Ted Graper v. Liberty Mutual Fire Insurance Company, 2001 ONFSCDRS 47

Financial Services Commission of Ontario

Neutral Citation: 2001 ONFSCDRS 47 FSCO A00-000133

Between: Ted Graper, Applicant and Liberty Mutual Fire Insurance Company, Insurer

Decision on a Production Issue

Before: Lawrence Blackman Heard: March 20, 2001, at the Offices of the Financial Services Commission of Ontario in Toronto. Judgment: March 21, 2001

Appearances: Barry A. Percival for Mr. Graper Dwain C. Burns for Liberty Mutual Fire Insurance Company

Issues:

The Applicant, Ted Graper, was injured in a motor vehicle accident on March 20, 1993. He applied for and received statutory accident benefits from Liberty Mutual Fire Insurance Company ("Liberty Mutual"), payable under the Schedule.¹ Liberty Mutual terminated weekly income benefits on June 22, 1999. The parties were unable to resolve their disputes through mediation, and Mr. Graper applied for arbitration at the Financial Services Commission of Ontario (the "Commission") under the Insurance Act, R.S.O. 1990, c.I.8, as amended (the "Insurance Act").

The hearing of this matter commenced before Arbitrator Makepeace on Monday, March 19, 2001. The sole outstanding substantive issue between the parties is whether the Applicant is entitled to a special award, claimed pursuant to subsection 282(10) of the Insurance Act.

During the course of the hearing, Arbitrator Makepeace made a production order in relation to Liberty Mutual's adjusters' notes from January 1999 to the date the Applicant applied for mediation at the Commission, which was in July 1999.

Liberty Mutual subsequently produced to the Applicant copies of its adjusters' notes for the period ordered, with certain portions of the notes blacked out. Liberty Mutual objects to producing these excised portions of its notes, submitting that they are covered by solicitor-client privilege, which it has not waived.

The Applicant challenges the Insurer's claim for privilege, arguing that until there is a termination of benefits, there can be no claim for solicitor-client privilege. The Applicant submits that where there is a first party claim, solicitor-client privilege only exists where there is litigation privilege. The Applicant further argues that any solicitor-client privilege asserted has been waived.

In order to allow Arbitrator Makepeace to continue with the substantive hearing, I was asked to hear submissions from the parties (which might include reference to the disputed entries themselves) and determine the following production issue, the wording of which was agreed to by both counsel:

1. Shall Liberty Mutual produce those portions of its adjusters' notes which it has blacked out?

Result:

Liberty Mutual shall produce to the Applicant from its adjusters' notes:

1. Entry # 89.
2. The portion of Entry #87 "LOOKS LIKE . . . TM COMMENT."

Evidence and Analysis:

During the course of submissions, I was provided with a copy of the uncensored notes from the adjusters' file for the period in question, which included the following contested entries:

1. #80/81: February 2, 1999 from Mr. S. Patey, counsel for Sigurdson & Associates (the law firm representing the Insurer in this arbitration hearing);
2. #89: March 31, 1999 from "Watson," a claims person with Liberty Mutual;
3. #92: April 13, 1999 from Mr. G. Seppanen, a claims person with Liberty Mutual;
4. #93/94: April 20, 1999 from Mr. S. Patey; and,
5. #96: May 10, 1999 from Mr. S. Patey.

In Campeau and Liberty Mutual Insurance Company (FSCO A00-000522, March 12, 2001), I held that:

In the absence of the insurer establishing, at the initial pre-hearing discussion itself, privilege or in the alternative factors (for example, such as Guerriero’s "clear irrelevance" or the considerations as set out above in Al-Obaidi) which outweigh the possible relevance of specific notes, a generally applicable dividing line approach is appropriate. That dividing line, ordinarily at the Commission, has been the date of application for mediation. This would logically follow the date benefits were terminated or denied, which presumably involved a reasoned consideration by the insurer as to why benefits should not be paid. As well, upon mediation being accessed, a dispute is no longer hypothetical. This point in time, therefore, seems to me to be an appropriate prima facie dividing line between producible and non-producible insurer documentation, subject to submissions by either side as to why the production period or scope in a particular case should be narrowed or broadened. In this case, it was the period requested by the Applicant. I am not persuaded by the Insurer that there should be any variance.

Arbitrator Makepeace used the date of application for mediation as a cut-off point in this case. The question is the extent to which solicitor-client privilege narrows the production scope.

