Ontario Society for the Prevention of Cruelty to Animals v. SovereignGeneral Insurance Company

Ontario Society for the Prevention of Cruelty to Animals v. SovereignGeneral Insurance Company Collection Decisions of the Court of Appeal Date 2015-10-22 Neutral citation 2015 ONCA 702 Docket numbers C59166 Judges Epstein, Gloria Jean; Pepall, Sarah E.; Benotto, Mary Lou Subject Civil Decision Content COURT OF APPEAL FOR ONTARIO CITATION: Ontario Society for the Prevention of Cruelty to Animals v. Sovereign General Insurance Company, 2015 ONCA 702 DATE: 20151022 DOCKET: C59166 Epstein, Pepall and Benotto JJ.A. BETWEEN Ontario Society for the Prevention of Cruelty to Animals Applicant (Respondent) and The Sovereign General Insurance Company Respondent (Appellant) Ramon V. Andal, for the appellant Brian Shiller and Angela Chaisson, for the respondent Heard: March 11, 2015 On appeal from the order of Justice Carole J. Brown of the Superior Court of Justice, dated July 3, 2014, with reasons reported at 2014 ONSC 3345. Pepall J.A.: [1] This appeal concerns an insurer’s duty to defend under commercial general liability (“CGL”) policies of insurance. It requires this court to consider exclusion clauses contained in the policies and the fortuity principle, which presumptively operates to exclude coverage for intentional harm. [2] The respondent, Ontario Society for the Prevention of Cruelty to Animals (“OSPCA”), held CGL policies of insurance with the appellant insurer, the Sovereign General Insurance Company (“Sovereign”). In three separate actions, Paul St. Amand (“St. Amand”), Dr. Stephen Sheridan (“Sheridan”), and Trevor Smith (“Smith”) sued OSPCA. OSPCA sought coverage from Sovereign who refused to defend the actions. OSPCA then commenced an application seeking a declaration that Sovereign was required to defend the three actions. Sovereign defended and relied on exclusion clauses in the insurance policies and on the application of the fortuity principle. With one exception not in issue, the application judge disagreed with Sovereign’s position and ordered it to defend the actions. Sovereign appeals from this order. [3] For the reasons that follow, I would dismiss the appeal. A. Background Facts (1) The OSPCA [4] The Ontario Society for the Prevention of Cruelty to Animals Act, R.S.O. 1990, c. O.36 (the “Act”) created OSPCA. It is a charitable organization mandated to “facilitate and provide for the prevention of cruelty to animals and their protection and relief therefrom.” The Act confers upon OSPCA certain powers and responsibilities. Among other things, s. 11 of the Act grants OSPCA inspectors and agents the powers of a police officer when acting to enforce the Act. (2) The Lawsuits [5] OSPCA was sued by three separate plaintiffs: St. Amand, Sheridan, and Smith. The three lawsuits are distinct. (a) St. Amand Claim [6] St. Amand bred and trained racehorses. He claimed damages from OSPCA for, among other things, malicious prosecution, negligent investigation, and negligence. The facts alleged in his statement of claim are as follows: · On May 5, 2008, OSPCA officials seized both a mare with a foal and a pregnant mare. The pregnant mare gave birth to a foal while in the custody of OSPCA. · On May 28, 2008, after a hearing, the Animal Care Review Board (“ACRB”) ordered OSPCA to return St. Amand’s horses to him subject to certain conditions. These conditions were promptly fulfilled by St. Amand. · On June 18, 2008, St. Amand tendered payment to OSPCA for its costs of the horse seizure but OSPCA refused to accept the payment or to return the horses. · On June 23, 2008, OSPCA received a letter from St. Amand demanding the return of his horses. That same day, an OSPCA representative, Lapping, with the assistance of another OSCPA representative, McAllister, swore an information alleging various animal care offences under ss. 445 and 446 of the Criminal Code, R.S.C. 1985, c. C-46. McAllister prepared a report in support of a request for a detention order for the seized horses. The report made no mention of the ACRB order. A Justice of the Peace issued a detention order and criminal charges were laid against St. Amand. · On October 29, 2008, OSPCA returned the seized horses to St. Amand. The horses were very thin. The development of the two foals had been compromised, and they were ruined as racing or breeding stock. Additionally, the opportunity to breed the two mares in 2008 was lost. · On March 3, 2010, the Ontario Court of Justice stayed all charges against St. Amand, concluding that OSPCA had engaged in a clear abuse of process. (b) Sheridan Claim [7] Sheridan was the chief veterinarian at the Toronto Humane Society’s (“THS”) River Street animal shelter. He claimed damages from OSPCA for, among other things, false arrest and imprisonment, malicious prosecution, and, slander. The facts alleged in his statement of claim are as follows: · On November 25, 2009, OSPCA officials swore an information before a Justice of the Peace and obtained a warrant to search THS’s animal shelter. The warrant was deficient on its face. For instance, it lacked a start and end date. · On November 26, 2009, OSPCA investigators executed the search warrant at the animal shelter. The execution was flawed: there were improper seizures and OSPCA investigators failed to seek any prior authorization when they reviewed privileged material. OSPCA also invited media representatives to attend. · Sheridan was arrested by OSPCA representatives, having been charged with cruelty to animals and conspiracy to commit an indictable offence. Along with other senior officials at the THS, he was handcuffed and paraded in