{"id":1074,"date":"2013-05-30T09:17:50","date_gmt":"2013-05-30T13:17:50","guid":{"rendered":"http:\/\/www.cavanagh.ca\/blog\/?p=1074"},"modified":"2013-05-31T10:50:07","modified_gmt":"2013-05-31T14:50:07","slug":"justice-quinn-clarifies-privilege-issues-in-insurance-cases","status":"publish","type":"post","link":"https:\/\/www.cavanagh.ca\/blog\/?p=1074","title":{"rendered":"Justice Quinn Clarifies Privilege Issues in Insurance Cases"},"content":{"rendered":"

I was happy to read the reasons of Justice Joseph W. Quinn in\u00a0Panetta v. Retrocom et<\/em> al.<\/em><\/strong><\/a>, 2013 ONSC 2386 (CanLII) because, to my mind, they bring a great deal of clarity to what I find is an often-misunderstood topic: privilege issues in insurance cases.<\/p>\n

We all know that in the wake of\u00a0General Accident Assurance Company v. Chrusz<\/strong><\/a>,<\/em> 1999 CanLII 7320 (ON CA), the “dominant purpose” test has become well-established in relation to litigation privilege. It must be shown that\u00a0the document in question was created for the dominant\u00a0purpose of litigation, actual or contemplated.<\/p>\n

That approach has also been endorsed by the Supreme Court of Canada in\u00a0Blank v. Canada (Minister of Justice)<\/em><\/a><\/strong>, 2006 SCC 39, [2006] 2 SCR 319.<\/p>\n

So far, so good. But it seems to me that in applying the dominant purpose test, courts have sometimes focused inappropriately on whether, objectively speaking, litigation was likely at a given point. In my view, that question is irrelevant in an insurance context, in third party liability situations.<\/p>\n

What has, I think, contributed to some confusion about privilege in insurance cases is a failure to differentiate between first and third party claims. Justice Quinn makes clear the distinction between the two and the implications for questions of privilege.<\/p>\n

In a first party situation, the dispute stems from a contractual relationship between insurer and insured.\u00a0Chrusz\u00a0<\/em>was such a case. When an insurer begins the process of adjusting a claim, it is rarely the case that documents are being created for the dominant purpose of anticipated litigation. As Justice Carthy said in Chrusz<\/i>:<\/p>\n

In my view, an insurance company investigating a policy holder\u2019s fire is not, or should not be considered to be, in a state of anticipation of litigation. It may be that negotiations and even litigation will follow as to the extent of the loss but until something arises to give reality to litigation, the company should be seen as conducting itself in good faith in the service of the insured.<\/p><\/blockquote>\n

In a potential third party claim situation, on the other hand, the only reason for the insurance company to become involved and to begin creating documents, is to prepare to respond to a claim of some sort against its insured by a “third party” (i.e., someone outside the contractual relationship between insurer and insured). It might very well be the case that no claim is ever made against the insured but that does not change the fact that the sole<\/em> reason for the insurer to take statements from witnesses, have photographs taken etc. is its apprehension of litigation against its insured. Whether or not that apprehension is reasonably held is, in my view, irrelevant. The “dominant purpose” test is satisfied in all such cases, by definition.<\/p>\n

Justice Quinn understands this. Panetta <\/em>was a slip and fall action. The plaintiffs were husband and wife and the wife had fallen in the parking lot of a Walmart store. The plaintiffs sought production of various documents on which one of the defendants (the owner of the premises) had claimed privilege.<\/p>\n

Justice Quinn reviewed a number of cases, including some that have held that, for litigation privilege to arise, there must be a “substantial likelihood” of litigation or at least a “reasonable prospect” of litigation. His Honour disagreed and, in my view, he was quite correct. He said:<\/p>\n

[60] As soon as the female plaintiff fell and was injured on March 5, 2008, she was in an adversarial position with all of those who ultimately were to become defendants and with their insurers.<\/p>\n

[61] I think that, in third-party or tort claims (as opposed to claims by an insured against his or her own insurer), there is no preliminary investigative phase where privilege does not attach to notes, reports and files of adjusters. In third-party insurance claims, the sole reason for any investigation by or on behalf of an insurer is because of the prospect of litigation. It is naive to think otherwise; and the fact that the investigation may be used to arrive at a pre-lawsuit settlement does not detract from the point that I make. The prospect of litigation inherently includes the prospect of settlement.<\/p>\n

[62] I agree with the submissions of Wahlman that there is no purpose for the creation of documents by an insurer in a tort context other than: (1) for anticipated litigation; (2) for setting reserves; or (3) for seeking legal advice. For completeness, I would add, as a corollary to (1): for the purpose of settlement, which I see as inextricably entwined with \u201canticipated litigation\u201d.<\/span><\/p><\/blockquote>\n

This, I think, correctly states the law. For litigation privilege to exist in a third party liability scenario, litigation need not be “likely”, nor need there be a “reasonable prospect” of it. The privilege arises from the circumstances in which the documents come into existence and, in a third party claim situation, the\u00a0only\u00a0<\/em>reason for their creation is potential litigation.<\/p>\n

<\/p>\n

While he was at it, Justice Quinn dealt with a number of other privilege issues that commonly arise in insurance cases. His reasons set out the following principles:<\/p>\n