This case differs from the facts in Campeau. In that case, there was no evidence of counsel being retained prior to mediation. The production request up to mediation was resisted on the basis of litigation privilege. The test for litigation privilege, as stated in General Accident Assurance Co. v. Chrusz et al., 1999 CanLII 7320 (ON CA), [1999] 45 O.R. (3d) 321, is the "dominant purpose test." In the case now before me, counsel was involved prior to mediation. The Insurer in this case claims solicitor-client privilege for the blacked-out entries. In Gower v. Tolko Manitoba Inc. 2001 MBCA 11, [2001] M.J. No. 39, the Manitoba Court of Appeal held that "[i]t is not helpful to use the phrase 'dominant purpose' when discussing legal advice privilege. That phrase is commonly found in connection with litigation privilege."

In Chrusz, Carthy J.A. quoted from a lecture by R.J. Sharpe, entitled "Claiming Privilege in the Discovery Process" in Law in Transition: Evidence, L.S.U.C. Special Lectures (Toronto: De Boo, 1984) at page 163. Mr. Sharpe refers to at least three important differences between litigation privilege and solicitor-client privilege. Firstly, "solicitor-client privilege applies only to confidential communications between the client and his solicitor." Secondly, "solicitor-client privilege exists any time a client seeks legal advice from his solicitor whether or not litigation is involved." Thirdly:

most important, the rationale for solicitor-client privilege is very different from that which underlies litigation privilege. This difference merits close attention. The interest which underlies the protection accorded communications between a client and a solicitor from disclosure is the interest of all citizens to have full and ready access to legal advice. If an individual cannot confide in a solicitor knowing that what is said will not be revealed, it will be difficult, if not impossible, for that individual to obtain proper candid legal advice.

Doherty J.A., dissenting in part in Chrusz, saw client-solicitor privilege (as he termed it) as serving the following purposes:

promoting frank communications between client and solicitor where legal advice is being sought or given, facilitating access to justice [by being able to give and receive effective legal advice], recognizing the inherent value of personal autonomy [in maintaining confidences] and affirming the efficacy of the adversarial process. Each of these purposes should guide the application of the established criteria when determining the existence of client-solicitor privilege in specific fact situations.

In Crusz, Rosenberg J.A., specifically stated that like Carthy J.A., he accepted Doherty J.A.'s analysis of solicitor-client privilege.

The Supreme Court of Canada in R. v. Campbell, 1999 CanLII 676 (SCC), [1999] 1 S.C.R. 565, adopted the description of solicitor-client privilege given in Wigmore on Evidence, vol. 8 (McNaughton rev. 1961), at para. 2292:

Where legal advice of any kind is sought from a professional legal adviser in his capacity as such, the communications relating to that purpose, made in confidence by the client, are at his instance permanently protected from disclosure by himself or by the legal adviser, except the protection be waived.

Doherty J.A., in Chrusz, held that "[i]t is incumbent on the party asserting the privilege to establish an evidentiary basis for it." Likewise, in Gower, the Manitoba Court of Appeal held that:

the onus is on the person seeking to claim the privilege to establish three factors in connection with any particular document:

1. that the document was the giving or obtaining of legal advice;
2. the presence of a solicitor and the presence of a client; and
3. the existence of the solicitor-client relationship.

The Manitoba Court of Appeal held that "just because a person is a lawyer this does not mean that any information obtained will be protected by legal advice privilege. It will be a question of fact in each case, whether the person received the information within the context of a solicitor-client privilege."

The Applicant argues that Sigurdson & Associates is an "in-house" law firm of Liberty Mutual and hence there is not a true solicitor-client relationship between it and Liberty Mutual. It would then follow that solicitor-client privilege could not be claimed.

Bank Leu Ag v. Gaming Lottery Corp. [1999] O.J. No. 3949, however, held that "it is settled law that solicitor-client privilege applies to communications with inhouse counsel provided that inhouse counsel is acting in his or her capacity as a solicitor when the communications are made, the communications are in the context of a solicitor-client relationship, are in the course of requesting or providing legal services and are intended to remain confidential."

Hence, the fact that Sigurdson & Associates may be in-house counsel is not determinative of the issue. As stated in R. v. Campbell, "whether or not the solicitor-client privilege attaches . . . depends on the nature of the relationship, the subject matter of the advice and the circumstances in which it is sought and rendered."

Nor do I accept the Applicant’s broad submission that in a first-party claim, there can be no solicitor-client privilege until there is a termination of benefits or that solicitor-client privilege only exists where there is litigation privilege.

