Neutral Citation: 2018 ONFSCDRS 123 FSCO A13-007811

BETWEEN:

SRDAN JEZIC Applicant

and

UNIFUND ASSURANCE COMPANY Insurer

DECISION ON A PRELIMINARY ISSUE MOTION

Before: Alan Mervin Heard: October 12 and 13, 2017, at the offices of the Financial Services Commission of Ontario in Toronto, Written submissions were received on November 27, 2017 from Unifund: January 22, 2018, response from Mr. Jezic and March 1, 2018, reply from Unifund.

Appearances: Adam Romaine for Mr. Jezic Meredith Harper for Unifund Assurance Company

Issues:

The Applicant, Srdan Jezic, was injured in a motor vehicle accident on October 26, 2006. He applied for statutory accident benefits from Unifund Assurance Company (“Unifund”), payable under the Schedule.¹ The parties were unable to resolve their disputes through mediation, and Mr. Jezic applied for arbitration at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c.I.8, as amended.

ISSUES:

The preliminary issue is:

Is the purported settlement of the issue in dispute in this arbitration enforceable despite the unilateral alteration of the settlement documents by Mr. Jezic?

The issues on this motion are:

Did Unifund waive privilege over the package of documentation, containing its internal file, that its witness brought in aid of her testimony and which she referred to in her examination in chief?
Should Unifund be compelled to produce its entire internal file, containing documents relating to the communications that its witness testified about?

Result:

The issue of whether the settlement between the parties is enforceable will be dealt with in a later decision following the completion of the preliminary issue hearing.
Unifund did not waive privilege over the package of documentation that its witness brought to the stand, in aid of her testimony and to which she referred in her examination in chief.
Unifund does not have to produce its internal file, except for the documents it has agreed to produce.

EVIDENCE AND ANALYSIS:

1. Background:

The single issue in dispute in this arbitration initially was whether the Applicant was entitled to payment for a treatment plan for psychological treatment, which the Applicant claimed was necessary as a result of the accident on October 26, 2006. The amount requested was $3,548.40.

The parties were unable to resolve this issue at mediation, and on June 19, 2013, FSCO received an Application for Arbitration with respect to this issue. An arbitration hearing was scheduled to commence on February 4, 2015

On February 2, 2015, Counsel for Unifund wrote to counsel for the Applicant to confirm that the issue in dispute had settled for $3,000.00, and that the arbitration was no longer necessary. As a result, the hearing did not proceed.

Settlement documents, including the Settlement Disclosure Notice (SDN) and a Partial Release, were forwarded to the Applicant by the Insurer, and executed by the Applicant.

However, the Applicant had unilaterally altered the Partial Release in the following manner:

On the first page of the release, last paragraph, the portion of the clause which read, “…. and from all demands, claims, actions, cause of action, litigation, mediations and arbitrations against the Insurer and /or employees of the Insurer for punitive, aggravated or exemplary damages .”, was struck out by the Applicant.

On the second page of the release, the portion of the clause in the third last paragraph containing the wording, “…and provided with legal advice concerning the full effect and meaning of this settlement and the execution of the Partial Release and in doing so gives acknowledgement…to the Insurer,” was struck out by the Applicant.

On the third page of the release, the entire last portion, entitled “CERTIFICATE OF INSURER”, was completely struck out.

The release, dated April 13, 2015 was then witnessed and signed by the Applicant, with the above alterations initialled by the Applicant, and returned to the Insurer.²

Upon receipt of the Partial Release, Unifund took issue with the alterations made by the Applicant.

Whether these alterations were material to the validity of the settlement is a question that may be germane with respect to determination of the main issue of this preliminary issue hearing. However, that issue is not a consideration in determining this motion for production of Unifund’s file.

Unifund has taken the position that, since the Applicant altered the release, the settlement was not completed, and should not be enforced. Because of the alterations, Unifund did not pay the funds that they had purportedly agreed to. The funds remain unpaid.

Unifund requested this preliminary issue hearing to determine this issue.

After Unifund took issue with the settlement, the Applicant added a claim for a special award.

The hearing commenced before me on October 12, 2017. At the commencement of the hearing, Ms. Harper, on behalf of Unifund, advised that Unifund was challenging the terms of the settlement, as they were not reflected in Unifund’s Confirmation of Settlement letter, or in the Settlement Disclosure Notice (SDN).

