Hodgkinson v. Economical Mutual Insurance Company
[Indexed as: Hodgkinson v. Economical Mutual Insurance Co.]
68 O.R. (3d) 587
 O.J. No. 5125
Docket No. C39558
Court of Appeal for Ontario Morden, Gillese and Armstrong JJ.A.
December 17, 2003
Insurance — Insurer’s obligation to defend — Exclusion clauses — Policy excluding coverage for intentional acts — Insured being sued for defamation — Insured admitting that he made impugned statements but pleading that they were true — Statements coming within “intentional act” exclusion in policy
— Insurer not having obligation to defend action.
The defendant was sued for damages for defamation as a result of posting messages to an Internet message board devoted to the plaintiff, an Internet-based investment bank. In his statement of defence, the defendant admitted that he wrote the impugned messages but pleaded that they were true. The defendant was insured under a homeowner’s policy issued by the insurer. He brought an application for a declaration that the insurer had a duty to defend the action. The application judge dismissed the application on the basis of a provision in the policy that excluded coverage if the damage was “caused by an intentional .
. . act” by the insured. The defendant appealed. Held, the appeal should be dismissed. [page588]
The duty to defend arises only with respect to claims which, if proven, would be covered by the policy. The words “bodily
injury . . . caused by any intentional . . . act” require more than an intentional act that, in fact, causes injury. They require, on the part of the insured, the intent not only to do the act but also, in doing the act, the intent to injure. A defamatory statement is one that tends to lower a person in the estimation of right-thinking members of society generally. It is an injury to a person’s reputation. Accordingly, an intent to lower a person in the estimation of right-thinking members of society would be an intention to injure that person by injuring his or her reputation.
Generally, the tort of defamation does not require fault on the part of the defendant. Liability does not depend on the intention of the defamer, but on the fact of defamation. Strict liability is modified by the requirement that the publication itself must have been intended or negligent. In his statement of defence, the defendant pleaded that the impugned statements were true. It would not follow from the fact that the defendant thought that the statements were true that he did not intend to lower the reputation of the plaintiffs. It would mean that he intended to do this justifiably.
Further, assuming that the truth of the statements did, somehow, relate to the intent to injure issue, if the action were dismissed because of this defence there would not be a claim within the policy and, accordingly, there would be no duty to indemnify or to defend. The defendant also pleaded that the statements were not defamatory. However, the statements were clearly capable of being defamatory. If the defendant were to be found liable, this would involve the finding that the statements were defamatory. If the trial judge were to dismiss the action by reason of this defence, the claim would fall outside the policy and there would be no duty to defend or to indemnify.
The same line of reasoning applied with respect to the defence of fair comment. The statement of defence clearly negated the possibility that the publication was accidental
— that is, not intended — and that the defendant did not have the plaintiff in mind in making his statements. Further, if the statements were found to be defamatory and the defendant was
held liable, it would be totally unrealistic not to conclude that, in making the statements, the insured did not intend to lower the plaintiff’s reputation. His pleading that the statements were true was consistent only with the view that they were made with the intention of warning others of the plaintiff’s unethical behaviour and lack of financial viability.
Non-Marine Underwriters, Lloyd’s of London v. Scalera,  1 S.C.R. 551, 2000 SCC 24, 75 B.C.L.R. (3d) 1, 185 D.L.R. (4th)
1, 253 N.R. 1,  5 W.W.R. 465, 50 C.C.L.T. (2d) 1, 
I.L.R. 1-3810 (sub nom. Scalera v. Lloyd’s of London, Sansalone
v. Wawanesa Mutual Insurance Co., Nonmarine Underwriters v. Scalera), apld
Blanchard v. Halifax Insurance Co. (1996), 184 N.B.R. (2d) 271, 469 A.P.R. 271,  I.L.R. 1-3428 (Q.B.); Wilkinson v.
