Financial Services Commission des

Commission services financiers

of Ontario de l’Ontario

Neutral Citation: 2010 ONFSCDRS 93

FSCO A09-002295

BETWEEN:

SRISELVARANY VAITHEESWARAN

Applicant

and

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY

Insurer

Before: Maggy Murray

Written submissions completed May 15, 2010

Counsel: Alexander Voudouris for Mrs. Vaitheeswaran

Joanna Cox for State Farm Mutual Automobile Insurance Company

The Applicant, Sriselvarany Vaitheeswaran, was injured in a motor vehicle accident on October 19, 2007. She applied for and received statutory accident benefits from State Farm Mutual Automobile Insurance Company (“State Farm”), payable under the Schedule.¹

State Farm terminated the Applicant’s housekeeping benefits. The parties were unable to resolve their disputes through mediation, and Mrs. Vaitheeswaran applied for arbitration at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c.I.8, as amended.

Issues at the Hearing:

At the pre-hearing conducted December 23, 2009, the issues in dispute that were identified and agreed to were: (1) Whether Mrs. Vaitheeswaran is entitled to receive a housekeeping and home maintenance benefit pursuant to s.22 of the Schedule? (2) Whether State Farm is liable to pay a special award pursuant to s.282(10) of the Schedule because it unreasonably withheld or delayed payments to Mrs. Vaitheeswaran? (3) Whether either party is entitled to its expenses pursuant to s. 282(11) of the Insurance Act? (4) Whether Mrs. Vaitheeswaran is entitled to interest for the overdue payment of benefits pursuant to s.46(2) of the Schedule?

The Applicant also raised a preliminary issue that State Farm failed to comply with s.37 of the Schedule when terminating the Applicant’s housekeeping benefits. The parties agreed that they would wait until the appeal decision in Yogesvaran and State Farm Mutual Automobile Insurance Company (FSCO A08-001142, November 26, 2009) is released before proceeding with this preliminary issue as Yogesvaran may decide the issue.

Issue on this Motion:

The issue is:

Is the Insurer required to produce to the Applicant its file beyond the date of the Application for Mediation?

Result:

Litigation privilege attached to the Insurer’s file on the day the Insurer received FSCO’s letter notifying it of the Application for Mediation. Based on its agreement, the Insurer must produce to the Applicant a copy of its file from the date of loss to the date of the Application for Mediation, subject to any claims for privilege. In addition, the Insurer must produce to the Applicant, subject to any privilege, its file for the period from the date of the Application for Mediation to the date it received FSCO’s letter notifying it of the Application for Mediation. The parties agreed that the Insurer may redact reserve information.

Background:

The Applicant seeks the Insurer’s entire file up to the date of the Arbitration subject to any claims for privilege. In my pre-hearing letter dated December 23, 2009, I stated: “The Applicant advised that she was not seeking reserve information. The insurer agreed to produce its file up to the date of the Application for Mediation.”²

The Insurer, in its written submissions, stated: “The insurer has agreed to produce its file ... only in relation to Housekeeping and Home Maintenance Benefits, up to the date of the Application for Mediation (emphasis added)”³ on the basis that file documents relating to benefits other than housekeeping and home maintenance benefits are not relevant to the arbitration proceeding and therefore not producible.⁴

This is not consistent with my recollection or my pre-hearing letter. The Insurer did not advise me in a timely manner, or prior to its submissions on this issue, which were received at FSCO April 15, 2010, that it was of the opinion that my pre-hearing letter of December 23, 2009 incorrectly referred to the Insurer agreeing to produce its file up to the date of the Application for Mediation, rather than the Insurer agreeing to produce its file “only in relation to Housekeeping and Home Maintenance Benefits.”

Because the Insurer agreed at the pre-hearing to produce its entire file up to the date of the Application for Mediation, it must abide by its agreement. Therefore, the Insurer must produce its entire file up to the Application for Mediation, subject to any claims for privilege and redacting reserve information.

The issue remaining is whether the Insurer must produce to the Applicant its file beyond the date of the Application for Mediation: (a) as it relates to housekeeping and home maintenance benefits; or (b) its entire file. For the reasons below, I find that it is production of the Insurer’s entire file that is relevant.

