Financial Services Commission des Commission services financiers of Ontario de l’Ontario

Neutral Citation: 2007 ONFSCDRS 203

FSCO A06-002177

BETWEEN:

NAFIYE RAMA

Applicant

and

ALLSTATE INSURANCE COMPANY OF CANADA

Insurer

Before: Arbitrator Lawrence Blackman

Heard: Written submissions were received by August 24, 2007.

Appearances: Mr. Robert W. Vitols for Ms. Rama Ms. Monique Rae Bennett for Allstate Insurance Company of Canada

Issues:

The Applicant, Ms. Nafiye Rama, was injured in a June 26, 2003 motor vehicle accident. She applied under the Schedule¹ to her first-party insurer, Allstate Insurance Company of Canada (“Allstate”), for payment of statutory accident benefits. Allstate denied Ms. Rama’s entitlement to certain benefits. The parties were unable to resolve their dispute through mediation. Accordingly, the Applicant applied for arbitration at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c.I.8, as amended

The initial pre-hearing discussion confirmed the issues in dispute, including non-earner, attendant care and housekeeping benefits under the Schedule as well as a claim for a special award pursuant to subsection 282(1) of the Insurance Act.

At the pre-hearing, Ms. Rama sought production of Allstate’s complete adjusting file on the basis that the Insurer had allegedly provided surveillance tapes to third-party medical practitioners without providing a copy to the Applicant. Allstate objected to production of any part of its adjusting file, arguing that there was nothing unusual about withholding surveillance until the arbitration proceeding. Allstate specifically objected to production of any reference to reserves.

In respect of this issue, I sought written submissions from the parties regarding the decision in Mamaca (Litigation Guardian of) v. Coseco Insurance Co. 2007 CanLII 9890 (ON SC), [2007] O.J. No. 1190, and specifically Master Dash’s comments that:

Information about setting a reserve is not relevant to the insurer’s conduct in assessing and responding to the claim absent rare and exceptional circumstances.

I also noted that Allstate intended to call one of its representatives as a witness at the arbitration hearing. I raised with the parties the question of whether privilege was intended to be waived, and if so, whether that should be addressed at the pre-hearing stage.

Accordingly, the issue in this pre-hearing decision is:

What, if any, part of Allstate’s adjusting file should be produced to Ms. Rama?

Result:

Allstate shall produce to Ms. Rama copies of all documents in its first-party adjusting file which were created on or before the commencement of Mediation herein, being May 3 2006.
If any information regarding the tort claim was left in the no-fault file, then Allstate shall, within ten days of this decision, provide me with copies of all documents it says are related to the tort file, highlighting the portions which it submits should not be produced, with reasons. I shall then determine which documents, if any, are to be produced.

EVIDENCE AND ANALYSIS:

General Approach to Production from the Insurer’s File

Campeau and Liberty Mutual Insurance Company (FSCO A00-000522, March 12, 2001) addressed, amongst other matters, the question of production of an insurer’s accident benefits file. In determining the breadth of production, I noted that Dispute Resolution at the Financial Services Commission, as an alternative to court litigation, preferred a more streamlined, broad stroke approach to production issues. As stated in Practice Note 4 of the Dispute Resolution Practice Code (Fourth Edition, Updated – October 2003) (the “Code”):

Arbitration is designed to be relatively informal and quick. It does not have the broad discovery and disclosure processes of the court system.

Thus, I stated in Campeau that:

I find it difficult to see the advantage of introducing into this alternative procedure to the courts, a multi-stepped pre-hearing process, accompanied by variations on affidavits of documents, to determine whether notes already in the possession, control or power of the insurer, should be produced.

The Commission had previously taken a broad, streamlined approach to production of an applicant’s pre-accident medical notes and records. Subject to persuasive reasons why the period of production should be expanded or restricted, the Commission had set a guideline of allowing production of such records from one year pre-accident, even in the absence of any issue of causation having been raised. In essence, the Commission was allowing a reasonable scope of discovery in the pre-hearing process, perhaps broader than what might ultimately be found to be relevant at a hearing and allowed into evidence.