Security National Insurance Co. (1999), 81 Alta. L.R. (3d) 149,  9 W.W.R. 127,  I.L.R. I-3758, 249 A.R. 282, 15
C.C.L.I. (3d) 80, 1999 ABQB 675,  A.J. No. 1022 (QL)
Other cases referred to
Elliott v. Freisen (1984), 45 O.R. (2d) 285, 1 O.A.C. 376, 6
D.L.R. (4th) 338, 42 C.P.C. 43 (C.A.) [Leave to appeal to S.C.C. refused May 3, 1984], affg (1982), 37 O.R. (2d) 409, 136
D.L.R. (3d) 281 (H.C.J.); Nichols v. American Home Assurance Co.,  1 S.C.R. 801, 72 O.R. (2d) 799n, 39 O.A.C. 63, 68 D.L.R. (4th) 321, 107 N.R. 321,  I.L.R. 1-2583 [page589]
Authorities referred to
Brown, C., Insurance Law in Canada, 4th ed., looseleaf (Toronto: Carswell, 2002)
Fleming, J.G., The Law of Torts, 9th ed. (Sydney: LBC Information Services, 1998)
Fridman, G.H.L., The Law of Torts in Canada, 2nd ed. (Toronto:
Keeton, W.P., Prosser and Keeton on The Law of Torts, 5th ed. (St. Paul, Minn.: West Publishing Co., 1984)
Milmo, P. and W.V.H. Rogers, eds., Gatley on Libel and Slander, 9th ed. (London: Sweet & Maxwell, 1998)
APPEAL from a judgment dismissing an application for a declaration that an insurer had a duty to defend an action.
Robert L. Colson and Lai-King Hum, for appellant. Pamela M. Stevens, for respondent.
The judgment of the court was delivered by MORDEN J.A.: —
 The basic issue in this appeal is whether the respondent insurance company is obliged, under the terms of a homeowner’s policy it issued to the appellant, to defend the appellant in an action commenced against him in which the plaintiffs seek damages for defamation. Justice Pitt, by reason of a provision in the policy that excluded coverage if the damage was “caused by an intentional . . . act” by the insured, dismissed an application by the insured in which he sought a declaration that the respondent had a duty to defend the action. The insured appeals from this decision.2 From the foregoing, it may be seen that the issue on this appeal is whether the applications judge was right in concluding, on the material in the record, that by reason of the “intentional act” exclusion the duty to defend was not engaged. For the reasons that follow, I have concluded that the applications judge’s disposition is correct.3 [page590]
 The facts bearing on the issue to be resolved are, necessarily, to be found in the pleadings in the defamation action against the insured (Non-Marine Underwriters, Lloyd’s of London v. Scalera,  1 S.C.R. 551, 2000 SCC 24, at paras.
79 and 80). In what follows, I shall set forth the material allegations in the pleadings.
 The corporate plaintiff in the defamation action is a public company that carries on business “as a traditional and internet-based investment bank which raises capital online for small market capitalization companies and provides online trading services”. The individual plaintiff is the president and chief executive officer of the corporate plaintiff and a barrister and solicitor in good standing with the Law Society of Upper Canada.
 The plaintiffs allege that the defendant, during a six- week period in 2002, published messages by posting them on a message board devoted to the corporate plaintiff that is part of an Internet website operated by StockHouse Media Corporation. The statement of claim extensively quotes extracts from the postings relating to the plaintiffs’ trading activities, investigations into them by regulatory authorities and a lawsuit against them.
 The statement of claim alleges that the postings meant, and were understood to mean that the plaintiffs:
(i)were improperly trading with inside knowledge and were participating in inappropriate practices;
(ii) had been investigated by the Investment Dealers Association and the Ontario Securities Commission with the result that fines were levied;
(iii) were defendants in recent litigation commenced against them that was meritorious and because of it the corporate plaintiff would become insolvent.
 The plaintiffs allege generally that “[b]y reason of the above defamatory Postings, the plaintiffs have suffered injury to their character, credit and reputation and [the corporate plaintiff] has suffered damages to its trade and business.” The statement of claim also alleges that the postings were made “falsely and maliciously” and “were intended to interfere
with the economic relations of [the plaintiffs]”.
 In his statement of defence, the insured admits that he wrote the extracts from the postings alleged in the statement of claim but denied generally that any of the words in the postings were defamatory of either plaintiff. He further pleads that: [page591]
(1)insofar as the words in the extracts consist of statements of fact, the said words convey only their natural and ordinary meaning, and they are substantially true;
(2)the words in the postings were not capable of being understood to bear any of the meaning alleged in the statement of claim or any defamatory meanings; and
(3)insofar as the words in the extracts consist of statements of fact, they are substantially true, and insofar as the words consist of expressions of opinion, they are fair comment on a matter of public interest reasonably drawn from the facts, made by the defendant in good faith and without malice.
