Liberty Mutual v Hollinger

							Noteworthy                                                                               2004   No. 4




     LIBERTY MUTUAL v. HOLLINGER:
     REINVENTING PERSONAL INJURY
              COVERAGE?


by Michael Teitelbaum                 erty toward the cost of defence
                                      and indemnity with respect to
In a decision released February       the discrimination claims. On an
13th, 2004, the Ontario Court of      application by Liberty for a decla-
Appeal addressed whether a gen-       ration that it owed no duty to
eral liability policy is obliged to   defend Hollinger, the application
provide a defence to a claim of       judge, Justice Backhouse, ruled
intentional discrimination. The       that Liberty was required to pro-
Court’s comments, while finding       vide Hollinger with a defence.
that there was no duty to defend,     The Court of Appeal (Sharpe,
have the potential to make every      J.A., on behalf of Rosenberg and
claim involving “personal injury”     MacPherson, JJ.A.) reversed that
coverage in a liability policy a      decision.
contentious one.
                                      The Court found that the                   Liberty Mutual v.
Liberty Mutual issued a Compre-       Amended Complaint was drafted                      Hollinger
hensive General Liability policy      in a manner in which Rowan
to Hollinger Inc., and others. A      alleged intentional discrimination
prominent U.S. journalist, Carl       in violation of the District of               Michael Teitelbaum
Rowan, sued the Chicago Sun           Columbia Human Rights Act and
Times, a Hollinger subsidiary, for    the United States Civil Rights
wrongful dismissal. The claim         Act. Rowan alleged that after the
also included allegations of inten-   Sun Times came under the con-
tional racial and age discrimina-     trol of Hollinger, management
tion.                                 “entered upon a calculated pol-
                                      icy” of changing the newspaper’s
Hollinger acknowledged that           orientation towards a “white” au-
claims for “breach of contract”       dience and “brazenly” set out to
and “constructive discharge” did      remove “black images”, including
not attract a defence obligation.     Rowan’s columns, from the news-
However, after retaining counsel      paper. The allegations against
to defend the claim and eventu-       Hollinger included that it
ally settling it, Hollinger re-       “wilfully, wantonly, maliciously,
quested contribution from Lib-                           (Continued on page 2)
Noteworthy