front of the waiting media before being placed in a police car. OSPCA representatives’ defamatory comments about veterinary care at the shelter were extensively covered in the media. The information sworn to obtain the search warrant was posted on the OSPCA website at the time of the raid, and included Sheridan’s name and the charges against him. · From December 2009 and into 2010, OSPCA investigated the animal shelter. Sheridan was unable to come within 500 metres of the animal shelter due to his bail conditions. · On February 2, 2010, Sheridan was suspended without pay from the THS. · On August 16, 2010, the Crown withdrew all criminal charges against Sheridan. The search warrant and its execution were so flawed that material seized during the search could not be adduced into evidence. As a result, there was no reasonable prospect of conviction. (c) Smith Claim [8] Smith was the lead animal cruelty investigator at the THS. He had a prominent media presence and was perceived as being the public face of the THS. Smith claimed damages against OSPCA for, among other things, false arrest and imprisonment, malicious prosecution, and defamation. The facts alleged in his statement of claim are as follows: · On June 2, 2009, OSPCA raided the THS and also suspended its affiliate status. All THS employees who, like Smith, had acted as OSPCA agents, were given notices of administrative suspension pending the outcome of OSPCA’s investigation. While suspended, Smith continued to act as a THS representative, which included making television appearances, but he did not exercise the powers of an OSPCA agent or peace officer. At no time did OSPCA instruct Smith to stop these activities. · On November 26, 2009, OSPCA carried out a second raid on the animal shelter. Smith was not arrested. · On December 29, 2009, THS employees who had not been criminally charged were permitted to return to the animal shelter. Smith returned to his duties on this date. OSPCA never asked Smith to refrain from doing so. · On January 7, 2010, Smith was arrested by OSPCA officials while working at the animal shelter. He was handcuffed and searched. OSPCA officials had alerted the media to his arrest and waited for members of the media to assemble before a “perp walk” took place. Smith was escorted in front of the gathered media to a police cruiser. This was done to cause the maximum possible embarrassment to Smith, and by extension, to the THS. After the arrest, OSPCA officials told the assembled media that Smith had been performing investigations despite being suspended. OSPCA officials made statements to the media that were designed to carry “false innuendoes”. · Smith was charged with two counts of impersonating a peace officer pursuant to s. 131 of the Criminal Code and one count of perjury pursuant to s. 130 of the Criminal Code. The allegations were founded on claims that Smith, though suspended since June 2, 2009, had continued to exercise the functions of a peace officer, and, in a sworn affidavit, had represented that he was an OSPCA agent. · On February 2, 2010, Smith was suspended from his position pending the outcome of the criminal proceedings. As a result of his bail conditions, he was unable to be within 500 meters of any THS facility. · On September 23, 2010, the Crown withdrew all charges against Smith, as there was no reasonable prospect of a conviction. (3) The Insurance Policies [9] OSPCA had contracts of insurance with both Sovereign and Travelers Insurance. Travelers initially defended the three actions, but subsequently took the position that Sovereign should contribute 50 percent of the defence costs. [10] Up to December 31, 2009, OSPCA’s insurance policy with Sovereign used the wording of Form S70000.8 (“Form 0.8”). This policy was in force during the period that gave rise to the St. Amand and Sheridan actions. From January 1, 2010, to December 31, 2010, a new insurance policy was used: Form S70000.9 (“Form 0.9”). This second insurance policy was in force during the period that gave rise to the Smith action. The two policies have slight differences in wording and organization, but for the purposes of this appeal, nothing turns on these differences. [11] The relevant provisions address coverage for “Personal Injury” in Form 0.8 and “Personal and Advertising Injury” in Form 0.9. Form 0.8 defines “Personal Injury” as including “injury, other than ‘bodily injury’, arising out of one or more of the following offences”: (a) False arrest, detention or imprisonment; (b) Malicious prosecution; (c) Wrongful entry into, or eviction of a person from, a room, dwelling or premises that the person occupies; … (d) Oral or written publication of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services; or (e) Oral or written publication of material that violates a person’s right of privacy. … [12] Although “Personal Injury” in Form 0.8 is described as “Personal and Advertising Injury” in Form 0.9, the relevant portions of the definition in the two forms is identical. [13] The provisions of Sovereign’s Form 0.8 CGL policy that are relevant to the St. Amand and Sheridan actions are as follows: COVERAGE B: PERSONAL INJURY LIABILITY ... 1. Insuring Agreement ... (b) This insurance applies to “Personal Injury” only if caused by an offence: ... (2) Arising out of the conduct of the Named Insured’s business, excluding advertising, publishing, broadcasting or telecasting done by or for the Named Insured. … 2. Exclusions This insurance does not apply to “Personal Injury”: … (3) Arising out of the willful violation of a penal statute or ordinance committed by or with the consent of the Insured... [14] The provisions of Sovereign’s Form 0.9 CGL policy that are relevant to the Smith action are as follows: COVERAGE B: PERSONAL AND ADVERTISING INJURY LIABILITY ... 