The Insurance Policy
 As indicated at the outset of these reasons, the policy is a homeowner’s property policy which includes coverage for liability. The liability coverage section in the policy includes the following:
We will pay all sums which you become legally liable to pay as compensatory damages because of bodily injury or property damage.
. . . . .
You are insured for claims made against you arising from
1. Personal Liability — legal liability arising out of your personal actions anywhere in the world.
 The exclusion provision reads:
You are not insured for claims arising from:
. . . . .
(5) bodily injury or property damage caused by any intentional or criminal act or failure to act by
(a) by any person insured by the policy; or
(b) any other person at the direction of any person insured by this policy;
 The duty to defend provision contains the following:
Under Coverage E [legal liability], we will defend any suit against you alleging bodily injury or property damage and seeking compensatory damages, even if it is groundless, false or fraudulent.
The Applications Judge’s Reasons
 The applications judge first decided that the claim against the insured was covered by the general property damage provision [page592] in the policy. There is no appeal from this decision. The judge, however, went on to dismiss the application on the basis that the “intentional act” exception, set forth above, was applicable. On this issue, he said [at paras. 8-11]:
Notwithstanding the requirement that exclusion clauses are to be construed narrowly, I am satisfied that the cause alleged by the plaintiff for its damages, is the intentional act of the applicant (defendant).
I do not share the applicant’s view that either the alleged truth of the impugned allegations, or the need to have their truth, falsehood, or impact determined at trial, forecloses the duty of this court to find that the act was or was not intentional. On an application of this nature, the entire enquiry to be conducted by this court is on the pleadings alone. See Longarini v. Zuliani (1994), 17 O.R. (3d) 527, 113
D.L.R. (4th) 633, at p. 531 O.R. (C.A.).
Even if ultimately it may be demonstrated that the impugned allegations were true thereby exculpating the defendant, this court is concerned only about the allegations in the pleadings as they stand now.
The applicant submits that he truthfully expressed, in substance, the view that the plaintiff was unethical and its business not financially viable. The plaintiff has alleged that those allegations were false and damaged it. Clearly the allegations were intentional. The assertion of their truthfulness is further cogent evidence of their intentional character. While it is not for this court to determine at this stage whether they were either true or damaging, that, however, does not militate against a finding that the allegations were intentional. Wilkinson v. Security National Insurance Co. [(1999), 249 A.R. 282 (Q.B.] and Blanchard v.
Halifax Insurance Co. [(1996), 184 N.B.R. (2d) 271 Q.B.] are clearly distinguishable from this case, and I do not feel obliged to follow them.
The Parties’ Submissions
 The insured submits that the applications judge erred in failing to apply the proper test for the “triggering” of the “intentional or criminal act” exclusion clause in the
policy. In this regard, the insured submits, the insurer bears the burden of showing what is “essentially a state of mind to
commit a criminal offence”. In this regard, he refers to C. Brown, Insurance Law in Canada, looseleaf, 4th ed. (Toronto: Carswell, 2002), at p. 18-178. The insured, referring to Brown, at pp. 18-178 and 18-179, stresses the distinction between an intention to act so as to cause injury and an intention to commit an act that causes injury, and submits that it is key to whether the exclusion applies in any particular case.
 Having regard to the foregoing, the insured submits that the applications judge erred in concluding that the exclusion clause applied simply on the basis that the insured intended to publish the alleged defamatory statements without going on to examine whether he intended to injure the plaintiffs. In this [page593] regard he places particular reliance on the legal fact that defamation is not a tort that requires an intent to injure but is, rather, a tort of strict liability.
 From this the insured submits that the cases concerned with the intentional torts are inapplicable to this case. There was and could be no evidence whatsoever before the court on the issue of the insured’s intention to defame and, accordingly, there was no basis for finding that the allegations were intentional in the sense required by law to invoke the exclusion clause.
 The insured also submitted, as apparently he did before the applications judge, that if, as he pleaded, his statements were true or he believed them to be true, he could not have intended to defame because the truth is not defamatory.