Rule 32.3 of the Dispute Resolution Practice Code – Fourth Edition (“the Code”) states:

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.

If an Applicant demonstrates “a reasonable possibility that a document in an insurer’s file is relevant to the issues at arbitration, that is sufficient to allow an arbitrator to order production of the document, subject to any claim for privilege.”⁵

Although it is the Applicant’s entitlement to housekeeping and home maintenance benefits that is in issue in the arbitration hearing, other entries in the Insurer’s file may be relevant to the Applicant’s overall medical condition. Moreover, if the Insurer had to separate and produce only material relevant to the Applicant’s housekeeping and home maintenance claim, that would be time consuming, which is contrary to FSCO’s stated purpose in Rule 1.1 of the Code, which is to produce the quickest and least expensive resolution of dispute. In addition, “such an approach is consistent with the practice of the Commission in routinely ordering full production of the medical records of applicants, up to one year prior to the motor vehicle accident, without the necessity to demonstrate the relevance of each and every document contained in the record.”⁶

The parties filed written submissions on this issue of privilege. However, neither filed any evidence in support of this motion and the issue is therefore a legal determination.

Submissions:

Applicant’s Position:

The Applicant submits, amongst other things, that: (a) an Application for Mediation does not trigger a claim for litigation privilege and a mediation at FSCO is an attempt to resolve disputes and not necessarily a procedure taken in anticipation of litigation; and (b) the Divisional Court decision in Mamaca (Litigation Guardian of) v. Coseco Insurance Company⁷ has resolved this issue and is binding upon me.

Insurer’s Position:

The Insurer asserts litigation privilege over its file from the date of the Application for Mediation and in the alternative, on the date of the failed FSCO mediation.

Law With Respect to Litigation Privilege:

“Litigation privilege is based upon the need for a protected area to facilitate investigation and preparation of a case for trial by the adversarial advocate.”⁸ The onus of establishing that documents are privileged is on the party asserting litigation privilege.⁹ That is, “he who asserts must prove.”¹⁰ “Litigation privilege attach(s) to communications … so long as such litigation was contemplated.”¹¹

The dividing line for production of documents from an insurer’s file is generally the filing of the Application for Mediation.¹² This is known as the “bright line” that “reflects a presumption, which is rebuttable, that after that date (the Insurer’s) focus might reasonably shift to preparing for litigation.”¹³

Either a one-step or a two-step approach to determining litigation privilege arises, depending on the case. The one-step approach applies if there is only one issue in dispute or if all the benefits claimed are in dispute. Therefore, the party asserting litigation privilege must establish when litigation was reasonably anticipated, after which point all documents prepared in relation to the one issue are subject to litigation privilege.¹⁴

The two-step approach applies where there are numerous benefit claims between the parties “with only one of those issues being the subject of a reasonable apprehension that it will be litigated so that the party seeking to assert 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.”¹⁵

ANALYSIS:

The Applicant seeks the Insurer’s file up to the date of the Arbitration.¹⁶

In M.S. and ACE INA Insurance¹⁷, it was determined that the date of the mediation triggered litigation privilege. In Mamaca, which is a case the Applicant is relying upon, the date the Statement of Claim¹⁸ was served triggered litigation privilege.¹⁹ I find that litigation privilege would attach to the Insurer’s file at the latest upon receipt by the Insurer of the Application for Arbitration since litigation is not just anticipated at that point but has in fact occurred. That is, receipt of an Application for Arbitration would trigger the dominant purpose of documents creation from claims adjusting to litigation, if that hasn’t already occurred.

Therefore, the crux of the issue is whether the Applicant is entitled to the Insurer’s file between the date of the Application for Mediation and up to the date that the Insurer received the Application for Arbitration.

I have no evidence from either party regarding accident benefits that the Applicant is receiving. However, the Insurer submits that the Applicant is receiving accident benefits²⁰ and the Applicant does not dispute that.