Therefore, in Campeau, I stated that:

In the absence of the insurer establishing, at the initial pre-hearing discussion itself, privilege or in the alternative factors . . . 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 the case before me, the Report of Mediator states that Mediation was conducted from May 3 to July 12, 2006. The Insurer submits that Ms. Rama filed her Application for Mediation on March 10, 2006, but I see no confirmation of same in the materials before me. Ms. Rama wishes to expand the scope of production from Allstate’s file beyond what is generally allowed; Allstate wishes to restrict it. I will deal with each argument in turn.

Should the Period of Production be Expanded?

Ms. Rama submits that Allstate’s dealings with her “have been consistently coloured with the stain of bad faith throughout the entire process.” She specifically submits that the Insurer failed to produce surveillance tapes until the pre-hearing discussion.

The Applicant further argues that she can only ascertain whether her claim has been treated in bad faith with the production of the Insurer’s internal file.

I am not persuaded that the period of production should be expanded beyond the Application for Mediation based solely on broad allegations of bad faith or that something might be buried in an insurer’s file. Nor am I persuaded, in this case, that the alleged non-production of surveillance tapes (which came into existence, as best I can discern, in mid-2004) is a reasonable basis for expanding production beyond the Application for Mediation, an event which took place some two years after the tapes were created. Nor am I persuaded that such alleged non-production is a basis for waiving any claim of privilege, the law of privilege being specifically incorporated into administrative tribunals by subsection 15(2) of the Statutory Powers Procedure Act, R.S.O. 1990, c. S. 22.

Should the Period of Production be Restricted?

Allstate submits that any documents created prior to January 28, 2005, when the Applicant filed an election for non-earner benefits (entitlement for which is an issue in dispute), are irrelevant to this proceeding and should not be produced.

Allstate further submits that as it refused payment of non-earner benefits by letter dated February 5, 2005, litigation was reasonably anticipated, if not a strong likelihood, after that date and that any documents created after February 5, 2005 are protected by privilege.

Thus, it appears that Allstate is arguing that the maximum disclosure from its file would be approximately the one week following January 28, 2005. However, Allstate notes an earlier refusal letter of February 3, 2005. It then submits, without explanation, that litigation privilege runs from January 26, 2005.

The Insurer concludes that with the consent of the Applicant, it will provide copies of any correspondence to and from the Applicant (which the Applicant presumably already has) and “Any contact directly with the insured in the diary notes in the internal file.”

In determining whether specific documents should be produced, the initial onus is on the party seeking production to establish the relevance of the documentation sought. Once relevance has been established, the onus shifts to the party resisting production to establish that there is persuasive basis upon which to exclude from production that which has been found to be relevant.

1. Relevance

Production exchange at the Commission routinely involves insurers requesting production of the files of both collateral insurers regarding the same motor vehicle accident and the files of first- party insurers in respect of any subsequent accident, or (within a reasonable period of time) any prior accident.

Hence, there is little question of the prima facie relevance of the first-party’s adjusting file. As stated by Master Dash in Mamaca:

The only way that an insured can ascertain whether his claim was treated in good faith is by production of the insurer’s internal file and other information available to it, thereby indicating how it handled the investigation and determined whether to honour the claim . . . This makes almost every document in the insurer’s file critical and relevant to the issue of bad faith if properly pleaded. However, ‘litigation privilege . . . when properly asserted, trumps relevance in almost all circumstances.”

Bad faith claims do not exist at the Commission. However, claims for special awards, which bear certain similarities to bad faith claims, are within the exclusive jurisdiction of dispute resolution at the Commission.

I am persuaded, on a balance of probabilities, as to the general relevance of the Insurer’s adjusting file, both in regard to the specific categories of claims under the Schedule (claims which run, in this case, from the date of the accident regarding housekeeping expenses, or a relatively short time thereafter regarding other claims), as well as to the broader issue of a special award, which addresses whether the Insurer unreasonably withheld or delayed payment of benefits.

The discrete question of the relevance of reserves, however, merits further attention, and is dealt with below.

I now turn to whether there are any circumstances in this case that merit restricting the usual scope of production from the Insurer’s file.