At the hearing, Unifund called Ms. Maggie Avila, Unifund’s Alternative Dispute Resolution consultant, to give oral evidence with respect to her knowledge of the purported settlement. Ms. Avila was responsible for the handling of the file. When questioned in chief, she testified that she did not have personal knowledge of the settlement reached, but had been advised by Defence counsel that the parties had reached an agreement to resolve the issue in dispute for $3,000.00.

During her testimony, Ms. Avila referred to her file, which she had brought with her. The Applicant objected to her use of the file during her testimony, as it had not been produced to the Applicant.

Ms. Avila thumbed through the pile of documents, apparently in order to find the documents which would refresh her memory as to details and enable her to provide answers to the questions asked.

The Applicant objected to the witness’s use of the file during her testimony, on the basis that the documents in question had not been produced to the Applicant.

Unifund submitted that the file was necessary to assist Ms. Avila in answering questions with respect to details of dates, times and certain details contained in the settlement documents.

The Applicant then moved for production of the entire contents of the file, including all internal log notes, emails and telephone notes contained in Unifund’s internal file.

POSITION OF THE PARTIES:

The Applicant:

The Applicant submitted that, by bringing the file to the hearing and referring to it during Ms. Avila’s testimony, Unifund waived privilege over the entire contents of the file, and ought to produce the file to the Applicant. Unifund opposed the production request, asserting that the contents of the file were privileged, and refused to complete the examination of Ms. Avila until a decision was issued on the production motion.

The Applicant has taken the position that, to the extent that there had been any privilege attached to the documentation, Unifund waived privilege, both explicitly in oral evidence, and impliedly by referring to its file during testimony at the hearing. The hearing has now been adjourned sine die, pending receipt of written submissions on the motion and the issuance of a decision.

The Applicant suggests in its written submission that Ms. Harper attempted to resile from her purported oral waiver after a recess was taken during which she had an opportunity to actually review the contents of the file.

The Applicant requests production of the entire file of Unifund, which Ms. Avila referred to during her testimony. There is no issue with respect to production of the file up to the date of the filing of the Application for Mediation, as that has already been produced.

However, the Applicant requests production of the file from that date, to the present, claiming that any privilege which might attach to the documentation has either been expressly or impliedly waived by the Insurer during the hearing.

Alternatively, if that is not found to be the case, the Applicant submits that by bringing the documents to the hearing and referring to them during testimony, Unifund impliedly waived privilege over the package of documentation that was reviewed and referenced during the course of Ms. Avila’s testimony.

The Applicant, in its written submission, suggests that Ms. Avila, by referring to the unproduced documents during her oral testimony has waived privilege on behalf of Unifund over the entire file and must produce the documents, despite the continued objections of Unifund.

The Applicant, in its written submission, submits that in order for litigation privilege to apply, the documentation must be created for the dominant purpose of litigation, with the burden of proof on the party asserting the privilege. The Applicant has submitted that the Insurer offered no evidence establishing that prerequisite to litigation privilege.

The Applicant has further submitted that, after February 2, 2015, the evidence of Unifund was that Unifund believed that the litigation had been concluded, believing the matter was settled, and therefore, the adjuster notes and communications could not have been communicated for the dominant purpose of litigating that settlement.³

The Insurer:

Unifund claimed that the documents were relevant to its examination in chief of the witness. According to the Applicant, Ms. Harper stated that Unifund was “waiving privilege.

At that point in time, it seemed that any such statement made by Ms. Harper was made in order to allow the hearing to proceed without further interruption, so that she could continue her examination of the witness, and so that the witness might be allowed to continue to refresh her memory from the documents.

After a short recess (during which Ms. Harper had an opportunity to actually review the contents of the file), she objected to production of the entire contents.

The Applicant submitted that Unifund subsequently attempted to resile from its purported oral waiver. Unifund submits that the Applicant’s submissions in this respect are “wholly incorrect” and that neither Unifund, nor its lawyer expressly waived privilege, and further submitted that Mr. Romaine, on behalf of the Applicant, agreed to same during the preliminary issue hearing. Unifund claims that the Applicant is misrepresenting this fact in its submissions.⁴

It is unfortunate that there is no transcript to provide clarity as to exactly what was said in this regard.

