Allstate Insurance Company of Canada v. Nafiye Rama, 2009 ONFSCDRS 100

Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2009 ONFSCDRS 100

Appeal P07-00033

OFFICE OF THE DIRECTOR OF ARBITRATIONS

ALLSTATE INSURANCE COMPANY OF CANADA Appellant

and

NAFIYE RAMA Respondent

BEFORE: David Evans

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

HEARING DATES: September 16 and December 1, 2008

APPEAL ORDER

Under section 283 of the Insurance Act, R.S.O. 1990, c.I.8, as amended, it is ordered that:

1. Paragraph 1 of the arbitrator’s order dated October 23, 2007, is rescinded and replaced with:

2. Allstate shall produce to Ms. Rama copies of all documents in its first-party adjusting file which were created on or before May 3, 2006, excluding reserves.

3. If the parties are unable to agree about expenses of this appeal, an expense hearing may be arranged in accordance with Rule 79 of the Dispute Resolution Practice Code.

July 16, 2009

David Evans Director’s Delegate Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

Allstate Insurance Company of Canada appeals the pre-hearing arbitrator’s order that it produce copies of all documents in its first-party adjusting file created on or before the commencement of mediation, including particulars of its reserves.

II. BACKGROUND

Ms. Rama was injured in a June 26, 2003 motor vehicle accident and applied for statutory accident benefits under the SABS–1996.¹ This ultimately led to an application for arbitration and a pre-hearing.

The insurer appeals two aspects of the pre-hearing arbitrator’s production order. First, the arbitrator ordered the insurer’s file produced up to the date of application for mediation. Second, the arbitrator ordered that the insurer provide reserve information.²

The arbitrator’s decision regarding reserves was subsequently followed in Qazi and Security National Insurance Co./Monnex Insurance Mgmt. Inc., (FSCO A07-000109, January 8, 2008), which was also appealed. The Qazi and Rama appeals were heard together. Subsequently, the arbitration decision in Uka and Aviva Canada Inc., (FSCO A07-001692, October 31, 2008) was issued. The parties in this case made further submissions about reserves in light of Uka.

It is for this reason that I am releasing all three decisions at the same time. In the following section, I will set out the law regarding reserves, which is repeated in all the decisions, and then deal with any particulars of the case.

III. ANALYSIS

(a) Law Regarding Reserves

The position taken by the arbitrators in the cases under appeal is that reserve information is relevant regarding the insurer’s investigation and assessment of a claim and therefore should be produced. Indeed, in Uka, the arbitrator applied a very broad test of relevance, namely whether there was a reasonable possibility of the relevance of the reserve information, which she found was met when the insured offered a plausible argument for their relevance.

The decisions then held that there is no “zone of privacy” in a first-party insurer’s file, so there was no reason to withhold relevant information. Furthermore, the arbitrators indicated that consumer protection suggested that the reserves should be provided. In Rama, the arbitrator went as far as stating that this principle meant the provisions of the SABS actually require disclosure of reserves.

However, arbitrators have also found otherwise.³ For instance, arbitrators have held that reserves can confuse applicants while not expediting their receipt of benefits. In Ouimet and Wawanesa Mutual Insurance Company, (FSCO A05-001491, May 11, 2006), the arbitrator concluded that “Reserves are estimated amounts assigned by an insurer to account for the total possible future payout of a person’s claims arising from an accident” and that “evidence about total claims serves little to advance an insured person’s claim for the specific benefits, while offering potential to sidetrack the disability or treatment issues.”

The courts have generally taken the same position as set out in Ouimet. For instance, most of the decision in Osborne v. Non-Marine Underwriters, Lloyd’s of London (2003), 2003 CanLII 7000, 68 O.R. (3d) 770, (ON S.C.) is devoted to the essential immateriality of reserve information. The court agreed with observations that “the setting of reserves per se does not have a semblance of relevance.”⁴ In Mamaca (Litigation Guardian of) v. Coseco Insurance Co., 2007 CanLII 9890 (ON SC), [2007] O.J. No. 1190, Master Dash commented that “absent rare and exceptional circumstances” information about setting a reserve is not relevant to an insurer’s conduct in assessing and responding to the claim. MacDonald J. stated in the subsequent appeal decision Mamaca (Litigation Guardian of) v. Coseco Insurance Co., 2007 CanLII 54963 (ON SC), [2007] O.J. No. 4899, that “while the Master held that litigation privilege does not apply to documents described as addressing the appellant’s reserve position, the Master permitted the appellant to delete references to its reserve figures. The Master clearly was correct in this regard.”

I see no reason why arbitral case law should differ from the courts in this area.

I find that providing irrelevant information to an insured does not serve the purpose of consumer protection, or that the provisions of the SABS require their production. Blair R.S.J. in Osborne stated that a plaintiff would have an unfair advantage in knowing how much an insurer estimates a claim is worth and might have a feeling of entitlement to a settlement in that amount, especially since the reserve is nothing more than an intelligent estimate of the risk as a whole. As I see it, the court was concerned whether an insured would be confused into thinking that the amount of the reserves equal the amount of the benefits payable.

The arbitrator in Qazi relied on Whiten v. Pilot Insurance Co., [2002] 1 S.C.R. 595, 2002 SCC 18, for the proposition that the insurer’s duty of good faith outweighed the same concerns about unreasonable expectations and negotiation advantages. However, I agree with the comment in Osborne that none of the factors set out in Whiten for ordering production “mandates the production, or suggests the relevance, of information relating to the setting of reserves” [par. 17].