While the type of claim in issue is a relevant factor to be considered, I am not persuaded that the solicitor-client privilege is essentially eliminated in cases where a special award is claimed. As I stated in Campeau, whatever good faith obligations a first-party insurer may have do not eliminate an insurer’s right to claim privilege. I again note that this Commission is subject to the Statutory Powers Procedure Act, R.S.O. 1990, c. S. 22, subsection 5.4(2) of which specifically states that a tribunal's power to make orders for disclosure "does not authorize the making of an order requiring disclosure of privileged information."

I am persuaded, on a balance of probabilities, with significant reservations, that the entries set out above which were authored either by Mr. Patey or by Mr. Seppanen, are covered by solicitor-client privilege. Based on the contents of these entries, I am persuaded that Mr. Patey, acting in his capacity as a lawyer, in the context of a solicitor-client relationship with Liberty Mutual, was providing legal advice which, I have little doubt, was intended to remain confidential. The entry from Mr. Seppanen relates to communications received from Mr. Patey, and I also find is covered by solicitor-client privilege.

I am guided by the principles set out in Chrusz as to the important societal concern of allowing citizens full and ready access to legal advice, which includes the ability to have candid discussions with counsel. My reservations pertain to, amongst other things, the close ongoing relationship between Liberty Mutual and its counsel, the mutual obligations of good faith between the parties to this arbitration, that the advice was given during the normal adjusting of the claim prior to benefits being terminated, and to some extent, how one might characterize the nature of the advice provided. However, I see no indication in the notes that Mr. Patey's involvement was simply an artificial endeavour to cloak a routine adjusting decision with the mantle of solicitor-client privilege.²

I also have significant reservations as to whether my decision sufficiently balances what Doherty J.A. in Chrusz termed the "antithetical" principle in civil litigation to client-solicitor privilege, namely "the right to full and timely discovery of the opposing party's case, [which] rests on the premise that full access to all the facts on both sides of a lawsuit facilitates the early and just resolution of that suit." The entries in question are clearly relevant.

The Applicant further submits that the state of mind of the Insurer is in issue. He argues that state of mind includes whatever documents or opinions Liberty Mutual relied upon to support their decision. Hence, he argues that any privilege that might attach to these entries is implicitly waived. The Applicant relies on Bank Leu Ag, wherein Ground J. states at paragraph 5, that:

When a party places its state of mind in issue and has received legal advice to help form that state of mind, privilege will be deemed to be waived with respect to such legal advice.

However, the motion in Bank Leu Ag concerned a third party claim where a former client alleged "breach of a solicitor's duty to the client in connection with a particular transaction." In that case, it was held that by alleging breach of duty, the client itself was putting in issue "its state of mind or knowledge with respect to matters on which it alleges breach of duty owed to it by its solicitors." The court went through a number of decisions wherein the plaintiff/client asserted that it relied on the representations of the defendant/counsel and the defendant denied those allegations on the basis that the plaintiff obtained and relied on other legal advice. In such cases, the courts found that the "plaintiff will be deemed to have waived solicitor-client privilege in respect of the legal advice received." Those facts are very different than the facts before me.

The Applicant also relies on the decision in Samoila v. Prudential of America General Insurance Co. (Canada) 2000 CanLII 22690 (ON SC), [2000] O.J. No. 2746, which was a claim for bad faith damages against a sickness and accident insurer. In that case, Brockenshire J. held that, based on answers given by the claims person at the examination for discovery, there was waiver of solicitor-client privilege by the insurer. Obviously, examinations for discovery are not part of the procedure at the Commission, and waiver would not be established by that means in this system.

In Gower, the Manitoba Court of Appeal, relying on R. v. Campbell, held that "[legal advice privilege may be waived by the party enjoying the privilege if that waiver is undertaken voluntarily." A party must have "voluntarily injected their knowledge and reliance on the law, i.e. their state of mind, into the action." In R. v. Campbell it was held that "[s]ince it was the RCMP that made an issue of the legal advice it received in response to the stay application, the appellants were entitled to have the bottom line of that advice corroborated."³

To establish such waiver in the context of this Commission, one might look to the insurer's Response to the Application for Arbitration, its pre-hearing arbitration brief, opening statements given at the arbitration hearing or to evidence presented during the course of the hearing to determine whether the insurer has raised, citing Anderson v. Nixon, 444 F.Supp. 1195, 1200 (D.D.C. 1978), "an affirmative defense that makes his intent and knowledge of the law relevant." The applicant’s claim for a special award, by itself, does not implicitly waive the insurer’s claim for solicitor-client privilege.

I am not persuaded, at this point in time, that any such waiver by Liberty Mutual has been established.

