Canadian Underwriter
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Beyond Intent


August 30, 2017   by Nadia MacPhee, Partner, Brenton Kean


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As a general proposition, insurance is not meant to provide coverage for intentional acts. That concept was described by Justice Frank Iacobucci in his concurring judgement in Non-Marine Underwriters, Lloyd’s of London v. Scalera, a Supreme Court of Canada decision released in 2000.

Citing Insurance Law in Canada, “[I]nsurance usually makes economic sense only where the losses covered are unforeseen or accidental: ‘The assumptions on which insurance is based are undermined if successful claims arise out of loss which is not fortuitous,’” Justice Iacobucci wrote at the time. From a social perspective, it is not desirable to “encourage people to injure others intentionally by indemnifying them from the civil consequences,” he added.

One way that this objective is expressed in liability policies is that coverage is triggered by an “occurrence,” generally defined to include an accident. That aspect of liability policies has been frequently litigated.

Of course, there are specific exclusions in liability policies that further ensure the insured’s intentional conduct does not attract coverage. One of these rarely litigated exclusions — the knowing violation of the rights of another exclusion — was recently considered by the Court of Queen’s Bench of New Brunswick in Cook et al v. Aviva Insurance, released this past January.

BACKGROUND

In Cook et al v. Aviva, a former employee commenced an action against her employer and his professional corporation in both her own name and that of her holding company. Marlene Myers, employed as an accountant, alleged constructive dismissal, but later added allegations of defamation against the employer.

The plaintiffs alleged the following:

  • the employer conveyed false information and imputed the plaintiff’s guilt of a crime, fraud, dishonesty, immorality, dishonourable conduct or incompetence in her profession as a certified general accountant(CGA);
  • published the information and instituted proceedings with the RCMP and the CGA association based on this information, knowing it to be false, or, in the alternative, with reckless disregard to the fact that it was false; and
  • did so maliciously and deliberately, with the intention of discrediting the plaintiff’s professional reputation, discouraging clients from engaging the plaintiff’s services and to prevent the plaintiff from earning a living as an accountant.

The plaintiffs further alleged the employer carried out the aforementioned actions, with the purpose of exposing the plaintiff to great distress, embarrassment, loss of reputation and financial loss.

Finally, they alleged that the employer’s conduct had been “vindictive, malicious and so outrageous that it is deserving of an award of punitive damages.” The plaintiffs claimed they sustained special and general damages, including economic loss of business, profit, reputation and goodwill as a result of the employer’s conduct. The employer denied all of the allegations.

The employer and his professional corporation were insured under a Commercial General Liability (CGL) policy issued by Aviva Insurance Company of Canada. The insureds maintained that the insurer owed them a duty to defend the plaintiffs’ action, particularly with respect to the defamation allegations.

The insureds brought an application for a declaration to this effect to New Brunswick’s Court of Queen’s Bench. They also sought reimbursement of defence fees incurred. The CGL policy provided coverage for compensatory damages awarded against the insureds because of “personal and advertising injury,” which was defined to comprise offences, including libel and slander.

This coverage was subject to several exclusions, however, including an exclusion for the knowing violation of rights of another:

“Personal and advertising injury” caused by or at the direction of the insured with the knowledge that the act would violate the rights of another and would inflict “personal and advertising injury.”

The plaintiffs’ claim alleged deliberate and malicious conduct by the insureds in carrying out the defamatory acts with a goal of inflicting harm.

The insurer argued the “knowing violation” exclusion was clearly aimed at precluding coverage for the deliberate infliction of harm. It denied that it had a duty to defend.

The insurer relied on the interpretative principles to be applied to a coverage analysis as set out by the Supreme Court of Canada in Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., released in 2016.

The insurer submitted the policy language was unambiguous and the court should give effect to the clear language. The insureds were generally covered for claims of defamation under the policy, unless the defamatory act was intentional and meant to inflict harm. In that case, the policy would not respond.

If, however, the court found that the language was ambiguous, it should then determine the expectations of the parties when the insurance contract was entered into.

The high court in Ledcor directed that courts should prefer interpretations that are consistent with the reasonable expectations of the parties, so long as the interpretation can be supported by the text of the policy. The policy at issue contained general language, in addition to specific exclusions, indicating that intentional conduct would not be covered.

For example, the policy only covered bodily injury and property damage caused by an “occurrence,” the policy excluded coverage for bodily injury and property damage expected or intended from the standpoint of the insured, the policy excluded coverage for bodily injury and property damage arising from abuse committed by an insured, and the policy excluded coverage for personal and advertising injury if the insured published material with knowledge of falsity.

The insureds acknowledged that the statement of claim alleged some statements were made with knowledge that they were false, but pointed out the plaintiffs further alleged, in the alternative, that the statements were made with reckless disregard to the fact that they were false. Accordingly, the exclusion, at best, would catch some of the allegations, but not all.

The court examined the pleadings to determine if the allegations made against the insureds had the possibility of triggering coverage if the allegations were deemed true.

PREVIOUS CASE LAW

Before Cook et al v. Aviva, there was only one reported decision considering the application of the “knowing violation” exclusion in the context of a defamation claim. In British Columbia Medical Association v. Aviva Insurance Company of Canada, a 2011 ruling by the Supreme Court of British Columbia, a physician brought an action against the British Columbia Medical Association and several individuals alleging that she was the victim of a malicious public campaign characterized by defamatory expression, injurious falsehoods and negligent misstatements.

The physician further alleged the defamatory statements were published with the knowledge that they were false, or alternatively, with reckless indifference whether they were true or false. She claimed the defendants’ objective in making the defamatory statements was to cause her harm.

The defendants’ insurer denied it had a duty to defend the insureds based on the knowing violation of the rights of another exclusion. They argued that the conduct was alleged to be intentional with the aim of causing injury to the plaintiff.

The insureds brought applications to the Supreme Court of British Columbia seeking a ruling that the insurer had a duty to defend them. Justice Carol Ross noted that where defamation is a tort of strict liability, the plaintiff could succeed in a claim for defamation regardless of whether or not she proved intent on the part of the insured.

If the trial judge, ultimately, accepted that the insureds were liable in defamation, but did not intend to cause harm to the plaintiff, the policy would respond. It was, therefore, possible that there would be coverage under the policy. The court, consequently, found there was a duty to defend.

THE LATEST DECISION

Following the approach of the court in British Columbia Medical Association v. Aviva, the court in Cook et al v. Aviva examined the constituent elements of an action for libel or slander. Justice George Rideout found it significant that one could succeed in proving tortious conduct without demonstrating any maliciousness on the part of the tortfeasor.

Accordingly, even if the plaintiff pleaded that the conduct was intentional and was carried out with the aim of inflicting harm, she could, conceivably, succeed in her claim of defamation without proving any of those allegations.

On that basis, and applying the applicable test for the duty to defend from Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, issued in 2010 by the Supreme Court of Canada, the New Brunswick court ruled that there was a possibility that the claim was covered by the policy. The insurer was ordered to defend the insureds.

CONCLUSIONS

The takeaway from both British Columbia Medical Association v. Aviva and Cook et al v. Aviva is that although a plaintiff may allege the insured’s conduct was intentional, the analysis must go further.

One should also determine if the plaintiff could succeed in his or her claim against the insured, regardless of whether or not it can be established that the conduct was intentional and meant to inflict harm.

If the plaintiff could succeed on that basis, then the allegations regarding the insured’s intention should effectively be set aside for the purposes of a coverage analysis.

-Nadia MacPhee, Partner, Brenton Kean