    (Continued from page 1)             gued that the acts of inten-     cover claims of intentional dis-
    and deliberately entered upon       tional discrimination were not   crimination, the Court ac-
    the course of action . . . de-      covered because:                 knowledged that apart from
    signed with a discriminatory                                         the exclusion clause: “there are
    purpose against Mr. Rowan on         (a) According to the            certain features of the Policy
    account of his race, either to       “fortuity principle”, in-       that would appear, on their
    terminate the employment             demnity insurance cov-          face, to allow for coverage for
    contract or to force Mr. Rowan       ers only fortuitous acts        claims of intentional discrimi-
    to conclude that his services        of the insured and in-          nation”. Such claims are but
    for Defendant were effectively       tentional harm is ex-           one aspect of a broader cate-
    being terminated by Defen-           cluded; and,                    gory of claims for “personal
    dant”. Similar allegations of                                        injury”, and several of the
    intentional      discrimination      (b) It would be con-            itemized categories falling
    were made with regard to age         trary to public policy          within that general category
    discrimination.                      to permit insurance             involve intentional wrongdo-
                                         coverage for inten-             ing. For example, coverage is
    Hollinger’s policy with Liberty      tional discrimination.          provided for claims for false
    included “personal injury cov-                                       arrest and malicious prosecu-
    erage” for “false arrest, deten-    “this language must be           tion. Such causes of action are
    tion or imprisonment, mali-                                          “intentional torts and ordinar-
    cious prosecution, libel, slan-
                                        read and interpreted in
                                                                         ily require a high level of inten-
    der, defamation of character,       light of a general prin-         tional conduct” (paragraph 15
    invasion of privacy, wrongful        ciple of insurance law          of the Court’s Reasons).
    eviction or wrongful entry sus-
    tained by any person or organi-        that arises from the          Justice Sharpe held, however,
    zation during the policy pe-         very nature and pur-            that “this language must be
    riod” and for “discrimination,                                       read and interpreted in light of
    except in such jurisdiction
                                            pose of insurance,           a general principle of insurance
    where by legislation, court de-     namely, that ordinarily          law that arises from the very
    cisions or administrative ruling     only fortuitous or con-         nature and purpose of insur-
    such insurance is prohibited or                                      ance, namely, that ordinarily
    held to violate the law or pub-         tingent losses are           only fortuitous or contingent
    lic policy of any such jurisdic-      covered by a liability         losses are covered by a liability
    tion”.                                                               policy”. The Court observed
                                                  policy”                that where an insured intends
    The “personal injury coverage                                        to cause the very harm that
    exclusions” provided there                                           gives rise to the claim, the in-
    would be no coverage for the        The Court observed that these
                                                                         sured cannot look to a liability
    “wilful violation of a penal        two grounds did not appear to
                                                                         policy for indemnity. The court
    statute or ordinance commit-        have been the focus of Lib-
                                                                         referenced the comments by
    ted by or with the knowledge        erty’s submissions before the
                                                                         Justice Iacobucci in Non-
    or consent of any insured”.         application judge.
                                                                         Marine Underwriters, Lloyd’s
    Liberty relied on this exclusion,                                    of London v. Scalera, [2002] 1
                                        In addressing Liberty’s argu-
    but the Court found it had no                                        S.C.R. 551, at paragraphs 68-
                                        ment that the policy does not
    application. Liberty also ar-                                                         (Continued on page 3)
(Continued from page 2)             allegations that Hollinger in-    ture. The Court stated that
69, in this regard.                 tended to inflict the very        while the issue of whether
                                    wrong of which Rowan com-         insurance coverage for dis-
The Court also held that by         plains”. Accordingly, Rowan’s     crimination claims is contrary
its terms, the policy is “an        claims fall outside the terms     to public policy does not ap-
occurrence-based liability pol-     of the policy and Liberty is      pear to have been considered
icy that only covers accidental     not required to provide           by any Canadian court, there
or fortuitous losses”.              Hollinger with a defence.         is an extensive body of Ameri-
                                                                      can authority on the point.
The Court further found that        Hollinger argued that the un-     Most American courts that
the fortuity principle does not     derlying facts pleaded in the     have considered the question
exclude coverage for all claims     Complaint could result in a       have excluded insurance cov-
that arise from intentional         finding of unintentional or       erage for claims of intentional
acts, as “an intentional act        “disparate impact discrimina-     discrimination but, for the
may have unintended conse-          tion” and, as a result, the       most part, have distinguished
quences”. Thus, if the unin-        duty to defend arises on this     intentional o r “dispa ra te
tended consequence falls            basis.                            treatment” discrimination
within the terms of the policy,                                       from      unintended         or
it will be covered even if it was    the fortuity principle           “disparate impact” claims and
caused by the intentional act                                         allowed liability insurance
of the insured. In the context      does not exclude cover-           coverage for the latter.
of claims for discrimination,       age for all claims that
referring to a Miami Law Re-                                          The Court stated that it was
view article, the Court ex-
                                    arise from intentional
                                                                      deciding this appeal on the
plained that coverage is pre-       acts as “an intentional           basis of the fortuity principle
cluded only for liabilities aris-     act may have unin-              and leaving the broader pub-
ing out of conduct intended                                           lic policy issue of insurance
to cause harm. Public policy         tended consequences”             coverage for claims of discrim-
does not prohibit insurance                                           ination for another day.
coverage when an employer           The Court did not accept this
seeks coverage for intentional      argument, holding that on ap-     Depending on how this deci-
actions that have resulted in       plication of the Scalera three-   sion is interpreted, argued and
injuries, but only when an          step test in determining          applied, and subject to the
employer seeks indemnifica-         whether any claims are            specific wording of individual
tion for injuries that it in-       derivative in nature under the    policies, it may lead to insur-
tended to inflict.                  second step, “any suggestion      ers arguing that not only dis-
                                    of indirect or adverse impact     crimination claims, but other
The Court held that the             discrimination in a claim         offences for which it was un-
claims for discrimination in        is . . . entirely derivative of   derstood coverage was pro-
this case “cannot be described      the claim of intentional dis-     vided, may not, in fact, be
as claims for accidental or         crimination”.                     available depending on the
fortuitous loss nor can they be                                       nature of the allegations made
qualified as claims for the un-     While deciding the appeal on      in each case. Arguably, this
intended consequence of an          the basis of the fortuity prin-   will generate increased litiga-
intentional act”. Rather, they      ciple, the Court observed that    tion, at least at the outset, as
are claims of “intentional          the “public policy” argument      insureds and insurers, and the
wrongdoing and arise from           is not entirely distinct in na-
(Continued from page 3)             that causes injury (which        discrimination but the other
courts, struggle with whether       might still mean that cover-     listed offences both insureds
specific allegations in an origi-   age is available).               and insurers had always un-
nating pleading can be char-                                         derstood were the subject of
acterized as asserting that         The Court’s reserving consid-    “personal injury” coverage.
there was an intention to           eration of the “public policy”
cause the injury itself (which,     argument to another time will    It appears interesting times
according to Hollinger, would       likely lead to a similar argu-   are ahead as these various
not be covered), and the in-        ment being made in future        considerations are addressed.
tention to commit the act           cases not only in respect of




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