Must Insurer Maintain “Firewall” Between Tort and No-Fault Claims?

In Trecartin v. Pilot Insurance Company, Mr. Justice George T. Valin considered the position of an insurer defending both a tort action and an accident benefits claim brought by the same plaintiff.

In the no-fault action, the insurer, Pilot Insurance, was seeking an order permitting it to conduct three independent medical examinations. Counsel for Pilot swore an affidavit in support of that motion. When she was cross-examined by the solicitor for the plaintiff, Pilot’s counsel refused to answer two questions. One of those was this one:

“…has a firewall been maintained from the outset of this case to the present and ongoing between the statutory accident benefits side of Pilot insurance file, including their solicitors, and the tort side of the file and the solicitors on the tort side?”

Pilot’s lawyer refused to answer that question on the ground that it was not relevant. In reliance on the Divisional Court decision in Worthington Trucking v. Klingbeil (1999), 43 O.R. (3d) 69, Pilot argued that it was not obliged to keep confidential information received in the accident benefits claim. In Worthington, the issue was whether the same law firm could represent an insurer in relation to claims for both accident benefits and tort damages. The Divisional Court held that there was nothing inappropriate about this, saying: “Where the plaintiffs rely on the statutory scheme set out in the Insurance Act to claim no-fault benefits from the defendant’s insurer, the insurer ought not, as a matter of course in a subsequent tort action by the plaintiffs, be required to retain separate solicitors for the no-fault claim and the defence of the tort action.” On this basis, counsel for the insurer in the Trecartin case argued that there was no obligation to maintain a “firewall” of confidentiality between the company’s tort and accident benefits files in relation to the plaintiff Trecartin. (Indeed, the evidence gleaned from the cross-examination of Pilot’s counsel made it clear that a fair bit of information had been exchanged between the solicitors acting on the tort and accident benefits files.)

However, counsel for Trecartin argued the 2007 Divisional Court decision in Kitchenham v. AXA Insurance Canada, a case that we discussed in a posting last year. There, the court held that the “deemed undertaking rule” prevented disclosure, in an accident benefits action, of surveillance and an IME obtained in an earlier tort claim that had been settled.

Justice Valin noted that the court in Worthington v. Klingbeil had not considered either the common-law “implied undertaking” rule or the “deemed undertaking” provisions of rule 30.1.01(3). He apparently distinguished the case on that basis. However, it is not clear that the rationale of that decision was applicable here. It does not appear that any “confidential” information received by Pilot had come to it through the discovery process. Rather, the source of the information was more likely to have been either Pilot itself (e.g., surveillance) or the plaintiff (e.g., claims forms required to be completed for accident benefits).

His Honour went on to observe that in the no-fault action, the plaintiff Trecartin had advanced a claim against Pilot for damages for bad faith. He said, “[a] significant issue relevant to that claim will be whether, and to what extent, Pilot maintained a firewall between the plaintiff’s tort claim and his statutory accident benefits claim.” On that basis, he felt that the question above was relevant and ordered Pilot to answer it.

This is a decision of some significance to insurers. Justice Valin seems to have assumed that there is an obligation to maintain a “firewall” of confidentiality within the same company, between the tort and accident benefits claims. However, that issue was not considered in Klingbeil and it is unclear on what basis Justice Valin assumed that such an obligation existed.

In Worthington, the Divisional Court had held that any confidentiality that inheres in information provided by a claimant to an accident benefits insuer is lost when the insured commences an action against the insurer, based on that information: “privilege is waived when the giver of confidential information sues the recipient or otherwise brings into contention the very content of the confidential information”. This issue of waiver of confidentiality was not considered by Justice Valin in his reasons.

In fact, the “firewall” issue did not directly arise in either Worthington or Kitchenham. It would be desirable if a court would clarify (a) the extent to which an insurer must maintain a “firewall” of confidentiality between a tort and an accident benefits file regarding the same individual and (b) whether and to what extent the obligation of confidentiality is affected by the commencement of litigation against the insurer (or against someone who is being defended by that insurer).

This entry was posted in Auto, Collateral Benefits, Discovery, Insurance News, Practice and Procedure, Privacy, Privilege. Bookmark the permalink.

2 Responses to Must Insurer Maintain “Firewall” Between Tort and No-Fault Claims?

  1. Paul Ross says:

    There appears to be double standards for dealing in these situations. There seems to be no issue with plaintiff counsel handling both the AB & tort actions for a given claimant. Is there not an inherent conflict in this arrangement? As counsel on the tort claim my obligation is to obtain as much coin as possible. In attempting to gain top $$ a quick and full recovery would be unwelcome. On the AB side, the claimant has contractual obligations not the least of which is good faith.
    We have all seen claims where the actions of the insurer are thwarted for seemingly no valid reason other than the intended action may do harm to the tort claim. Veno v. United General Insurance Corporation, 2008 NBCA 39 is a perfect example where the search for the almight buck in the tort claim places almost always places the claimant in conflict with the obligation of good faith dealings of the AB policy.
    If the underlying principle is that no one would ever sumit a bogus claim nor would any lawyer ever be involved in such a claim, what possible conflict could ever occur in dealing with same injuries from the same accident?

    Paul Ross (Economical Mutual Insurance Company)

  2. marc binavince says:

    I disagree with the above comment that the contractual obligations of an AB claimant make it problematic for tort counsel to also act in the AB claim and in any AB litigation.

    A tort victim who is litigating has an obligation to mitigate damages and the AB system provides a means to do just that: treatment plans can be submitted and if approved treatment can be obtained. If denied, the denial can be litigated. If a tort lawyer is telling his client to refrain from seeking AB funded treatment so as to enhance the tort recovery then he is a bad lawyer, but his bad advice ought not to be conveniently blamed on any “conflict”. Further, the bad advice actually (if also perversely) benefits the AB insurer by keeping costs down (as well it may ultimately benefit the tort defendant, inasmuch as tort defence counsel can now argue failure to mitigate) If the tort and AB insurer are the same, the bad advice is a potential double boon to the insurer.

    The suggestion that a quick and full recovery would be unwelcome in tort ignores the existence of the verbal threshold and the SCC decision in Paxiero v Haberman, and invites readers of the above comment to make cynical assumptions about the plaintiff’s bar that in my experience are unwarranted.

    When there are obstacles to quick and full recoveries they can take the form of unreasonable AB adjusters, “tough it out” minded plaintiffs, poor diagnoses made by practitioners, the excessive reliance by family MDs on prescribing the latest painkiller, or several others. I have never seen a case where a plaintiff’s lawyer counselled the injured victim to refrain from seeking treatment, and Veno does not seem to be such a case either.

    The reason a firewall should exist is simple. It is too tempting for insurers to process the AB claim (which often continues to be necessary even during AB litigation) with an eye to strategic advantages in the tort action, and this temptation ought to be removed by way of a firewall rule and a separate defence counsel rule. If this does not happen, insurers are going to succumb to the temptation (and get sued for it from time to time as well, I would suspect).

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