I find that the Insurer did not anticipate litigation until it received notice that the Applicant applied for mediation, likely in January 2009. The date stamp on the Application for Mediation²¹ indicates that FSCO received it on October 6, 2008. By letter dated January 2, 2009,²² FSCO notified the Insurer: (a) of the Application for Mediation; and (b) that the Applicant is represented by David Wilson, Barrister and Solicitor. It appears to have taken FSCO almost three months to notify the Insurer of this Application for Mediation, which is contrary to s.280(3) of the Insurance Act, R.S.O. 1990, c. I.8, which states: “The Director shall ensure that a mediator is appointed promptly (emphasis added).”²³ None of the aforementioned letters are in evidence however.

Although previous FSCO arbitrators have determined that privilege commences on the date of the Application for Mediation,²⁴ in this case, there appears to be a significant delay between the date of the Application for Mediation and the date of FSCO’s letter notifying the Applicant of the Application for Mediation. Because mediation is a statutory pre-condition to commencing litigation or arbitration,²⁵ “a dispute is no longer hypothetical.”²⁶ Using the two-step approach, I find that the Insurer’s file is privileged from the date the Insurer received FSCO’s letter notifying it of the Application for Mediation.²⁷ Based on the first step, it is at that point that the Insurer would be aware that the Applicant had taken a step towards commencing litigation or arbitration. Based on the second step, following receipt of an Application for Mediation, documents in the Insurer’s file, relating to the benefit in dispute, are created for the dual purpose of settlement and defence/litigation. Although documents may have a dual purpose, that does not prevent them from having a dominant purpose and subject to litigation privilege.²⁸

The Applicant submits that according to Mamaca, a two-step approach to litigation privilege in Ontario always applies.²⁹ Mamaca does not stand for that proposition. In fact, Mamaca states: “The Master or Judge who decides a litigation privilege claim has the discretion to follow either a one step or a two step procedure, depending on the circumstances of the case.”³⁰

I find that Mamaca is distinguishable from this case for the following reasons:

First, the Master in Mamaca³¹ determined that although mediation is a statutory pre-condition to commencing litigation, it is not necessarily a procedure taken in contemplation of litigation. I am not bound by a Master. I find, as have other FSCO arbitrators, that it is because mediation is a necessary step prior to litigation or arbitration that it is taken in contemplation of litigation.³²

Arbitrators generally do not order production of an Insurer’s file beyond the date of the Application for Mediation because the nature of the notes change on the day that the Insurer receives an Application for Mediation. Before an Application for Mediation, an Insurer generally makes notes for the purpose of investigating and adjusting of the claim. After receipt of an Application for Mediation, an Insurer makes notes for the dual purpose of settlement and defence/litigation should the mediation fail.

Second, I am bound to follow a decision of the Divisional Court unless it is distinguishable. However, the issue of whether litigation privilege attaches at the date of the Application for Mediation was not addressed in either of the subsequent Mamaca decisions by MacDonald J. or Pitt J. Therefore, the Divisional Court decision in Mamaca is not binding upon me.

Third, it does not advance FSCO’s “streamlined process to introduce court … procedures into a system which is meant to be accessible, fast and cost efficient … a broader stroke approach is appropriate … that dividing line, ordinarily at FSCO is the date of the Application for Mediation.”³³

The Applicant has not demonstrated that a broader scope of production beyond receipt of FSCO’s letter notifying the Insurer of the Application for Mediation is appropriate. Consequently, the Applicant’s request for production of documents to the date of the arbitration is denied.

CONCLUSION:

Litigation privilege attached to the Insurer’s file on the day the Insurer received FSCO’s letter notifying it of the Application for Mediation. Based on its agreement, the Insurer must produce to the Applicant a copy of its file from the date of loss to the date of the Application for Mediation, subject to any claims for privilege. In addition, the Insurer must produce to the Applicant, subject to any privilege, its file for the period from the date of the Application for Mediation to the date it received FSCO’s letter notifying it of the Application for Mediation. The parties agreed that the Insurer may redact reserve information.

EXPENSES:

If the parties are unable to agree on the expenses of this motion, an expense hearing may be arranged in accordance with Rule 79 of the Dispute Resolution Practice Code – Fourth Edition.

July 26, 2010

Maggy Murray Arbitrator

Date