Insurance is a contractual arrangement providing a guarantee of payment in the event of a specified event or loss. Usually, only fortuitous or contingent losses are covered under a liability insurance policy. A fortuitous loss is one that is neither intentional nor inevitable. The obvious policy concern is that it would not be desirable to encourage people to injure others intentionally by indemnifying them for the civil consequences. As a result of the “fortuity principle”, most liability insurance policies exclude coverage for intentional acts.
But does the fortuity principle apply to all liability insurance policies ? This was the issue before the Ontario Court of Appeal in the recent case of Ontario Society for the Prevention of Cruelty to Animals v Sovereign General Insurance Company (“Sovereign”).1
In the Sovereign case, three lawsuits had been commenced against the Ontario Society for the Prevention of Cruelty to Animals (OSPCA). The respective plaintiffs had pled in their statements of claim that the OSPCA was liable for numerous intentional torts, including malicious prosecution, false arrest and imprisonment, slander, and defamation. At the material times, the OSPCA was covered by commercial general liability policies of insurance issued by Sovereign General Insurance Company. These policies were tailored to OSPCA’s circumstances as “an investigative body which can lay charges…without supervision from Crown prosecutors”, and explicitly providing coverage for the offences alleged in the underlying lawsuits. However, Sovereign refused to defend OSPCA, stating that the claims were uninsurable by virtue of the fortuity principle, as the plaintiffs each claimed that the OSPCA intended to cause them harm.
At first instance, the application Judge clarified that the fortuity principle serves as an “interpretive aid”, uniquely applicable to insurance contracts. The fortuity principle acts to presumptively exclude intentional conduct from coverage. However, an insurer may expressly agree to provide coverage for intentional acts. In interpreting insurance policies, the Court’s objective is to give effect to the bargain reached by the parties. As a result, the fortuity principle cannot be applied to limit coverage if an insurance company expressly agreed to provide coverage for intentional acts within their policy.
The Court of Appeal agreed, and stated that in contracting to provide coverage for offences involving intentional conduct and malice, Sovereign effectively contracted out of the principle of fortuity.
By holding that there was a duty to defend the OSPCA, the Court of Appeal reinforced that insurers will be held to their agreements to provide coverage for intentional torts, even when that coverage violates the fortuity principle. No absolute public policy rule prohibits such coverage, and the question the court will ask, is whether the parties expressly agreed in the policy to provide coverage for intentional acts. Ultimately, the fortuity principle is only an “interpretive aid” that assists courts interpreting insurance contracts. As a result, insurance companies who do not wish to provide indemnity for intentional acts must be careful when drafting policies to ensure that the language adopted does not stray from that restriction.