1. Insuring Agreement ... (b) This insurance applies to “personal and advertising injury” caused by an offence arising out of your business… … 2. Exclusions This insurance does not apply to: (a) Knowing Violation of the 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”; (b) Material Published with Knowledge of Falsity: “Personal and advertising injury” arising out of oral or written publication of material, if done by or at the direction of the insured with knowledge of its falsity (4) OSPCA’s Court Application Requesting a Declaration of Insurance Coverage [15] OSPCA brought an application seeking a declaration that Sovereign had a duty to defend the three actions under the policies of insurance purchased by OSPCA. Sovereign conceded that claims for malicious prosecution, false arrest, false imprisonment, and slander were encompassed by the insurance policies. However, relying on exclusion clauses contained in the policies of insurance and on the application of the fortuity principle, it denied coverage. (5) The Application Judge’s Decision [16] The application judge commenced her analysis by noting that the pleadings govern the duty to defend and that if there is doubt as to whether there is coverage for the claims pleaded, this doubt must be resolved in favour of the insured. The mere possibility that a claim falls within the policy will suffice and, in this sense, an insurer’s duty to defend is broader than the duty to indemnify. (a) St. Amand Claim [17] First, the application judge addressed St. Amand’s statement of claim. She determined that while the claims of negligence and negligent investigation would attract coverage, there was no duty to defend due to an exclusion for damage caused to property in OSPCA’s care that was owned by third parties. This determination is not the subject matter of this appeal. [18] She then considered coverage for the claim of malicious prosecution. Sovereign’s position was that exclusion 2(3) under Coverage B in Form 0.8 was applicable. That exclusion provided that insurance did not apply to “Personal Injury” arising out of the willful violation of a penal statute or ordinance committed by or with the consent of the Insured. Sovereign’s position was that OSPCA agents willfully violated an order of the ACRB, and this was an offence under the Act, a penal statute. [19] The application judge determined that the Act was not a penal statute. She relied on s. 64(1) of the Legislation Act, S.O. 2006, C. 21, Sch. F, which requires that all legislation be interpreted as if it were remedial. She reasoned that the fact that a statute contains a penal sanction is insufficient to make it a “penal statute”. The focus must be on the object of the legislation as a whole, not on specific provisions that serve to uphold or facilitate that object. She determined that the object of the legislation as a whole was to prevent animal cruelty, not to punish behaviour that was morally blameworthy. [20] The application judge also concluded that the fortuity principle did not serve to absolve Sovereign of its duty to defend the St. Amand claim. There was no allegation in the statement of claim that the alleged harm was intended by OSPCA. Accordingly, Sovereign had a duty to defend the St. Amand claim. (b) Sheridan Claim [21] The application judge then considered the Sheridan statement of claim. As mentioned, Sheridan claimed general damages for, among other things, false arrest, false imprisonment, malicious prosecution, and slander. [22] The application judge determined that there was express coverage for the claims of false arrest, slander, and malicious prosecution under Form 0.8. The question was whether an exclusion clause applied. [23] Sovereign’s position was that clause 1(b)(2) of Coverage B, which excluded coverage for advertising, publishing, broadcasting or telecasting, precluded coverage, as did exclusion 2(3) of Coverage B, which addressed willful violation of a penal statute. [24] The application judge rejected these arguments. She held that exclusion 1(b)(2) was inapplicable to the slander claim as Sheridan’s claim was based on words spoken about him, not on material published on the OSPCA website. Exclusion 2(3) on willful violation of a penal statute did not apply to the claims of malicious prosecution and false arrest. She stated that although the Criminal Code provides statutory authority for obtaining search warrants, it was not an offence under the Code to exceed the scope of a search warrant even though it might be contrary to the Charter to do so. As such, there was no willful violation of a penal statute. [25] Moreover, the fortuity principle did not apply to exclude coverage. The alleged harm was loss of employment and employment income, and damage to reputation. Sheridan did not plead that this harm was intended. Accordingly, Sovereign had a duty to defend the Sheridan claim. (c) Smith Claim [26] Finally, the application judge considered the Smith statement of claim. As mentioned, Smith claimed damages for, among other things, false arrest and imprisonment, malicious prosecution, and defamation. [27] Sovereign’s position before the application judge was that exclusion 2(a) of Coverage B in Form 0.9, which addressed the knowing violation of the rights of another, operated to exclude coverage for Smith’s claims of malicious prosecution and false arrest. The application judge disagreed. She reasoned that the constituent elements of the causes of action had been pleaded and