 In addition to this basic argument, the insured submits that the applications judge misapprehended the cases of Wilkinson v. Security National Insurance Co. (1999), 249 A.R. 282,  9 W.W.R. 127 (Q.B.) and Blanchard v. Halifax Insurance Co. (1996), 184 N.B.R. (2d) 271, 469 A.P.R. 271 (Q.B.), and thereby failed to apply the law properly to the facts of this case.
 In response, the insurer submits that certain torts entail an intent to injure so that the intent to commit the act brings “in its train the intent to cause the harm”, citing
G.H.L. Fridman, The Law of Torts in Canada, 2nd ed. (Toronto: Carswell, 2002), at p. 20, with the suggestion that this proposition covers the present case. In this regard, the insurer submits that with defamation the intent to injure is bound in the making of the alleged defamatory statement, citing Non-Marine Underwriters, Lloyds of London v. Scalera, supra, a decision concerned with sexual assault and one to which I shall return on more than one issue.
 The statement of the test for determining when the duty to defend is engaged is not in issue. I refer to Scalera, at paras. 74 and 75, which quoted the following from the reasons for the court given by McLachlin J. in Nichols v. American Home Assurance Co.,  1 S.C.R. 801, 68 D.L.R. (4th) 321, at pp. 810-11 and 812 S.C.R.:
Thus far, I have proceeded only by reference to the actual wording of the policy. However, general principles relating to the construction of insurance contracts support the conclusion that the duty to defend arises only where the pleadings raise claims which would be payable under the agreement to indemnify in the insurance contract. Courts have frequently stated that “[t]he pleadings govern the duty to defend”: Bacon v. McBride (1984), 6 D.L.R. (4th) 96 (B.C.S.C.), at p. 99. Where it is clear from the pleadings that the suit falls outside of the coverage of the policy by reason of an exclusion clause, the duty to defend has been held not to arise: [page594] Opron Maritimes Construction Ltd. v. Canadian Indemnity Co. (1986), 19 C.C.L.I. 168 (N.B.C.A.), leave to appeal refused by this Court, 
1 S.C.R. xi.
At the same time, it is not necessary to prove that the obligation to indemnify will in fact arise in order to trigger the duty to defend. The mere possibility that a claim within the policy may succeed suffices. In this sense, as noted earlier, the duty to defend is broader than the duty to indemnify.
. . . . .
Other Canadian authority overwhelmingly supports the view that normally the duty to defend arises only with respect to claims which, if proven, would fall within the scope of coverage provided by the policy . . . .
The same view generally prevails in the United States.
. . .
[C]onsiderations relat[ing] to insurance law and practice, as well as the authorities, overwhelmingly support the view that the duty to defend should, unless the contract of insurance indicates otherwise, be confined to the defence of claims which may be argued to fall under the policy.
That said, the widest latitude should be given to the allegations in the pleadings in determining whether they raise a claim within the policy.
 From this it can be seen that the duty to defend arises only with respect to claims which, if proven, would be covered by the policy. Is it possible that a claim that is covered by the policy in this case may succeed? The answer to this question turns on whether the claim is excluded from coverage by the “intentional act” exclusion and the answer to this requires an examination of the allegations in the pleadings and the issues to which they give rise.
 I deal first with the meaning of “bodily injury . . . caused by any intentional . . . act”. The insured is right in his submission that these words require more than an intentional act that, in fact, causes injury. They require, on the part of the insured, the intent not only to do the act but, also, in doing the act, the intent to injure. This was decided in Scalera, at para. 92 and is not in issue.
 The next question is: what does the intent to injure require in the context of a defamation action? A defamatory statement is one that tends to lower a person in the estimation of right-thinking members of society generally (Jowitt’s Dictionary of English Law, 2nd ed. (London: Sweet & Maxwell,
1977), at p. 578). It is an injury to a person’s reputation. Accordingly, an intent to lower a person in the estimation of right-thinking members of society would be an intention to injure that person by injuring his or her reputation.
 Before moving on I shall return to the applications judge’s reasons. He appears to have decided the case against the insured simply by reason of his conclusion that “[c]learly the allegations were intentional”, a statement that counsel for the insured does [page595] not dispute. On the face of his reasons the judge does not appear to have examined the question of intention to injure.