However, as stated in Gower, at paragraph 54, "[t]hat is not to say that the situation may not change sometime down the road in this litigation. The defendant may indeed choose to affirmatively rely on the legal advice received as evidence of its good faith."

I am, therefore, persuaded that there should be a narrowing of the usual production order in this case, on the basis of solicitor-client privilege being established for the above entries, other than #89.

Entry #89 was not created by a lawyer. It was created by a claims person. There is reference in the entry to a note "from John." I am advised that this is also a claims person. There is a further reference to a note for "Grant," whom I take to be Mr. Seppanen. There is a brief reference to one of Mr. Patey's entries, but Entry #89 goes far beyond what was stated by Mr. Patey in his various entries. I see no evidence that the general opinions expressed in this note to file originate other than in the claims person. I note that this entry is continued into Entry #90, which has already been produced (I am advised that as each computer entry only allows so much space, one notation may spill over into a separate entry).

Accordingly, I am not persuaded that for this entry the Insurer has met its onus that the communication was with counsel, who was acting within his or her capacity as a solicitor and that the communications are in the context of a solicitor-client relationship. This entry, therefore, shall be produced.

At the conclusion of submissions, reference was made to Entry #87, which contains reference to reserves. I was asked to determine merely whether any portion of that entry should be produced as not dealing with reserves. I found that the portion "LOOKS LIKE . . . TM COMMENT" does not pertain to reserves and should be produced.

Expenses:

I leave the question of expenses of this production issue to the main hearing arbitrator. The arbitrator may wish to consider why this production issue was not dealt with in the usual pre-hearing process, and what, if any, consequences flow from that.

March 30, 2001

Lawrence Blackman Arbitrator

Date

Neutral Citation: 2001 ONFSCDRS 47 FSCO A00-000133

Financial Services Commission of Ontario

Between: Ted Graper, Applicant and Liberty Mutual Fire Insurance Company, Insurer

Arbitration Order

Under section 282 of the Insurance Act, R.S.O. 1990, c.I.8, as amended, it is ordered that Liberty Mutual shall produce to the Applicant from its adjusters' notes:

1. Entry # 89.
2. The portion of Entry #87 "LOOKS LIKE . . . TM COMMENT."

March 30, 2001

Lawrence Blackman Arbitrator

Date

> The general rule is that the plaintiff is entitled to disclosure. Client-solicitor privilege is an exception to the general rule. The issue of disclosure must be considered in the context of the claim by the insured that the insurer acted in bad faith. The insurer and insured have mutual obligations to each other to act in good faith. The insurer must investigate, evaluate, assess and decide whether or not to pay the claim, all in a balanced and reasonable manner. Throughout all of those stages, the conduct of the insurer must be transparent. The evidence as to the manner in which the claim was processed is relevant to a bad faith claim. The information available to the insurer upon which it decided whether or not to pay the claim is critical. Client-solicitor privilege cannot be raised to protect communications during the investigation, evaluation, assessment and decision stages.
> 
> If legal opinions were protected by client-solicitor privilege where "the investigation was controlled by counsel" instead of by the insurer, whose duty it is to act in good faith toward the insured, then that would encourage insurers to delegate such responsibility to counsel. That would only serve to undermine the right of the insured to expect that the insurer would act in good faith. Simply because the insurer seeks an opinion does not mean, in this context, that client-solicitor privilege is created.

The article in the Lawyers Weekly indicates that both parties are seeking leave to appeal.

> I agree with the principle that waiver applies where the party who seeks to protect the privileged communications originated the state of mind argument. That is not to say that waiver might not also apply when state of mind is raised by the party who seeks to breach privilege. Given the basis upon which I have resolved this motion, I need not decide that issue.

Footnotes

1. 1The Statutory Accident Benefits Schedule — Accidents On or Between June 22, 1990 and December 31, 1993, Regulation 672 of R.R.O. 1990, as amended by Ontario Regulations 660/93 and 779/93.
2. 2Only after rendering this oral decision did I come across, in the March 23, 2001 issue of the Lawyers Weekly (Markham: Butterworts Canada Ltd.), reference to the decision of Kiteley J., in Davies v. American Home Assurance Co. [2001] O.J. No. 677, heard February 14, 2001, judgment February 27, 2001. In a claim on an accidental death and dismemberment insurance policy, which included a bad faith claim for punitive damages, the plaintiff sought production of amongst other things, the complete claims file and legal opinions. The defendant asserted litigation privilege on the notes and solicitor-client privilege on the legal opinions. Kiteley J. held that:
3. 3In Davies, Kitely J. stated that: