An insurer who agrees to provide coverage for malicious prosecution has effectively contracted out of the fortuity principle and it should not be applied so as to preclude coverage the insurer agreed to provide

Insurance law – Commercial general liability insurance – Duty to defend – Exclusions – Criminal acts – Intentional acts – Malicious prosecution – Defamation – Actions – Abuse of process – Policies and insurance contracts – Statutory provisions

Ontario Society for the Prevention of Cruelty to Animals v. The Sovereign General Insurance Company, [2015] O.J. No. 5492, 2015 ONCA 702, Court of Appeal for Ontario, October 22, 2015, G.J. Epstein, S.E. Pepall and M.L. Benotto JJ.A.

The Ontario Society for the Prevention of Cruelty to Animals (“OSPCA”) was insured by The Sovereign General Insurance Company (“Sovereign”) under a commercial general liability policy which provided coverage for “personal injury” liability. OSPCA was sued for malicious prosecution, false arrest, and defamation in three unrelated actions. Sovereign declined to defend the actions on the basis of the fortuity principle and exclusion clauses for personal injuries sustained as a result of willful violation of a penal statute, knowing violation of the rights of another, and publication of material with knowledge of its falsity. OSPCA brought a successful application seeking a declaration that Sovereign was obliged to defend the actions and Sovereign appealed that decision.

In the St. Amand action, the plaintiff alleged OSPCA failed to return race horses to him despite an order of the Animal Care Review Board to do so and then accused him of conduct that led to criminal charges which were subsequently stayed as an abuse of process. Sovereign argued that OSPCA’s failure to return the horses as required by the order was a violation of a penal statute, namely the Ontario Society for the Prevention of Cruelty to Animals Act (the “Act”). The Court of Appeal held that the application judge correctly concluded that the Act was designed for the remedial purpose of animal protection and the exclusion did not apply. With respect to the fortuity principle, the context was one in which Sovereign agreed to provide insurance for an investigative body which can lay charges without supervision from crown prosecutors. The parties had expressly contracted for coverage for malicious prosecution. The Court of Appeal noted that the fortuity principle is not absolute but is an interpretive aid and should not be applied to preclude coverage that the insurer agreed to provide. By agreeing to provide coverage for malicious prosecution, Sovereign contracted to provide coverage for claims involving intentional conduct resulting in actual injury and effectively contracted out of the application of the fortuity principle.

In the Sheridan action, the plaintiff was a veterinarian at the Toronto Humane Society (“THS”). OSPCA obtained and executed a search warrant that led to charges against him and loss of his employment. The charges were later stayed because the search warrant and its execution were so flawed that material seized during the search could not be adduced into evidence. The Court of Appeal held that the application judge correctly concluded that exceeding the scope of a search warrant is not an offence or violation of the Criminal Code and the exclusion for willful violation of a penal statute did not apply. The claim of slander was based on OSPCA comments that were covered by the media and not on anything published by OSPCA, and was not excluded.

In the Smith action, the plaintiff was an animal cruelty investigator at the THS. Smith was arrested by OSPCA and escorted out of his office in handcuffs in the presence of media invited by OSPCA. Charges against him were later withdrawn as there was no reasonable prospect of a conviction. The Court of Appeal held that the application judge correctly concluded that as Sovereign had agreed to cover the intentional torts of false arrest and imprisonment and malicious prosecution, the main object of the contract would be defeated by a strict application of an exclusion for personal injury caused by the insured with the knowledge that the act would violate the rights of another and would inflict the injury. The defamation pleadings spoke of “false innuendos”. The application judge found that as innuendo is not orally communicated, written, or published, an exclusion for publication of material by the insured with knowledge of its falsity did not apply.

The Court of Appeal held that the application judge did not err in determining that Sovereign had a duty to defend OSPCA in all three of the actions.

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