Unifund submits that litigation privilege attaches to the entire internal file, with the exception of documents that Unifund has agreed to produce. After having reviewed and reorganized the file during a recess at the hearing, Unifund does not claim privilege over those specific documents, which can be found at Tab 2 of the Insurer’s written submissions,⁵ but claims privilege over the rest of the contents of the internal file.

Unifund further submits that the only issue in dispute is whether or not there was a partial settlement, and that the Applicant’s production request is made so as to gain access to privileged information, which Unifund submits has no bearing on the narrow question at issue.

Unifund further submits that the contents of the internal file are subject to solicitor-client privilege, and that the documents in the file were created or communicated in the course of settlement negotiations, and are “settlement privileged.”

Unifund disputes that it either expressly or impliedly waived privilege over the package of documentation at the hearing.

Unifund requested that the preliminary issue hearing be adjourned during the examination of Ms. Avila. Unifund submitted it was necessary to know in advance whether the file would be produced in order to properly prepare for the rest of the examination in chief and cross examination of Ms. Avila, in order to limit the scope of the examination, depending on the outcome of the motion.

THE LAW:

Privilege:

Litigation privilege extends to all documents that are created for the dominant purpose of litigation. In the last few years, it has generally been accepted that production of an insurer’s internal file is producible up to the date of receipt of the Application for Mediation, and in fact, production of the Insurer’s file is routinely made to that point in time.

In Ghaedsharagy v. Kingsway,⁶ Arbitrator Bujold referred to the presumption of a “bright line” in the litigation at that point. If the file has not settled at that point, the litigation will continue, and presumably, the Insurer’s internal file would be essential to the ongoing litigation, and protected by privilege, until the litigation ends.

Solicitor-client privilege is the privilege that exists between a client and his or her lawyer, and has been described as “one of the cornerstones of the justice system”. The party claiming privilege must establish that the communications are communications between lawyer and client, which entails the seeking or giving of legal advice, and which is intended to be confidential by the parties.

It is based on the concept that people must be able to speak “candidly with their lawyers and so enable their interests to be fully represented”⁷ and permanently protects litigants from attack with respect to advice, opinions and communication between a lawyer and insurer. In the absence of express or implied waiver, it does not end when the litigation is completed.

Production of materials, such as documents, or communications or communications between a client seeking legal advice from his or her lawyer are protected by privilege and are not producible in the absence of express or implied consent or waiver.

FINDINGS:

I find that Unifund did not waive privilege over the file referenced at the hearing. While there is a dispute among the parties over what exactly was said by Ms. Harper at the hearing with regard to waiver, in the absence of a transcript, it is difficult to determine the extent of any purported waiver made at the hearing.

As referenced in Ghaedsharagy, above, Arbitrator Bujold referred to a “bright line”, after the Application for Mediation. The receipt of the Application for Mediation by an insurer assumes that from that point onwards, the matter will be litigated until such time as a resolution is reached. From that point on, it is presumed that the documents in the insurer’s file were created with the dominant purpose of litigation.

The Applicant submitted that the Insurer has not provided proof or satisfied the requisite pre-conditions for privilege to apply to the file. It is well settled law that after the first Application for Mediation is received by an Insurer, there is a presumption that litigation privilege applies to the Insurer’s internal file. While that presumption can be overcome by evidence from the party challenging privilege, in my view, the Insurer is entitled to rely on the presumption to satisfy its onus.

I do not agree with the Applicant’s submission that since Unifund believed that the matter was concluded on February 2, 2015, the documents prepared after that time would not be covered by litigation privilege. In fact, it is clear that the litigation was not concluded at that time. The purpose of this preliminary issue hearing is to determine whether or not an enforceable settlement was reached.

As soon as Unifund received the altered settlement documents, it took the position that there was no enforceable settlement.

Until a decision is rendered on the preliminary issue, I find that the litigation is ongoing, and the file continues to be protected by litigation privilege until a resolution is reached and the litigation ends.

Ms. Avila brought her file to the hearing to assist her when testifying. She thumbed through the documents during her testimony to refresh her memory as to dates, and other details when being questioned, in order to accurately answer the questions she was being asked.