2. Solicitor-Client privilege

As stated by Fish J., for the Supreme Court of Canada in Blank v. Canada (Minister of Justice) 2006 SCC 39, [2006] S.C.J. No. 39, solicitor-client privilege creates a zone of privacy to allow for “full, free and frank communication between those who need legal advice and those who are best able to provide it,” being lawyers.

Allstate submits it retained counsel in this case on October 26, 2006, and that any “notes, records or documents from that date forward with certainty would be protected by solicitor and client privilege.” October 26, 2006 is some months after mediation was sought in this matter. Accordingly, solicitor-client privilege is not a basis to restrict the usual scope of production.

3. Litigation Privilege

As also stated by Fish J. in Blank, litigation privilege exists “to ensure the efficacy of the adversarial process . . . to achieve this purpose, parties to litigation, represented or not, must be left to prepare their contending positions in private, without adversarial interference and without fear of premature disclosure.” As stated by R.J. Sharpe, in “Claiming Privilege in the Discovery Process,” in Law in Transition: Evidence [1984] Special Lect. L.S.U.C. 163 at pp. 164-165:

litigation privilege aims to facilitate a process (namely, the adversary process), while solicitor-client privilege aims to protect a relationship (namely, the confidential relationship between a lawyer and a client).

In Blank, Fish J. saw no reason to depart from the dominant purpose test regarding litigation privilege. He considered that the dominant purpose test was “consistent with the notion that litigation privilege should be viewed as a limited exception to the principle of full disclosure and . . . more compatible with the contemporary trend favouring increased disclosure.”

Mamaca involved a motion in an accident benefits court action to compel the defendant first-party insurer to answer questions which were refused at an examination for discovery and to deliver a further and better affidavit of documents. As neither examinations for discovery nor affidavits of documents exist in the FSCO system, the case is not directly applicable. However, general statements in that decision are pertinent. Master Dash states in Mamaca that:

even after there is a reasonable contemplation of litigation, an insurer who continues to investigate and assess the plaintiff’s claim for accident benefits may be bound to continue to produce its internal claims documents unless it can establish that they were created for the dominant purpose of that litigation as opposed to claims assessment.

Litigation, however, must be more than a suspicion; there must be a reasonable prospect of litigation. Master Dash continues:

It is however not sufficient to establish litigation privilege that documents be prepared or actions be taken at a time when litigation is reasonably contemplated. The documents for which litigation privilege is claimed must also have been prepared for the dominant purpose of that contemplated litigation, that is for assistance in preparation for or conduct of that litigation . . . There is a distinction between the creation of a document for the dominant purpose of investigation and claim determination as opposed to creation of the document for the dominant purpose of anticipated litigation. After determining that there is “a real prospect of litigation reasonably supported by the evidence ... the question then is whether the dominant purpose of the documents in question was to investigate the accident and the claim or to assist the defendant in the contemplated litigation.” . . . It would not be sufficient to establish that the ongoing investigation and resulting documents were for the dual purpose of claims assessment and anticipated litigation. The dominant purpose must be to assist in the anticipated litigation.

Master Dash further states that the “onus is on the party claiming litigation privilege to lay an evidentiary foundation for that privilege.” He concludes:

Simply because benefits are denied, it does not necessarily follow that litigation will be reasonably contemplated, or even if contemplated, that any ongoing investigation and document creation was for the dominant purpose of that litigation, particularly when the insurer continues to assess the claim after a denial. It will depend on the circumstances of each case and the evidence provided by the insurer.

In this case, Allstate submits that there is no affidavit material from the Applicant for me “to determine what the relevant facts are in this particular situation to establish with certainty a date in which litigation privilege or solicitor client privilege may apply.” Allstate does not appreciate that the onus is on the party seeking to establish privilege or seeking to vary the Commission’s general approach regarding production.

Allstate also submits that litigation privilege arises when a benefits claim is denied, as “the matter is adversarial at that point and litigation is reasonably anticipated.” Allstate denied benefits by letter dated February 5, 2005. It submits that “litigation was contemplated with that letter,” and that every document created thereafter is protected under litigation privilege.