 I turn now to the strict liability aspect of defamation. Generally, the tort does not require fault on the part of the defendant. “Reputation is so stringently protected that liability for publishing defamatory statements attaches without any showing of fault. Liability does not depend on the intention of the defamer, but on the fact of defamation” (J.G. Fleming, The Law of Torts, 9th ed. (Sydney: LBC Information Services, 1998), at pp. 595-96). Strict liability is modified by the requirement that the publication itself must have been intended or negligent (Fleming, at p. 599).
 The strict liability feature of defamation is shown by the fact that a defendant in a defamation action may not have intended either that his or her statement to be defamatory or that he or she did not intend in the statement to refer to the plaintiff at all. If the statement is in fact defamatory because of extrinsic facts unknown to the defendant and it could reasonably be thought to refer to the plaintiffs, the defendant will be liable (Fleming, at pp. 596-97). In each of these cases the defendant would be liable without having had any intention to injure the plaintiffs.
 Before pursuing the issue of intention further, as it arises in the present case, I shall deal with the insurer’s submission based on Scalera. In Scalera, the defendant, who was insured under a homeowner’s policy, was sued in an action claiming damages for sexual assaults. The policy in question contained an exclusion provision that is the same as the one in the present case. It excluded coverage for “bodily injury or property damage caused by any intentional or criminal act” by the insured. The Supreme Court of Canada held that the plaintiff’s claim could not trigger coverage under the policy because it involved an intent to injure. In arriving at this conclusion, the court held (at para. 133 per Iacobucci J., concurred in by McLachlin J., at para. 44) that “[o]ne who engages in objectively non-consensual sexual activity will be presumed to have intended harm; whether or not he subjectively intended harm will not change the injurious nature of his actions, and will not deny an insurer its bargained-for exclusion of intentionally injurious activities.”
 The insurer’s submission, as I understand it, is that, similarly, in a defamation case, if a defendant is found liable “fault is legally inferred”. With respect, having regard to the general strict liability basis of the tort, fault cannot be an automatic inference. Further, in the context of the present case, what must be inferred is not fault, which could include negligence, but rather, intent. [page596]
 With all of the foregoing in mind, what would be necessarily involved in a finding of liability against the insured in this case? Is there any possibility that the insured could be found liable without this conclusion necessarily involving the implicit finding that the insured intended to lower the plaintiffs’ reputations, i.e., to injure them?
 What light is cast on this question by the pleadings? Although I do not consider it to be determinative, I note that the statement of claim (at paras. 6 and 9) alleges that the insured acted “falsely and maliciously” (emphasis added) in publishing his statement about the plaintiffs and that the insured “had the intention of injuring the plaintiffs’ economic relations with shareholders and business partners” (at para. 12). I say these allegations are not determinative because, although they allege intentional conduct on the part of the insured, liability in the defamation action is not legally dependent on a finding of intent. The allegations do, however, clearly state the plaintiffs’ basic position respecting the insured’s motivation and intention.
 I turn now to the statement of defence and the three defences which were raised in response to the claim. The first defence is that the statements are true. It would not follow from the fact that the insured thought that the statements were true that he did not intend to lower the reputation of the plaintiffs. It would mean that he intended to do this justifiably. Further, assuming that the truth of the statements did, somehow, relate to the intent to injure issue, if the action were dismissed because of this defence there would not be a claim within the policy and, accordingly, there would be no duty to indemnify or to defend. See Scalera, at paras. 39, 44 and 138.
 Next, the insured pleads that his statements concerning the plaintiffs are not defamatory. I appreciate that this is a question of fact to be decided by the trier of fact at the end of a trial but, at this stage, I can fairly express my opinion on whether they are capable of being defamatory. Clearly, they are. If the insured were to be found liable, this would involve the finding that the statements were defamatory. If the trial court were to dismiss the action by reason of this defence, the claim would fall outside the policy and there would [be] no duty to defend or to indemnify. The same line of reasoning applies with respect to the defence of fair comment.
 What is clear from the statement of defence is that it negates the possibility that the publication was accidental — that is, not intended — and that the insured did not have the plaintiffs in mind in making his statements. Further, if the statements are found to be defamatory and the insured is held liable, it would be totally unrealistic not to conclude that, in making the statements, [page597] the insured did not intend to lower the plaintiffs’ reputation. His pleading that the statements were true is consistent only with the view that they were made with the intention of warning others of the plaintiffs’ unethical behaviour and lack of financial viability. There is no room for concluding that it was not an essential part of this intention that the plaintiffs’ reputation be lowered.