She did not specify which documents she was referring to, nor did Ms. Harper appear to be familiar with the entire contents of Ms. Avila’s file. When the Applicant objected to Ms. Avila’s use of the file, and demanded production of its contents, Unifund requested a short recess,

During the recess, Ms. Harper reviewed the file, re-organized the documents, and then produced a list of documents which she agreed to produce, while refusing production of the remaining documents on the basis of privilege.

In the case of Linn,⁸ it was found that privilege was waived after the witness refreshed his memory from a memorandum he prepared specifically for the purposed of examination for discovery.

The court found that the memorandum was prepared for the express purpose of assisting the witness with the examination for discovery.

The court commented that, “the defendant would be hard pressed to argue the notes were prepared with the expectation that they would be confidential”. The Applicant has relied on this case in support of his argument.

Unifund submits that Linn is distinguishable, as none of the Unifund file was prepared for the purpose of assisting Maggie Avila in her examination at the preliminary issue hearing. I agree.

Referring to documents so that one could answer questions as to details, in my view, does not amount to an implied waiver of any privilege that might other wise attach to the contents of the file.

Ms. Harper broadly stated that she was waiving privilege (which she denies in her submission), before she had reviewed the file and familiarized herself with the documents in it. Such a statement would not amount to an express waiver of privilege over the entire contents when it appears that the person making the waiver is not entirely familiar with the documents within it.

In requesting the recess to review the file with Ms. Avila, Ms. Harper had an opportunity to re-examine the file. After her review, she was able to determine and satisfy herself as to which of the documents in the file were protected by privilege and she was able to identify the documents she agreed to produce.

The documents in the file which might be protected by privilege had clearly not been identified in advance by Ms. Harper, nor had they been identified to the Tribunal. Perhaps she did not anticipate the Applicant’s objections.

It would appear that Unifund was not in a position to waive privilege over the specific documentation contained in the internal file, and any oral “blanket” waiver which may have been made at the hearing in my view, does not amount to an express waiver of the entire contents of a file.

I find that, after the recess and reorganization of the file, Ms. Harper expressly waived privilege over the documents on the list she prepared. She claimed privilege over the balance of the file.

The party claiming the privilege must be aware of the contents in order to determine which documents in the file are privileged communications and which are not.

I find that Ms. Harper did not attempt to resile from her earlier statement. Instead, she attempted to clarify her position. I find that there has been no express waiver of privilege over the file with the exception of the documents that the Insurer has agreed to produce.

I further find that, as the single issue in this preliminary issue hearing is whether or not a settlement was completed, an order for production of the entire Insurer’s file, the contents of which may or may not be relevant to that issue, would be prejudicial to the Insurer.

SPECIAL AWARD

Special awards are authorized under s. 282(10) of the Insurance Act, which states as follows:

(10) If the arbitrator finds that an insurer has unreasonably withheld or delayed payments, the arbitrator, in addition to awarding the benefits and interest to which an insured person is entitled under the Statutory Accident Benefits Schedule , shall award a lump sum of up to 50 per cent of the amount to which the person was entitled at the time of the award together with interest on all amounts then owing to the insured (including unpaid interest) at the rate of 2 per cent per month, compounded monthly, from the time benefits first became payable under the Schedule.

The purpose of this preliminary issue hearing is to determine whether there was a valid and enforceable settlement. If the settlement is found to be valid and enforceable, then the file will be closed, and there can be no special award added after the fact. If the settlement is found to be invalid, and the matter goes ahead, then the issue of a special award becomes relevant. In my view, it is premature to add it at this time, as it has not been determined if there are benefits owing. What is at issue is the payment of settlement funds.

Should the matter proceed to arbitration, and the purported settlement is found to be invalid, a further pre-hearing will be necessary to deal with procedural issues, including setting dates for the main hearing. At that time, or at the commencement of the hearing, the Applicant may ask the Arbitrator that it be added. However, I find that a claim for a special award is premature at this time.

EXPENSES:

The issue of expenses on this motion are reserved until the completion of this preliminary issue hearing.

June 29, 2018

Alan Mervin Arbitrator

Financial Services Commission of Ontario