that even if the insured’s conduct was intentional, the parties had expressly agreed to coverage for the intentional torts of false arrest/imprisonment, and malicious prosecution. Given the commercial context whereby OSPCA can lay criminal charges without prosecutorial supervision, strict application of exclusion 2(a) would serve to defeat the main object of the insurance contract. [28] Sovereign relied on exclusion 2(b) of Coverage B in Form 0.9 as excluding coverage for Smith’s claim for defamation. This provision excludes coverage for injury arising out of oral or written publications done by or at the direction of the insured with knowledge of its falsity. The application judge rejected this argument. She noted that Smith’s claim for defamation was based on his allegation that statements to the media by OSPCA officials were “designed to carry…false innuendos”. She concluded that the alleged false innuendos were not orally communicated, written, or published. Rather, they were deductions or inferences drawn by third parties from the combination of published materials and facts extrinsic to the publication. Thus, the innuendos did not fall within the exclusion and 2(b) was inapplicable. [29] The application judge determined that the fortuity principle did not serve to exclude coverage for Smith’s claim. The harm alleged was damage to Smith’s person, reputation and property, mental anguish, pain and suffering and medical issues requiring a doctor’s care, loss of employment and inability to obtain employment, and loss of income and future loss of income. None of these harms was pleaded as being intended. While Smith pleaded that OSPCA acted intentionally to cause harm, the harm was not specified. She held that such a general pleading of harm was insufficient to constitute intended harm. Alternatively, if she was wrong on this point, she found there was doubt as to whether the general pleading of harm was sufficient to oust coverage, and any doubt had to be resolved in favour of the insured. [30] The motion judge therefore declared that Sovereign had a duty to defend each of the actions, with the exception of the allegations of personal property damage contained in the St. Amand action. B. Grounds of Appeal [31] The appellant advanced various grounds of appeal. In essence, there are two issues: 1. Did the application judge err in concluding that the exclusion clauses contained in the insurance policies were inapplicable? 2. Did the application judge err in concluding that the fortuity principle was inapplicable? C. Standard of Review [32] In Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, the Supreme Court abandoned the historical approach that maintained that contractual interpretation engaged a question of law. Rothstein J. addressed the issue in the context of the interpretation of a joint venture agreement that was the subject matter of a commercial arbitration. At para. 50, he wrote: “Contractual interpretation involves issues of mixed fact and law as it is an exercise in which principles of contractual interpretation are applied to the words of a written contract, considered in light of the factual matrix.” As such, issues of contractual interpretation generally attract a deferential standard of review: para. 52. Rothstein J. explained that a central purpose of drawing a distinction between questions of law and those of mixed fact and law is to limit the intervention of appellate courts to cases where the results can be expected to have an impact beyond the parties to the particular dispute: para. 51. [33] Rothstein J. recognized that an extricable question of law may be identified in disputes over contractual interpretation. Legal errors made in the course of contractual interpretation include: “the application of an incorrect principle, the failure to consider a required element of a legal test, or the failure to consider a relevant factor”: para. 53. However, at para. 55, he added that courts should be cautious in identifying extricable questions of law in contractual interpretation disputes: “The close relationship between the selection and application of principles of contractual interpretation and the construction ultimately given to the instrument means that the circumstances in which a question of law can be extricated from the interpretation process will be rare.” [34] In both Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2015 ABCA 121, 386 D.L.R. (4th) 482, leave to appeal granted [2015] S.C.C.A. No. 188, and Precision Plating Ltd. v. Axa Pacific Insurance Company, 2015 BCCA 277, [2015] B.C.W.L.D. 4112, appellate courts have held that the limited standard of review espoused in Sattva may not be applicable to the interpretation of insurance policies. These contracts are generally widely used standard form agreements where appellate intervention is required so as to ensure consistency of result and certainty in the law. [35] However, to reiterate, Rothstein J. stated that the circumstances in which a question of law can be extricated from the interpretation process will be rare. Rare, of course, does not mean non-existent. See for example 1298417 Ontario Ltd. v. Lakeshore (Town), 2014 ONCA 802. [36] Where, as here, the exercise involves the application of a legal principle of contractual interpretation in the context of insurance to the pleadings in issue, a mixed question of fact and law is engaged. D. Parties’ Submissions [37] Sovereign submits that the application judge erred in concluding that the exclusion clauses in issue did not serve to negate its duty to defend each of the three actions. Furthermore, fortuitous loss attracts coverage; harm