I am not persuaded that there is no “zone of privacy” with respect to the first-party insurer’s file. As stated in Allstate Insurance Company of Canada and Al-Obaidi, (FSCO P99-00009, May 2, 2000), the relevance of the production request must be weighed against considerations like the sensitivity of the information, the practicalities of compliance and the timing of the request. As noted in Griscti and Non-Marine Underwriters, Mbrs. of Lloyd’s, (FSCO A01-000471, October 5, 2001), “reserve information is confidential and should generally be protected from disclosure to promote settlement and business efficiency.” And MacDonald J’s comment in Mamaca that the Master “clearly was correct” to allow the deletion of the reserve figures necessarily implies a zone of privacy.

In conclusion, the courts have stated that, except in rare and exceptional circumstances, reserves should not be required to be disclosed. Such circumstances might arise where the setting of a reserve actually had an impact on the adjusting of a file, not, as in the cases under review, where the adjusting of the file allegedly had an impact on the setting of the reserves. I am not persuaded that production of the reserves under the guise of consumer protection serves any useful purpose. I am also not persuaded that arbitral jurisprudence should be different from that of the courts regarding the production of reserve information. Accordingly, I find that the arbitrator erred in law and the order cannot stand.

(b) Issues specific to this case

The other issue under appeal in this case is the arbitrator’s order that the insurer’s file should be produced up to the date of the application for mediation, repeating his position set out in Campeau and Liberty Mutual Insurance Company, (FSCO A00-000522, March 12, 2001).

The arbitrator did not accept the insurer’s submission that litigation privilege attached before the date of application for mediation. The arbitrator quoted Master Dash’s comment in the first Mamaca decision that in a bad faith claim “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” to support the general relevance of the insurer’s file, especially in special award claims. As to litigation privilege, which the insurer claimed started prior to the date of application for mediation on May 3, 2006, the arbitrator also cited Master Dash with respect to the “dominant purpose” test. He found that Allstate had provided no basis for determining that the dominant purpose for documents created before May 3, 2006 was litigation rather than the continuing investigation and assessment of this claim, so he ordered production up to then.

I note that in MacDonald J.’s appeal decision in Mamaca, the court upheld the Master while finding legal errors in the summary of the law with regard to litigation privilege. For instance, the court found that the Master erred in proposing that in a bad faith claim the plaintiff’s need to know trumps litigation privilege because “Litigation privilege, when properly asserted, will shield an insurer’s claims file from disclosure despite the fact that the documents therein are highly relevant to the plaintiff's bad faith claim.” With respect to the dominant purpose test of determining whether litigation privilege attaches to documents, the court found that the Master erred in assuming that investigation of the accident and claim cannot also be for the purpose of assisting in contemplated litigation: duality of purpose does not mean that litigation privilege cannot exist.

MacDonald J. set out a one- or two-step approach for determining whether litigation privilege attaches, depending on the circumstances. The one-step approach applies if there is only one issue in dispute, so once the party asserting litigation privilege establishes when litigation was reasonably anticipated, it would be reasonable “to infer that all documents prepared after that in relation to the one issue are subject to litigation privilege.” However, the two-step approach applies where “there may be numerous issues between parties with only one of those issues being the subject of a reasonable apprehension that it will be litigated,” so that the party seeking the privilege, even after establishing the date litigation was anticipated, bears the burden in the second step of showing that each document was prepared for the dominant purpose of the anticipated litigation.⁵

The arbitrator’s decision that litigation privilege did not attach prior to the application for mediation is consistent with the two-step approach outlined above, in this sense: even if litigation privilege attached at an earlier point, he was not persuaded that the insurer had made a case that the documents in question had litigation as the dominant purpose. This was a finding that was his to make and I have no basis to intervene.

Accordingly this portion of the appeal is denied.

The arbitrator’s order will therefore be amended by adding a provision that Allstate is not required to disclose entries related to reserve information.

IV. EXPENSES

If the parties are unable to agree about expenses of this appeal, an expense hearing may be arranged in accordance with Rule 79 of the Dispute Resolution Practice Code.

July 16, 2009

David Evans Director’s Delegate Date

Footnotes

1. 1The Statutory Accident Benefits Schedule — Accidents on or after November 1, 1996, Ontario Regulation 403/96, as amended.
2. 2These orders were made subject to information regarding the separate tort claim.
3. 3For instance, in Ghaedsharagy and Kingsway General Insurance Company, (FSCO A07‑001061, February 12, 2008), the arbitrator ordered production of all adjuster’s log notes to the date of the last Application for Mediation, but nonetheless held that the insurer “need not disclose entries related to reserve information.” In other cases, the parties simply agreed that notes or letters regarding reserves need not be produced: Allstate Insurance Company of Canada and Al-Obaidi, (FSCO P99-00009, May 2, 2000); Levin and Security National Insurance Co./Monnex Insurance Mgmt. Inc., (FSCO A06-000257, September 8, 2006); Mizzi and York Fire & Casualty Insurance Company, (FSCO A01-000176, November 9, 2001); and Niklis and Wawanesa Mutual Insurance Company, (FSCO A04-000822, April 24, 2006).
4. 4From Rex v. General Accident Assurance Co. of Canada, 2001 CanLII 62792 (ON SC), [2001] O.J. No. 348.
5. 5The subsequent Divisional Court decision denying leave to appeal, Mamaca v. Coseco Insurance Company, 2008 CanLII 30312, approved MacDonald J.’s reasons and added that “Even where there is only one dispute between the parties it is not in every case fair to presume that all subsequently prepared documents are covered by the assertion of litigation privilege.”