions had the plaintiffs alleged that the Society intended the harm that resulted.[3] Accordingly, the claims were covered by the duty to defend, notwithstanding the Court’s acknowledgment that the allegations involved a high level of intentional conduct.[4]

The Court’s principal ground for rejecting Sovereign’s fortuity argument was that Sovereign had contracted out of the fortuity principle by expressly agreeing to cover intentional torts such as malicious prosecution.[5] Interestingly, the Court distinguished its earlier decision in Liberty Mutual Insurance Co. v. Hollinger Inc. (“Hollinger”),[6] where the Court found that a claim of intentional discrimination did not have to be defended because it was not fortuitous, notwithstanding that the policy expressly covered losses arising from discrimination.[7] The Court distinguished Hollinger on the basis of the wording of the policies. In Hollinger, the policy only covered “accidents”, which denotes an “unlooked-for mishap” or something that “is not expected or designed”.[8] The Sovereign policy, however, did not invoke the concept of accident for the coverage at issue.[9]

For the fortuity principle, this means that it clearly only precludes coverage where it is the harm that is intended. In addition, notwithstanding the centrality of the fortuity principle and the Court of Appeal’s statement that it applies absent language to the contrary,[10] express language in the policy is not required to displace the principle.[11] If a policy provides coverage for intentional torts/misconduct, the fortuity principle will not apply to those coverages absent express language that brings the principle back in.[12]

 

[1]              2000 SCC 24 at para. 68.

[2]              2015 ONCA 702 at para. 48. [OSPCA]

[3]              Ibid. at paras. 67, 75. Note, at paragraph 75, the Court did find that in respect of some of the uncovered claims, there were allegations of intentional harm. As the claims were not the subject of the duty to defend, it did not affect the result. See also the application decision below, 2014 ONSC 3345 at paras. 107-112. [OSPCA (SCJ)]

[4]              OSPCA, ibid. at paras. 61-63; OSPCA (SCJ), ibid. at paras. 107-112.

[5]              OSPCA, ibid. at paras. 61-64.

[6]              [2004] O.J. No. 481. [Hollinger]

[7]              OSPCA, supra note 2 at paras. 58-59; Ibid. at paras. 16-19.

[8]              Hollinger, ibid. at para. 17.

[9]              OSPCA, supra note 2 at paras. 58-59.

[10]             Ibid. at para. 48.

[11]             Ibid. at para. 64.

[12]             Ibid. at paras. 58-59, 64.

 

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