Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2006 ONFSCDRS 205

FSCO A06-000409

BETWEEN:

NOEL MORGAN

Applicant

and

SECURITY NATIONAL INSURANCE CO./MONNEX INSURANCE MGMT. INC.

Insurer

DECISION ON MOTION FOR PRODUCTION

Before:

Denise Ashby

Heard:

Written submissions were concluded on September 8, 2006.

Appearances:

G. Joseph Falconeri for Mr. Morgan

David Silverstone for Security National Insurance Co./Monnex Insurance Mgmt. Inc.

The Applicant, Noel Morgan, was injured in a motor vehicle accident on April 25, 2002. He applied for statutory accident benefits from Security National Insurance Co./Monnex Insurance Mgmt. Inc. ("Security"), payable under the Schedule.¹ Security denied certain medical benefits and terminated housekeeping and home maintenance benefits. The parties were unable to resolve their disputes through mediation, and Mr. Morgan applied for arbitration at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c.I.8, as amended.

A pre-hearing was held before me on May 30, 2006, at the offices of the Financial Services Commission of Ontario. At the pre-hearing, the following production issues arose:

Should Mr. Morgan produce his employment records from two years pre-accident to date and his income tax return for the year 2005?
Should Security be required to inform Mr. Morgan of the existence of surveillance materials and produce those materials when requested?

Mr. Morgan shall make best efforts to produce, from one year pre-accident to present, all employment records in respect of collateral medical benefits available to him, together with any claim for massage therapy which he may have asserted and his collateral benefits carrier's response.
Security shall forthwith produce the surveillance information together with any supporting correspondence and reports within 30 days of the date of the release of this decision. Further, Security shall produce future surveillance information together with any supporting correspondence and reports within 30 days of the date of its creation.

Production of Employment and Medical Records:

Security seeks production of extensive employment records and other medical records. The pre-hearing letter, dated May 30, 2006, identified the issues as: "Mr. Morgan's employment records from 2 years pre-accident to date and his tax return for the year 2005." I have restricted myself to dealing with the issues as set out in the pre-hearing letter.

Security submits that numerous medical reports, upon which Mr. Morgan relies to support his claim, refer to Mr. Morgan's work-related limitations. Therefore, his employment and income tax records are necessary to test the reliability of those medical reports. Mr. Morgan responds that the relevant record of his pre-accident health is his pre-accident medical record which he has agreed to produce.

The issues for arbitration are medical benefits, specifically claims for massage therapy, and housekeeping and home maintenance benefits. Subsection 60(2) of the Schedule gives an insurer credit for medical or rehabilitation benefits available under any insurance plan. Therefore, Mr. Morgan's eligibility for collateral benefits is relevant to the dispute in respect of massage therapy. As well, pre-accident records of massage expenses would be relevant to the dispute. However, I do not accept that the mention of employment function in medical reports warrants a broad disclosure of his employment records from two years pre-accident to date and his 2005 income tax return. Therefore, Mr. Morgan shall make best efforts to produce, from one year pre-accident to present, all employment records in respect of collateral medical benefits available to him, together with any claim for massage therapy which he may have asserted and his collateral benefits carrier's response.

Production of Surveillance:

Mr. Morgan seeks the immediate production of all surveillance presently obtained and continuing disclosure of future surveillance. He relies on the finding in Campeau and Liberty Mutual Insurance Company,² that Rule 40 merely sets a minimum time line for disclosing whether an insurer intends to rely on surveillance. He also relies on the trend in the courts to require early disclosure in order to facilitate the early resolution of disputes. Further, if the surveillance supports his claim, he should be able to rely on it.

Security submits that Mr. Morgan has failed to meet his onus to demonstrate, on the particular facts of his case, that he would be prejudiced if Security complied with the strict provisions of Rule 40. Security acknowledges that it has conducted surveillance and that investigation is ongoing. Therefore, it has complied with the order in Cheraghi-Sohi and Zurich Insurance Company..³ In that decision, the arbitrator required the insurer to advise whether it had conducted surveillance but did not order its production. Security confirmed that it would consent to an order allowing it to elect within 60 days of the hearing whether it would rely on the surveillance.⁴

The relevant Rules in this matter are: Rule 32, entitled "Exchange of Documents Before Pre-Hearing;" Rule 39 entitled "Evidence" and Rule 40 entitled "Surveillance Evidence."

Rule 32 provides:

32.1 At least 10 days before the pre-hearing discussion, each party must:

(a) exchange all documents identified in the Application for Arbitration and the Response by Insurer, or explain why a document has not been provided;

(b) establish reasonable time frames for the exchange of any remaining documents;

(d) file a list of outstanding document requests and identify any disputed items.