 The following statement in W.P. Keeton, Prosser and Keeton on The Law of Torts, 5th ed. (St. Paul, Minn.: West Publishing Co., 1984), at p. 802, which describes “the typical case of defamation”, is a preface to a consideration of other defamation cases where “the defendant’s intent or state of mind may differ significantly from that present in the typical case just assumed”:
In the typical case of defamation, the publisher (1) realized that the statement made was defamatory, (2) intended to refer to the plaintiff, and (3) intended to communicate it to a third person or persons. Thus, the publisher clearly acted with the intent to discredit another.
I think that the present case falls fairly within the class of the “typical case”.
 I shall now consider the insured’s submission that because his statements were true, or he believed them to be true, he could not have intended to defame because the truth is not defamatory. The answer to this is that although the falsity of the defendant’s statements is an element of the cause of action for defamation, it is not an element of defamation itself. Defamation exists once a statement has been published lowering the plaintiff’s reputation whether it is true or not. There is a legal presumption of falsity after defamation is established (P. Milmo and W.V.H. Rogers, eds., Gatley on Libel and Slander, 9th ed. (London: Sweet & Maxwell, 1998), at para. 1.5, and Elliott v. Freisen (1982), 37 O.R. (2d) 409, 136 D.L.R. (3d) 281 (H.C.J.), affd (1984), 45 O.R. (2d) 285, 6
D.L.R. (4th) 338 (C.A.), leave to appeal to S.C.C. refused May 3, 1984).
 I should deal with one more aspect of Scalera. In deciding whether there was a claim that could fall within the coverage of the policy, Iacobucci J. said, in para. 93: “If the elements of a tort claim require proof of conduct that also proves an intent to injure, there will be no duty to defend because any potentially successful claim would fall under the exclusion clause.”
 Because it is not necessary to prove the defendant’s intent to injure the plaintiffs in a defamation action, I accept that this proposition has no direct application to the facts of the present case as disclosed in the pleadings. However, I read the statement in Scalera as affording one example of a claim that would fall under the exception clause, an example that was directly relevant [page598] to the facts of that case, but not as indicating the only way in which a case could fall within the exception. It is the wording of the exception provision itself, “damage . . . caused by any intentional . . . act”, that must be applied. This wording does not exclusively require an intentional tort.
 It appears that the insured accepts this interpretation. In his factum, he submits that “[t]he law requires that there be a finding of fact that there was an intention to commit an act to injure, or that the tort is an intentional tort, before the ‘intentional or criminal act’ exclusion clause is triggered.” This recognizes that it is not only with intentional torts that the case may fall with the exception.
 As I said earlier, the insured submitted that the applications judge erred in not applying two decisions cited to him, Wilkinson v. Security National Insurance Co., supra, and Blanchard v. Halifax Insurance Co., supra. It will be recalled that the applications judge said that they were clearly “distinguishable”. In light of my reasons set forth above, which are dispositive of the issue before the court, and of the fact that this court is not bound by either of these decisions, it is not necessary to deal with this submission. However, because the insured appears to have advanced the submission as a separate ground of appeal, I shall, briefly, consider it.
 In Blanchard, the insured made an application for an order that her liability insurer had a duty to defend her in a defamation action. The court, in para. 19 of the reasons, observed that from the pleadings there was an argument that the insured’s allegedly defamatory statements were made “accidentally in the nature of ‘a slip of the tongue’ or ‘a poor choice of words'” and that, accordingly, the intentional acts exclusion in the policy did not apply. This feature of the
acts in Blanchard is sufficient to distinguish it from the present case. I would also note that the court’s reasons were, strictly, dicta because the application for an order to defend was dismissed on the basis of the “business” exclusion in the policy.
 In Wilkinson, the court held that the liability insurer in a homeowner’s policy was under the duty to defend its insured who was a defendant in a defamation action. I do not think that I need go further than to note that following its analysis of the allegations in the pleading, the court concluded, in para. 36, that it was not clear “what basis, if any, will be used to impose liability” and that assuming the insured “made the statements at all, his intention will be a finding of fact for the trial judge”. The only comment that I need make is that my analysis of the pleading in the present case does not lead me to the same conclusion. [page599]
 For these reasons, I would dismiss the appeal with costs fixed in the amount of $4,450.