The Court allowed the appeal of an Insurer from a ruling that the Insurer was required to provide a defence and indemnity to a claim of wrongful dismissal based on intentional racial and age discrimination. The Appeal Court applied the general principle of insurance law that only fortuitous or contingent losses are covered by a liability policy. The Court rejected the Insurer’s submissions that intentional discrimination was a wilful violation of a penal statute, or that it was outside the claims for “personal injury” that were covered by the policy.

Liberty Mutual Insurance Co. v. Hollinger Inc., [2004] O.J. No. 481, Ontario Court of Appeal

The Respondent Insured, Hollinger, is the parent company of the Chicago Sun Times. Hollinger held a comprehensive general liability insurance policy with Liberty, an Ontario based insurer. Journalist Carl Rowan sued the Sun Times for wrongful dismissal, and his Statement of Claim included allegations of intentional racial and age discrimination. Hollinger advised Liberty of the claim, retained counsel independently and eventually settled the case. Hollinger then submitted the claim to Liberty and requested contribution to the defence and indemnity with respect to the discrimination claims. In an application by Liberty seeking a declaration that it owed no duty to defend, the judge ruled that Liberty was required to defend and dismissed the application.

Although the duty to defend was not presented until after the action had been settled, neither party raised an issue with respect to estoppel or non-waiver.

The claims set out in the pleadings alleged breach of contract, constructive discharge, and racial and age discrimination contrary to U.S. Human Rights and Civil Rights Acts.

Liberty contended the policy itself in its standard exclusion clause excluded claims of “wilful violation of a penal statute”. The Court rejected that argument, holding that although the relevant legislation cited in the Statement of Claim provides for fines and imprisonment, they were comparable to the Canadian Human Rights Act. Their purpose was “not to punish wrongdoing but to prevent discrimination”.

Liberty also argued that the claims did not fall within the coverage for allowed claims for bodily injury, personal injury, or other specific torts. The Court of Appeal rejected this argument, pointing out that many of the other claims specifically allowed under the heading “personal injury” include intentional torts such as false imprisonment and malicious prosecution, which require a high level of intentional conduct.

The Court accepted Liberty’s argument that the language of the policy must be interpreted in light of the general principle of insurance law that its purpose is only to cover “fortuitous or contingent” losses. The court held that while the fortuity principle does not exclude coverage for claims that arise from intentional acts with unintended consequences, a claim of intentional discrimination resulting in dismissal cannot be said to be either an accidental act or an intentional act with unintended result. The act and result are claimed to be exactly as intended.

Although the court decided the matter on the basis of the fortuity principle, it also considered Liberty’s third argument, that of public policy. American courts have held that coverage for discrimination claims is contrary to the public policy goal of eliminating discrimination and promoting dignity and equal rights. Only where the claim was for unintended discrimination would a duty to defend arise in the U.S. In obiter, the court suggested that this was not a distinction in Canadian law.

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