that was intended by the insured does not. Here, the plaintiffs pled that OSPCA intended to cause harm to each of them. These claims are uninsurable by virtue of the fortuity principle of insurance law. [38] OSPCA responds that Sovereign contracted to provide comprehensive coverage to a policing agency that has powers of arrest and detention and provided coverage for the types of claims that policing agencies typically encounter when they are sued. OSPCA submits that the policies of insurance expressly provided coverage for intentional acts including malicious prosecution, false arrest, false imprisonment, slander, and defamation. The application judge correctly concluded that neither the exclusion provisions in issue nor the fortuity principle was applicable. In addition, her findings of mixed fact and law are entitled to deference. E. Analysis (1) LAW (i) General Principles Applicable to Duty to Defend [39] As noted in Geoff R. Hall, Canadian Contractual Interpretation Law, 2nd ed. (Toronto: LexisNexis Canada, 2012), at p. 203: “The interpretation of insurance policies involves a somewhat unique blend of the general principles of interpretation applicable to all contracts and special principles applicable in the insurance context.” When interpreting insurance policies, the language of the policy is the most important factor in determining whether coverage is granted or excluded; however, in addition to the language of the policy, courts should also take into account general principles of insurance law: Somersall v. Friedman, 2002 SCC 59, [2002] 3 S.C.R. 109, at paras. 46 and 49. The fortuity principle is one such principle and will be discussed in more detail subsequently in these reasons. Another applicable principle is that coverage provisions should be construed broadly and exclusion clauses should be construed narrowly: Reid Crowther & Partners Ltd. v. Simcoe & Erie General Insurance Co., [1993] 1 S.C.R. 252, at p. 269. [40] Similarly, a body of jurisprudence has developed on the principles governing an insurer’s duty to defend. To determine whether an insurer has a duty to defend, a court must construe and examine both the wording of the contract of insurance and the substance of the pleadings in issue. [41] It is important to emphasize that the duty to defend rests on the possibility that a covered claim may succeed; there is no need for certainty: Liberty Mutual Insurance Co. v. Hollinger Inc. (2004), 236 D.L.R. (4th) 635 (Ont. C.A.), at para. 11. Moreover, facts in a statement of claim are assumed to be true for the purpose of the coverage analysis. The true nature or substance of the claim is determinative: Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33, [2010] 2 S.C.R. 245, at paras. 19-20. [42] Where there is genuine ambiguity or doubt, the duty to defend ought to be resolved in favour of the insured: Monenco Ltd. v. Commonwealth Insurance Co., 2001 SCC 49, [2001] 2 S.C.R. 699, at para. 31. (ii) Fortuity Principle [43] The fortuity principle serves as an interpretive aid. It is a “general principle of insurance law that arises from the very nature and purpose of insurance, namely, that ordinarily only fortuitous or contingent losses are covered by a liability policy”: Hollinger, at para. 16. The principle is based on the notion that insurance makes economic sense where losses are unforeseen or accidental and that it would be undesirable to encourage people to injure others intentionally by indemnifying them for the civil consequences: Non-Marine Underwriters, Lloyd’s of London v. Scalera, 2000 SCC 24, [2000] 1 S.C.R. 551, at paras. 68-69. [44] A fortuitous loss is one that is neither intentional nor inevitable: Hollinger, at para. 16; ING Insurance Co. of Canada v. Miracle, 2011 ONCA 321, 105 O.R. (3d) 241, at para. 23. [45] In Hollinger, the insurance policy allowed for coverage for claims of discrimination but coverage for a claim alleging intentional discrimination was denied based on the fortuity principle. As Sharpe J.A. noted, at para. 16, the language of the policy: must be read and interpreted in light of a general principle of insurance law that arises from the very nature and purpose of insurance, namely, that ordinarily only fortuitous or contingent losses are covered by a liability policy. Where an insured intends to cause the very harm that gives rise to the claim, the insured cannot look to a liability policy for indemnity. [Emphasis added.] [46] The fortuity principle should be distinguished from rules of public policy designed to prevent tortfeasors or criminals from benefitting from their own wrongful acts: Hollinger, at para. 21; Beresford v. Royal Insurance Co. Ltd., [1938] A.C. 586 (H.L.). While the fortuity principle can overlap with various rules of public policy, the two bodies of law are distinct, since the fortuity principle is an aspect of contractual interpretation, rather than a rule of public policy: Hollinger, at para. 16; Beresford, at pp. 594-95. It is an interpretative aid that is of assistance in interpreting contracts: Scalera, at paras. 67-69. [47] In some cases, insurers may include clauses in the insurance policy that mirror the fortuity principle. Of course, the converse is also true; an insurer may expressly agree to cover intentional acts: E.M. v. Reed (2003), 49 C.C.L.I (3d) 57 (Ont. C.A.). [48] As Sharpe J.A. observed in Hollinger, the fortuity principle does not exclude coverage for all claims that arise from intentional acts. Absent provision in an agreement to the contrary, the critical issue when determining whether the fortuity principle aids in precluding coverage for harm caused by an intentional act is whether or not the insured intended to inflict the actual harm about which the plaintiff complains. An intended act may have unintended consequences. The fortuity principle does not preclude coverage for an intentional act with unintended consequences. Rather, it precludes coverage for an intentional act with intended consequences: see Hollinger, at paras. 