I do not agree. Allstate has provided no basis for determining that the “dominant” purpose of all documents, or any documents, created after February 5, 2005 within the first-party adjusting file was litigation rather than the continuing investigation and assessment of this claim. Accordingly, I am not persuaded that a litigation privilege basis has been established by the Insurer to restrict the general approach to production of the Insurer’s adjusting file.

Allstate asks that it be given a further opportunity, by viva voce evidence or by affidavit evidence, to respond in proper evidentiary fashion and, hence, requires a hearing on this preliminary issue regarding production of its file.

Production of the insurer’s adjusting file is a common production request at the Commission. Case law in this regard is long standing. The arbitration pre-hearing is a key, multi-purpose opportunity for dispute resolution. It is a combined pre-trial conference, informal oral discovery process, unofficial neutral evaluation, settlement conference and assignment, motions and case management court. One of the purposes of the pre-hearing discussion, as set out in Rule 33 of the Code, is to decide any disputes relating to the identification and exchange of documents. A common, if not routine, production request is that of the insurer’s internal file. Parties should come to the pre-hearing ready to address this issue.

Allstate was given written notice by the Commission that one of the purposes of the pre-hearing discussion was to address production exchange. Allstate was further given notice that the Commission required the participation of both parties at the conference, as well as counsel, and in this regard, a representative of Allstate attended the pre-hearing discussion.

The Applicant, while seeking production of the surveillance tapes, did not specifically request, in her Application for Arbitration, production of the Insurer’s file. That would have been in accordance with the Code and in the spirit of identifying production disputes prior to the pre-hearing discussion. The Insurer, however, in its Response, merely requested “updated medical records.” Notwithstanding that, there was no objection nor did I have any difficulty in addressing the Insurer’s request for production of the Applicant’s welfare file, and ordering production of part of same.

I am not persuaded that a further opportunity for the Insurer to present its evidence is reasonably or fairly required. In addition, it would set a poor precedent that any production request raised at a pre-hearing discussion would be entitled to a resumed motion date, which would undermine the efficacy of this dispute resolution alternative.

4. Combined First-Party / Third-Party Files

Allstate submits that, with the consent of the Applicant’s counsel, prior to June 2005 the accident benefits file and the tort file were adjusted by the same adjuster, and that nothing should be ordered produced prior to that date.

In my view, information properly contained within a separate tort file should not be produced on the basis of litigation privilege and on the further basis that the prejudice to the insurer would, in my view, be greater than the reasonableness of production.

Allstate submits that in June 2005 the “files” (in the plural) were “split.” There is no submission that any part of the tort file was at any time in the first-party file, or if so, remains in the first- party file. However, out of an abundance of caution, in addition to my order being restricted to documentation in Allstate’s first-party adjusting file, if any information regarding the tort claim was left in the no-fault file, Allstate shall, within ten days of this decision, provide me with copies of all documents it says are related to the tort file, highlighting the portions which it submits should not be produced, with reasons. I shall then determine which documents are to be produced.

5. Reserves

As noted above, Master Dash commented in Mamaca that:

Information about setting a reserve is not relevant to the insurer’s conduct in assessing and responding to the claim absent rare and exceptional circumstances.

Allstate submits that information in its file regarding reserve information is irrelevant and that there is no evidence that there are “rare and exceptional circumstances” permitting their disclosure.

However, Master Dash further states in Mamaca that:

In my view however the fact that the insurer acknowledges that it will be responsible for IRBS [income replacement benefits] or that an IRB reserve is inadequate, while connected with the setting of reserves, is relevant to the manner in which the insured assessed the claim and treated their insured in light of such acknowledgement.

Master Dash proceeds through a line-by-line analysis of what should or should not be disclosed from the adjuster’s notes. Hence, it is accepted that even within the general analysis, that information regarding reserves may be relevant regarding the insurer’s investigation and assessment of a claim.

In his earlier decision in Contos v. Kingsway General Insurance Co. 2001 CanLII 62787 (ON SC), [2001] O.J. No. 1327, Master Dash states that he would order production of reserve information “in only the clearest of cases, as it is equivalent to asking a party or its representative what it believes its case is worth.”

