Court File and Parties

COURT FILE NO.: 12-54382 DATE: August 11, 2016 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: MIRNA ASCANI Plaintiff/Moving Party AND MARIO ENRIQUE ASCANI AND SANDRA BALES Defendants/Responding Party

BEFORE: MASTER CHAMPAGNE

COUNSEL: Jaime Wilson on behalf of Paul Auerbach, for the Plaintiff Stanford Cummings on behalf of Michael Switzer, for the Defendants

HEARD: July 12, 2016

Endorsement

[1] This motion, brought by the plaintiff to remove Michael Switzer as lawyer of record for the defendant Mario Ascani’s insurer, State Farm Insurance, deals with the problematic issue of the representation of State Farm by the same law firm, in both a tort action and an accident benefits arbitration.

Background

[2] The plaintiff was a passenger in a vehicle involved in two accidents in which the plaintiff’s husband, defendant Mario Ascani (“Ascani”), was the driver. The accidents occurred in May and June 2010. At all times the plaintiff was an insured person under Ascani’s State Farm automobile insurance policy.

[3] The plaintiff was injured in the accidents and applied to State Farm for statutory accident benefits. It is not clear from the evidence whether she applied following the accident in May 2010, June 2010, or both. For the purposes of this motion, it does not matter. Two years later, in May 2012, the plaintiff also started a tort action against the defendants, one of whom was Ascani. State Farm retained Michael Switzer of Flaherty McCarthy to represent it on the tort action against Ascani.

[4] A significant dispute arose between the plaintiff and State Farm with respect to her accident benefits for attendant care. The plaintiff’s counsel, Paul Auerbach, arranged for an application for arbitration to be filed on March 5, 2015, to deal with the dispute. State Farm sent a retainer request to Michael Switzer for representation on the arbitration. By letter dated May 1, 2015, a letter to Paul Auerbach signed by a paralegal on Michael Switzer’s behalf, advised that he had been retained to act on the accident benefits arbitration. Included with that letter was State Farm’s response to the application for arbitration.

[5] Mr. Switzer recognized that he had a conflict and had the retainer request and application on the accident benefits arbitration file sent to Todd McCarthy at the Whitby Office. Mr. McCarthy had the accident benefits arbitration file for about 10 months then it was transferred to the law firm of Miller Thomson.

[6] The plaintiff’s position is that because Mr. Switzer represents the defendant on the tort action and that Mr. McCarthy was retained to represent State Farm to defend the plaintiff’s accident benefits arbitration file, Mr. Switzer and Flaherty McCarthy are in a disqualifying position of conflict and should be removed from the record.

[7] The defendant’s position is that Mr. Switzer never represented State Farm on the accident benefits arbitration; rather, Mr. McCarthy had carriage of it. The defendant further contends that there was a “conflict wall” between Mr. Switzer and Mr. McCarthy, which prevented Mr. Switzer from gaining access to information on the accident benefits file, thus there is no disqualifying conflict.

The Evidence

[8] Mr. Switzer’s evidence is that he was retained by State Farm to defend Ascani against claims brought by the plaintiff arising from two accidents that took place in 2010 in which Ascani was the driver of a vehicle and the plaintiff was the passenger. He states that in April 2015, State Farm sent his firm a retainer request and an application for arbitration of the plaintiff’s accident benefits. His evidence is that a conflict check was done which indicated that he had a conflict. As a result, he instructed his paralegal to forward the retainer request and application to Mr. McCarthy in the firm’s Whitby office. By letter dated May 5, 2015, Mr. McCarthy advised Mr. Auerbach that he (Mr. McCarthy) would have “carriage of the accident benefit matter out of [the] Whitby office to avoid any potential conflicts”.

[9] Mr. Switzer states that after he advised his paralegal to send the file to Mr. McCarthy, he heard nothing further of the matter until April 2016, when he received a letter from Mr. Auerbach alleging that he was in a disqualifying conflict and requesting that he remove himself from the record on the tort action.

[10] Mr. Switzer’s evidence is that he at no time saw any documents received by his firm relating to the plaintiff’s claim for statutory accident benefits other than the application for arbitration, which is a publicly available document. Mr. Switzer states that at no time did he communicate with anyone in the accident benefits department at State Farm with respect to the plaintiff’s dispute. He further states that he did not communicate with Mr. McCarthy in that regard other than to ask if Mr. McCarthy was acting on the accident benefits arbitration. In his evidence, Mr. Switzer also says that he searched the firm’s accounting program and confirmed that no file related to the plaintiff’s claim for statutory accident benefits was ever opened. While Mr. Switzer states that his firm has a “conflict wall system” and that there was a “conflict wall” between him and Mr. McCarthy, he provides no details.