18-19. [49] Section 118 of the Insurance Act, R.S.O. 1990, c. I.8 incorporates the distinction: “Unless the contract otherwise provides, a contravention of any criminal or other law…does not, by that fact alone, render unenforceable a claim for indemnity under a contract of insurance except where the contravention is committed by the insured…with intent to bring about loss or damage…” (2) The Three Actions [50] Turning to the pleadings and policies in issue on this appeal, for the following reasons, I would not interfere with the application judge’s conclusion that Sovereign has a duty to defend all three actions. I will address the grounds of appeal as they relate to each action. (i) St. Amand Claim [51] While there is no issue that claims for malicious prosecution are covered in the Form 0.8 policy, Sovereign submits that the application judge erred in concluding that neither Exclusion 2(3) under Coverage B nor the fortuity principle applied to preclude coverage for the claims of malicious prosecution in the St. Amand action. [52] The exclusion states that the insurance does not apply to personal injury “arising out of willful violation of a penal statute or ordinance committed by or with the consent of the insured.” [53] Sovereign submits that, in the St. Amand action, OSPCA effectively ignored the ACRB order that required it to return the horses to St. Amand. It was therefore in violation of s. 18(1)(e) of the Act that states that it is an offence to fail to comply with an ACRB order. According to Sovereign, just because a statute is deemed to be remedial does not mean that it cannot be penal as well. Sovereign submits that in Hollinger, this court adopted the American position that a statute may be both remedial and penal depending on whether the statute is used to enforce a penalty. [54] As is so frequently repeated, the words of an act “are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the [act], the object of the [act] and the intention of Parliament”: Re Rizzo & Rizzo Shoes Ltd., [1998] 1 S.C.R. 27, at p. 41. [55] Here, the Act does contain various penal sanctions. However, the fact that a statute contains a penal sanction does not make it a penal statute: Canada Post Corp. v. Key Mail Canada Inc. (2005), 77 O.R. (3d) 294 (C.A.), at para. 28. In Hollinger, for instance, even though the statute under consideration provided for fines and imprisonment, it was held not to be a penal statute. [56] The purpose of the Act is not penal. The Act is designed for animal protection and the prevention of cruelty to animals. This is a remedial purpose, not a penal one. Exclusion 2(3) creates an exception for conduct that violates a penal statute. As the Act is not a penal statute, the exclusion is inapplicable. [57] Turning to the fortuity principle, in my view the application judge was correct in concluding that it does not operate to preclude coverage. [58] First, the policy in issue is very different from that in the Hollinger decision. There, the insurance policy only covered accidental losses: para. 17. The term “accident” denotes an “unlooked-for mishap” or something that “is not expected or designed”: Fenton v. J. Thorley & Co. Ltd., [1903] A.C. 443 at p. 448 (H.L.). The provisions of the policy in Hollinger imposed obligations and imposed conditions in respect of coverage for losses caused by accidents and occurrences; an occurrence was defined as: “an event…which…unexpectedly causes injury.” As such, and as interpreted in light of the fortuity principle, the terms of the policy precluded coverage. [59] In contrast, here coverage for personal injury liability in Form 0.8 is not occurrence-based or accident-based. The definition of personal injury encompasses torts or “offences” which involve intentional conduct, including malicious prosecution. The insurance applies to an injury “caused by an offence arising out of the conduct of [OSPCA’s] business”. This language is also in contrast to the coverage for bodily injury and property damage which is expressly limited to damages caused by an occurrence. The policy defines an occurrence as an accident. As such, the policy in issue on this appeal is very different from that in Hollinger and expressly covered offences such as malicious prosecution. [60] Furthermore, as the application judge observed at para. 100 of her reasons, the context was one in which Sovereign agreed to provide insurance for “an investigative body which can lay charges…without supervision from Crown prosecutors.” This is a very different context from the commercial and business risks addressed in Hollinger. Given these different contexts, it would be reasonable to expect coverage for the allegations in the St. Amand claim whereas it would not be reasonable to expect coverage for a claim alleging Hollinger maliciously targeted a former employee based on his race and age. When interpreting insurance policies, it is desirable for courts to give effect to the reasonable expectations of the parties: Reid Crowther, at p. 269. [61] Recall that here the parties expressly contracted for coverage for malicious prosecution. As noted by Sharpe J.A. in Hollinger, the tort of malicious prosecution requires a high level of intentional conduct. The elements of malicious prosecution are as