32.2 Subject to the time lines under Rule 39, the parties have an ongoing responsibility to ensure the prompt and complete exchange of documents that are reasonably necessary to determine the issues being arbitrated, including updates to the information previously exchanged and any additional documents obtained.

32.3 Subject to Rule 39, an arbitrator may at any time order the production of documents or the giving of information that he or she considers relevant to the determination of the issues in the arbitration, on such terms as he or she considers appropriate.

Rule 39 provides:

39.1 Subject to Rule 39.2, all documents, reports (including experts' reports) and assessments to be introduced at a hearing by either party must be served on the other party at least 30 days before the first day of the hearing.

39.2 In extraordinary circumstances, a party may seek an arbitrator's permission to serve a document, report or assessment on the other party for use at a hearing less than 30 days before the first day of hearing.

Rule 40.1 provides:

If a party intends to rely on any portion of surveillance or investigative evidence, including videotapes, photographs, reports, notes and summaries of surveillance observations or investigations, at least 30 days before the hearing, the party shall provide:

(a) the names and qualifications of the persons who secured the investigative or surveillance evidence, the dates, times and places where any surveillance or investigation was undertaken; and

(b) copies of all videotapes, photographs, investigative reports, notes and summaries taken or prepared in connection with the issues in dispute.

In the appeal decision in Puljic and Zurich Insurance Company, the Director's Delegate determined that he could find no error in law in the arbitrator's decision to refuse Mr. Puljic's request that the surveillance information be produced regardless of the insurer's intention to use it.

Mr. Puljic sought to rely on Rule 32.4 of the DRPC 3^rd edition which authorized arbitrators to order the production of "any document or the giving of information that he or she considers relevant to the determination of the issues in the arbitration, on such terms as she or he considers appropriate." In upholding the arbitrator's denial of the production order, the Director's Delegate considered Rule 37.1 now Rule 40. He expressed his opinion that:

While it might be argued that this rule deals only with surveillance on which the insurer intends to rely, remaining silent on the disclosure obligations for other surveillance, I am not convinced that is a fair reading. In my opinion, the clear implication of Rule 37.1 is that the insurer's production obligation only arises when it decides 'to rely on any portion of surveillance or investigative evidence.' There may be reason to question the appropriateness of this rule in a first-party system, but in my view, that is what the rule provides.⁵

I respectfully disagree with that conclusion in the context of the 4^th edition of the DRPC. In my opinion, Rule 40 constitutes an all or nothing rule. It requires the party seeking to rely on surveillance evidence to produce all of the surveillance or none of it. Thus, Rule 40 protects the integrity of the hearing process by denying the party relying on the surveillance the ability to cherry pick those elements of the surveillance information that support its case while burying its totality.

There is a specific exclusion of Rule 39, but not Rule 40, in Rule 32.3. The result is an arbitrator's discretion pursuant to Rule 32.2 is unfettered in respect of Rule 40.

I agree with Mr. Morgan that the DRPC sets out the minimum standards for production and admissibility which, pursuant to Rule 1.1, are to be interpreted "broadly, to produce the most just, quickest and least expensive resolution of the dispute." As well, Rule 81 gives arbitrators broad powers to make such orders as he or she considers just subject to the provisions of either the Insurance Act or the Statutory Powers Procedure Act. Therefore, I find that I have the authority to order the early and continuing production of surveillance information produced by Security or its agents. Further, I find that Rule 40 is not determinative of when the insurer's obligation to disclose arises. The obligation arises, in the absence of agreement between the parties, when an arbitrator determines it to have arisen.

The rationale for surveillance is a belief that secret, often filmed observation of the claimant's unguarded activities of daily life reflects on the credibility of their claims of accident-related impairment and loss of function. Presumably, it is relied upon by an insurer when the applicant engages in activity which is inconsistent with the claims advanced by the insured. However, it is less clear that it will be relied upon when the insured's conduct is consistent with those claims. In either case, disclosure of the information at the earliest point may lead to a quick resolution of the issues.

Mr. Morgan relies on the expanded approach to disclosure discussed in the Court of Appeal decision in General Accident Assurance Company et al. v. Chrusz et al., C.A., September 14, 1999 CanLII 7320 (ON CA), 1999, 45 O.R. (3^rd) 321. The decision provides a comprehensive analysis of the history and evolution of the circumstances under which disclosure to the opposing party of information relevant to the dispute is restricted by either solicitor-client or litigation privilege. The Court distinguished between solicitor-client privilege, which is about protecting the confidential relationship between client and counsel and litigation privilege which is about protecting the litigation process.

In the present case, the parties have presumed that surveillance information obtained by Security is relevant to the issues in dispute. I accept their assessment in this respect and find that the surveillance is relevant.

Security has not raised solicitor-client privilege as a defence to producing its surveillance information. There is no evidence that the surveillance conducted by Security was done at the behest of its counsel. Therefore it is not subject to communication privilege as between a client and its solicitor and would, if disclosed, prejudice that relationship. It remains to determine whether litigation privilege would shield the surveillance information from disclosure.

In General Accident Assurance Co. v. Chrusz, Mr. Justice Carthy held that the test to determine whether information is protected by litigation privilege is the dominant purpose test as opposed to the substantial purpose test applied in some provinces. Justice Doherty, dissenting in part, held that a transcript of a witness statement was not protected by litigation privilege, notwithstanding it clearly met the dominant purpose test, because societal interests mitigated in favour of its disclosure. He held that litigation privilege is "a qualified one which can be overridden where the harm to other societal interests in recognizing the privilege clearly outweighs any benefit to the interest fostered by applying the privilege in the particular circumstances."

In Justice Doherty's opinion, the onus was on the party claiming the privilege to first show that the evidence met the dominant purpose test, then the onus shifted to the party seeking disclosure to show that the privilege was trumped by societal interest.

Justice Rosenberg concurred with Justice Carthy on the basis that, while litigation privilege is not absolute, the balancing approach preferred by Justice Doherty would open the flood gates of pre-trial discovery motions seeking the court's determination of where the societal interests lay.

Justice Carthy, at page 332, discusses the concept of the "zone of privacy" which the litigation privilege affords stating:

The "zone of privacy" is an attractive description but does not define the outer reaches of protection or the legitimate intrusion of discovery to assure a trial on all of the relevant facts. The modern trend is in the direction of complete discovery and there is no apparent reason to inhibit that trend so long as counsel is left with sufficient flexibility to adequately serve the litigation client. In effect, litigation privilege is the area of privacy left to a solicitor after the current demands of discoverability have been met.

In Puljic, the Director's Delegate accepted that the trend in the courts is toward earlier and more fulsome disclosure. He contrasted the more complex and technical system in the courts with the simple rules of the DRPC designed to ensure a fair, efficient process.⁶ I would suggest that the courts are attempting to give effect to the administrative law objectives of fairness and efficiency by moving to earlier and more complete disclosure. I am therefore of the view that the balancing approach of Justice Doherty is most in keeping with the objective of fairness. This is particularly true when dealing with surveillance information which by virtue of having its own rule has been accorded a special status in the DRPC.

Security acknowledges having conducted surveillance. The societal interest in this matter is one of competing privacy zones. Security, in conducting surveillance, has intruded into Mr. Morgan's expected zone of privacy to test his credibility. The surveillance is an intimate record of Mr. Morgan's activities. I find that this intrusion together with Mr. Morgan's request for disclosure creates a reciprocal duty upon Security to disclose the product of that surveillance. However, the timing of that disclosure might attract litigation privilege. Security has not disclosed when its surveillance was conducted. As a consequence there are three time periods to be considered. The first is from the date of application for benefits to the date of application for mediation. The second is from the date of the application for mediation to present and the third is ongoing surveillance.

Security refers to the fact that some of the disputed massage therapy was incurred in 2004.⁷ If the surveillance was conducted proximate to that treatment then it is likely it was prior to the date of the Application for Mediation. The presumption adopted at the Commission is pre-mediation investigation could not have been conducted in contemplation of the litigation. As such, the surveillance would not be privileged. Therefore, I find that any surveillance information together with any supporting correspondence and reports created in the period from the date of the application for benefits to the date of the application for mediation is not subject to litigation privilege and shall be disclosed within 30 days of the date of the release of this decision.

Mr. Morgan claims a medical benefit for massage and housekeeping expenses incurred in 2003 and 2004. Any surveillance information created following the Application for Mediation is unlikely to shed light on the extent to which those services might have been reasonable and necessary when incurred. Security's litigation privacy zone is clearly trumped by Mr. Morgan's interest in knowing the nature of the surveillance. It may be, as has happened, that he is not the subject of the surveillance. Therefore, I can see no rationale for keeping any surveillance information together with any supporting correspondence and reports created in this period and ongoing from Mr. Morgan. Therefore, I would order that the existing surveillance be disclosed to Mr. Morgan within 30 days of the date of this decision. Any ongoing surveillance shall be disclosed within 30 days of its creation.

EXPENSES:

Neither party made submissions in respect of the expenses incurred for this motion. Therefore, this issue will be left to the hearing arbitrator.

December 22, 2006

Denise Ashby Arbitrator

Date