[11] Elaine Hagan, a paralegal with the firm of Flaherty McCarthy who works for Mr. Switzer, also provided an affidavit in this matter. In her affidavit, she indicates that she received a request for retainer from State Farm in April 2015. It was accompanied with a copy of an application for arbitration from the plaintiff. She states that she ran a conflict check which returned a “hit”, revealing that Mr. Switzer might be acting in a matter involving the plaintiff. She says that Mr. Switzer instructed her to send the application and retainer request to Todd McCarthy in the Whitby office due to a conflict of interest. She indicates that prior to doing so she prepared a generic response to the application. She explains that the response is a boilerplate answer to the issues outlined in the application for arbitration. She says she was only able to prepare a generic response as the statutory accident benefits claim file had not yet been received by her firm. She explains that the wordings she used in the responses to the application were taken from a standard form used by her firm. Her evidence is that she used a precedent letter and precedent response to the application that she had previously used in an unrelated matter in which Mr. Switzer was coincidentally lawyer of record. That comment appears to suggest that she did not mean for Mr. Switzer to appear as counsel on the file. She states that she did not show either document to Mr. Switzer at the time.

[12] In reviewing State Farm’s response to the application, I note that some of the responses in Schedule A could lead a lay person to believe that the responses are based on information other than that contained in the application. For example, in its response, State Farm states that attendant care providers were non-arm’s length service providers, and that if they did provide any attendant care services they did not have a reasonable expectation of being paid for their services. There is nothing in the application to suggest that the plaintiff is claiming for persons who were not at arm’s length. Similarly, under housekeeping and home maintenance benefits, State Farm alleges that the applicant failed to comply with her obligation to attend insurer examinations and is precluded from proceeding to arbitration pursuant to the statutory accident benefits schedule. This is not raised in the application form submitted by the applicant. While I am not saying I disbelieve Ms. Hagan, and indeed, a person with legal training might well recognize the response as “generic” or “boilerplate”, I am of the view an ordinary member of the public reading both the application and the response could well conclude or at the very least suspect, that Ms. Hagan had access to confidential information and not just the application.

[13] The plaintiff’s evidence is straightforward. Mr. Auerbach swore an affidavit that outlined the communication that he received from Mr. Switzer and from Mr. McCarthy. He states that he received a letter and response to the plaintiff’s application for arbitration, dated May 1, 2015, signed by Ms. Hagan on Michael Switzer’s behalf. On May 5, 2015 he received communication from Mr. McCarthy advising him that he (Mr. McCarthy) would have carriage of the accident benefits arbitration as Mr. Switzer had a conflict. Those facts are not contested and neither is the fact that the accident benefits arbitration file was transferred from Flaherty McCarthy to Miller Thomson some 10 months later.

Analysis

[14] The issue of a disqualifying conflict of interest is at the centre of this motion. The case of MacDonald Estate v. Martin, [1990] 3 S.C.R. 1235, deals with such a conflict, which, in that case, arose from a situation in which a junior lawyer for a firm representing the applicant later went to work for the respondent’s firm. While that is not the case at bar, I am guided by the principles set out by Sopinka J. in that case. He sets out the test for a disqualifying conflict of interest, at p. 1260, as follows:

(1) Did the lawyer receive confidential information attributable to a solicitor client relationship relevant to the issue at hand? (2) Is there a risk that it will be used to the prejudice of the client?

[15] At p. 1262, Sopinka J. acknowledges that there is a strong inference that “lawyers who work together share confidences”, and he invites courts to:

draw the inference, unless satisfied on the basis of clear and convincing evidence, that all reasonable measures have been taken to ensure that no disclosure will occur by the ‘tainted’ lawyer to the member or members of the firm who are engaged against the former client. Such reasonable measures would include institutional mechanisms such as Chinese Walls and cones of silence.

Sopinka J. goes on to say that affidavits alone denying that information was shared would not be enough. He remarks that “even if the courts found this acceptable, the public is not likely to be satisfied without some additional guarantees that confidential information will under no circumstances be used”. I draw attention to this because in my view, the test to be applied is from the point of view of an ordinary member of the public, not by the courts or by counsel.