In Osborne v. Non-Marine Underwriters, Lloyd’s of London 2003 CanLII 7000 (ON SC), 68 O.R. (3d) 770, Blair R.S.J. held that:

I would be very reluctant to place on a defendant a continuing obligation at law to tell the plaintiff how much it estimates the claim is worth. The plaintiff would be provided with an unfair, and unnecessary, advantage in the lawsuit. At the same time, the ability of the defendant to negotiate a settlement would be impaired because knowledge of the reserve might well create a feeling of entitlement in the plaintiff to a settlement in that amount, whereas the reserve is nothing more than an intelligent estimate of the risk as a whole by the insurer and its solicitor, based upon the facts as known at that time.

With great respect, I find that it is incumbent on insurers to tell their first-party insureds exactly what they may be entitled to regarding their claims for accident benefits, subject to the express exceptions of solicitor-client or litigation privilege. There is, in a law, a legitimate protected zone of privacy regarding communications with counsel. There is also a legitimate protected zone of privacy regarding litigation. There is no protected zone of privacy for adjusting a first-party insurance file.

Master Dash himself states in Mamaca that:

An insurer has a duty to act with utmost good faith towards its insured. It must deal with its insured’s claim fairly both in the manner it investigates and assesses the claim and in its decision whether to pay the claim. This includes an obligation to assess and decide whether to pay a claim in a balanced and reasonable manner . . .

Subsection 32(2) of the Schedule requires that an insurer shall provide information to assist the person in applying for benefits. The Settlement Regulation² requires insurers to provide disclosure notice which shall, not “may,” provide amongst other things a description of the benefits that may be available to the insured person under the Schedule. The combination of these provisions and considerations confirm, as enunciated in the Supreme Court of Canada decision in Smith v. Co‑operators General Insurance Co. 2002 SCC 30, [2002] 2 S.C.R. 129, that:

There is no dispute that one of the main objectives of insurance law is consumer protection, particularly in the field of automobile and home insurance.

In general terms, the approach of the courts is towards disclosure, as set out by the Divisional Court in Ontario (Human Rights Commission) v. Ontario (Board of Inquiry into Northwestern General Hospital) 1994 CanLII 10981 (ON CTGDDC), [1993] O.J. No. 3380, which cited Lord Edmund-Davies in Waugh v. British Railways Board, [1979] 2 All E.R. 1169, at page 1182 that:

And in my judgment we should start from the basis that the public interest is, on balance, best served by ridgedly confining within narrow limits the cases where material relevant to litigation may be lawfully withheld. Justice is better served by candour than by suppression.

If one takes seriously the principles of consumer protection and candour, then one starts with the premise that production from the insurer’s adjusting file advances the goals of the remedial legislation of the Schedule that insured persons should receive in an expeditious and open manner the benefits to which they are entitled.

I am persuaded that reserve information is an intrinsic part of the adjusting file, may include a pertinent adjusting consideration of the merits of a claim, and is prima facie relevant.

There is a legitimate concern that the release of reserve information may, in some cases, lead parties onto irrelevant tangents, just as the release of an insured’s medical and other private documentation has the potential of raising “red herrings” at a proceeding. Hence, it is open to a party to argue that the potential prejudice in a specific case outweighs the need for disclosure. That, however, has not been argued here.

I note that unlike the court system where matters are often before juries, Commission hearings are before arbitrators who have expertise regarding the determination of entitlement and quantum issues arising from the Schedule and in discerning “the wheat from the chaff.” However, before such discerning can take place, the combined wheat and the chaff need to be produced in the pre-hearing process, without prejudice to such evidence being possibly ultimately excluded at the arbitration hearing itself.

In the individual circumstances of this case, I am not persuaded that a basis has been established for amending the general approach to production from the Insurer’s file up to the Application for Mediation, subject to my comments regarding the tort file noted above.

6. Waiving Privilege

The parties provided no submissions as to whether Allstate was waiving privilege when it indicated its intent to call its representative. Accordingly, I am not addressing this question.

EXPENSES:

The legal expenses of this pre-hearing motion are left to the hearing arbitrator.

October 23, 2007

Lawrence Blackman Arbitrator

Date