follows: (i) legal proceedings must have been initiated by the defendant; (ii) those proceedings must have terminated in favour of the plaintiff; (iii) the defendant did not have reasonable and probable cause to initiate the proceedings; and (iv) the defendant’s conduct was characterized by malice or a primary purpose other than that of carrying the law into effect: Nelles v. Ontario, [1989] 2 S.C.R. 170, at pp. 192-93; and Henry v. British Columbia (Attorney General), 2015 SCC 24, 383 D.L.R. (4th) 383, at para. 45. [62] Furthermore, the target must have suffered an injury. As noted in G.H.L. Fridman’s The Law of Torts in Canada, 3rd ed. (Toronto: Thomson Reuters Canada Limited, 2010) at p. 823: “The plaintiff must incur or suffer damage in consequence of the malicious prosecution. If he does not, no action will lie.” Or, as stated in Carolyn Sappideen and Prue Vines, Fleming’s The Law of Torts, 10th ed. (Sydney: Law Book Company, 2011) at p. 706: We have seen that a claim for malicious prosecution must be founded on actual injury. This must consist either in injury to reputation, presumed wherever the plaintiff was accused of a crime involving scandalous reflection on the plaintiff’s fair name; or injury to the person, as when the plaintiff was imprisoned or put in jeopardy of it; or damage to the plaintiff’s pecuniary interests, such as being put to expense in defending himself against the charge. [63] In essence, malicious prosecution involves intentional conduct and malice and no action will lie in the absence of actual injury. The fortuity principle does not assist in this analysis since, by agreeing to provide coverage for malicious prosecution, Sovereign effectively contracted otherwise. [64] The parties’ agreement need not explicitly state that the principle is inapplicable with respect to certain specified coverage. For instance, in Reed, this court concluded that an insurance policy provided coverage for actions that deliberately inflicted harm. Specifically, the claims at issue in Reed sought damages for sexual assaults and battery. The policy did not expressly state that the parties intended to displace the application of the fortuity principle but it did provide coverage for actions that involved the deliberate infliction of harm. The court concluded that coverage was provided. The fortuity principle did not preclude that result. [65] This is consistent with the overarching objective that a court faced with a coverage dispute should “search for an interpretation which, from the whole of the contract, would appear to promote or advance the true intent of the parties at the time of entry into the contract”: Consolidated-Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co., [1980] 1 S.C.R. 888, at p. 901. The fortuity principle is not absolute but is an interpretative aid. The court’s objective is to give effect to the bargain reached by the parties. The fortuity principle should not be applied so as to preclude coverage that the insurer agreed to provide. In my view, the application judge made no error in this regard. [66] Moreover, the application judge’s interpretation of the contract in light of the fortuity principle and its application to the pleadings amount to mixed findings of fact and law. In the absence of any palpable and overriding error or any extricable legal error, deference is owed. The appellant has not demonstrated either. [67] Furthermore, even if one were to accept that despite a claim of malicious prosecution, a pleading of intentional harm precludes coverage as asserted by the appellant, St. Amand’s statement of claim is clear. Nowhere does he plead that OSPCA or its agents intended to cause the harm allegedly suffered. [68] I therefore am of the view that the application judge was correct in concluding that the fortuity principle had no application to this claim and that the penal exclusion did not operate to exclude coverage for the St. Amand action. Sovereign therefore owes OSPCA a duty to defend that action. (ii) Sheridan Claim [69] Sovereign concedes that OSPCA has coverage for claims of false arrest, false imprisonment, malicious prosecution, and slander. The issue is whether coverage should be denied for the first three claims based on the penal exclusion clause and OSPCA’s alleged willful violation of the Criminal Code and for the claim of slander based on the libel exclusion clause. [70] Sovereign argues first that the application judge erred in finding that exceeding the scope of authority provided by a warrant did not amount to willful violation of a penal statute as described in exclusion 2(3) of Coverage B in Form 0.8. The Criminal Code is a penal statute and the word ‘“violation”’ encompassed OSPCA’s conduct as described in Sheridan’s pleading. Furthermore, argues Sovereign, Sheridan pled that OSPCA’s conduct was deliberate and unlawful and that the defendants knew that the warrant was illegal. Sovereign submits that the application judge erred in concluding that these allegations did not relate to Sheridan’s claims for malicious prosecution and false arrest. [71] Secondly, Sovereign states that the application judge erred in finding that clause 1(b)(2) of Coverage B in Form 0.8 did not operate to exclude coverage for Sheridan’s claim of slander. The application judge concluded that the claim for slander in Sheridan’s pleading was based on spoken words and therefore clause 1(b)(2) which excluded coverage for advertising, publishing, broadcasting or telecasting was inapplicable. Sovereign states that this was in error as the statement of claim pled that Sheridan’s arrest was covered in the media as were the defendants’ defamatory comments. [72] Lastly, dealing with the fortuity principle, Sovereign submits that the application judge erred in finding that the harm suffered by Dr. Sheridan was “not alleged to be intended and could not be viewed as such.” [73] In my view, the application judge did not err in her conclusion that Sovereign has a duty to defend the Sheridan claim. [74] In addressing the claims of false arrest and malicious prosecution, the application judge correctly concluded that exceeding the scope of a search warrant is not an offence or violation of the Criminal Code. As such, the exclusion provision is not triggered. [75] As for the application judge’s treatment of the fortuity principle, the reasons for rejecting this argument with respect to the St. Amand claim are equally applicable to that of Sheridan. Similarly, as in St. Amand, even if one were to accept that despite a claim of malicious prosecution, a pleading of intentional harm precludes coverage as asserted by the appellant, Sheridan’s statement of claim does not assist Sovereign. Sheridan relied on the intentional torts of false arrest, false imprisonment, and malicious prosecution. He pled that his arrest was motivated by a “competitive animus” towards the THS and for the improper purpose of increasing OSPCA’s public profile, which, among other things, would attract an increase in donations. Sheridan pleads that OSPCA laid criminal charges against Sheridan due to its competitive animus towards the THS. While the statement of claim expressly alleges intentional harm that arose from the torts of misfeasance in public office and intentional interference with economic relations, no express intentional harm is pled with respect to the malicious prosecution claim. [76] As for Sheridan’s slander claim, the application judge correctly construed Sheridan’s statement of claim. His claim of slander is clearly based on words spoken about him and not on published materials. [77] In my opinion, therefore, the application judge did not err in determining that Sovereign has a duty to defend the Sheridan action. (iii) Smith Claim [78] Sovereign concedes that OSPCA has coverage for claims of false arrest, false imprisonment, malicious prosecution, and defamation. However, it denied coverage for the first three claims based on the knowing violation exclusion clause found in section 2 (a) of Form 0.9 and for the defamation claim based on the material published with knowledge of falsity exclusion clause found in section 2 (b) of Form 0.9. In arguing that coverage should be denied, Sovereign relied on the express language of the relevant exclusion provisions and on the fortuity principle. [79] To repeat, the knowing violation exclusion clause states: This insurance does not apply to: (a) Knowing Violation of the 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”. [80] The application judge held that the allegations in the statement of claim amounted to a claim of malicious prosecution and that there was express coverage for malicious prosecution in the insurance policy. Given the commercial context in which the insurance contract was formed, she found that strict application of exclusion 2(a) would serve to defeat the main object of the contract. In this regard, she relied on Lacourcière J.A.’s statement in Weston Ornamental Ironworks Ltd. v. Continental Insurance Co., [1981] I.L.R. 477 (C.A.), at para. 16: The exclusion clause should not be interpreted in a way which is repugnant to or inconsistent with the main purpose of the insurance coverage but so as to give effect to it. Thus, even if the exemption clause were found to be clear and unambiguous it should not be enforced by the courts when the result would be to defeat the main object of the contract or virtually nullify the coverage sought for protection from anticipated risks. [81] In my view, the application judge reached the correct conclusion. [82] First, it is not evident from the pleadings that there is any allegation of a violation of rights respecting any of the claims in issue. [83] Secondly, the provisions providing coverage for personal and advertising injury in Form 0.9 are substantially the same as those providing coverage for personal injury in Form 0.8. Therefore, for the reasons discussed with respect to the St. Amand and Sheridan claims, the fortuity principle and the language of the policy in issue in the Smith action does not operate to exclude coverage for Smith’s claim. [84] Finally, this result is supported by the general principle that coverage provisions are to be construed broadly and exclusion clauses narrowly. [85] Turning to the defamation claim, Sovereign submits that the application judge erred in concluding that exclusion clause 2(b) was inapplicable. It excludes coverage for injury arising out of oral or written publication of material, if done by or at the direction of the insured with knowledge of its falsity. [86] The application judge noted that Smith’s statement of claim spoke of false innuendos and found that as an innuendo is not orally communicated, written or published, the claim did not fall within the exception. [87] I am unable to discern any palpable and overriding error in this analysis or any legal error. I conclude that the application judge did not err in determining that Sovereign has a duty to defend the Smith action. F. DISPOSITION [88] For these reasons, I would dismiss the appeal and order the appellant to pay the respondent’s costs fixed in the amount of $9,000 inclusive of disbursements and applicable taxes. Released: “SEP” “S.E. Pepall J.A.” “OCT 22 2015” “I agree Gloria Epstein J.A.” “I agree M.L. Benotto J.A.”