[16] The principles in MacDonald Estate apply to the present case, and must be considered in the context of the complicated relationships between an insured and an insurer, which are featured in this case. The plaintiff’s relationship with her accident benefits insurer is a contractual one. The plaintiff is owed a duty of good faith by her accident benefits insurer: see Sagl v. Cosburn, Griffiths & Brandham Insurance Brokers Ltd., 2009 ONCA 388, 249 O.A.C. 234, at para. 51. Conversely, in a tort action, the relationship between the plaintiff and defendant is adversarial and no duty is owed to a person claiming against its insurer. By the very nature of these two different relationships, there exists a conflict. In tackling the thorny issue of conflict between an accident benefits file and a tort file when a plaintiff and defendant are covered by the same insurance policy or company, the Insurance Bureau of Canada in 1997 advised its members to “set up Chinese walls” so that information gathered on an accident benefits file is not available to the tort adjuster. The bulletin containing this advice to members goes on to say that a tort adjuster must rely solely on the Rules of Civil Procedure to obtain information.

[17] In the present case, applying the principles set out in MacDonald Estate, the onus is on the defendant to rebut the presumption that confidential information was received by Mr. Switzer and/or his firm. In my view, given the facts of this motion, the defendant did not discharge that onus. While I accept that Mr. Switzer did not see the accident benefits file, the response filed by Elaine Hagan could lead an ordinary member of the public to believe that the answers are based on confidential information and not just the application for arbitration. I do not accept Ms. Hagan’s assertion that she arbitrarily used a precedent letter and response that happened to be in Michael Switzer’s name when she prepared the material and letter. The letter is signed “per Michael Switzer” and Ms. Hagan’s signature is above Mr. Switzer’s name. On the response, she prints Michael Switzer’s name and signs “on behalf of Michael Switzer”. The fact that Ms. Hagan states that she acted alone and without direction from Mr. Switzer is immaterial. She submitted documents in his name, on his behalf and he is therefore presumed to be responsible for them. On the face of the documents, it would appear to the ordinary person that Mr. Switzer was acting and that he, or at the very least, staff supervised by him, had access to confidential information. In addition, I infer that Mr. McCarthy had access to the accident benefits file from the fact that he acted on the accident benefits arbitration matter for 10 months. I give little weight to Mr. Switzer’s assertion that there was a “conflict wall system” in place at his firm as he provides no real detail in this respect. I am therefore not prepared to find that the defendant’s evidence is “clear and convincing” that no disclosure was made or could be used.

[18] The leading case, which is factually similar to the case at bar, is Dervisholli (Litigation Guardian of) v. Cervenak, 2015 ONSC 2286, 333 O.A.C. 367, in which a law firm represented an insurer on both the accident benefits side and the tort side of an accident. The facts are somewhat similar to those in the present case, except that in Dervisholli the same lawyer represented the insurer for both actions and obtained the plaintiff’s arbitration file including transcripts from examinations of not only the plaintiff but of other witnesses, without her consent. That is not the case here but in my view that does not change the outcome of this motion.

[19] In Dervisholli, the court makes clear that the same law firm should not be retained to represent an insurer both with respect to a plaintiff’s claim for statutory accident benefits and to defend a plaintiff’s tort action. I am guided by the following passage, at para. 58, in this regard:

State Farm should not have retained Reisler to defend itself both with respect to the claims by the plaintiff for statutory accident benefits as well as in the plaintiff’s tort action. The failure to separate the interests of State Farm on the tort and accident benefits side, by retaining the same law firm and disclosing confidential information to that law firm [emphasis mine], resulted in a disqualifying conflict of interest as set forth in MacDonald Estate v. Martin, [1990] 3 S.C.R. 1235.

[20] The defendant contends that the case at bar can be distinguished from Dervisholli on the facts because there is no evidence of disclosure of the accident benefits file to Mr. Switzer. In my view, that is not the issue. My reading of Dervisholli is that the firm and not just the lawyer are disqualified by virtue of the fact that disclosure of the accident benefits file was disclosed to the firm. Here, because Mr. McCarthy had carriage of the accident benefits file for 10 months, I infer that the firm either had the accident benefits file or had access to it. Based on this I am not prepared to distinguish Dervisholli on the particular set of facts before me.

[21] In the circumstances, given my findings with respect to the defendants’ failure to present clear and convincing evidence that no disclosure occurred and following the reasoning in Dervisholli, I find that Mr. Switzer is in a disqualifying conflict of interest and should be removed from the record.

[22] In the event that the parties are unable to agree on costs, they may, within 30 days, submit submissions which are a maximum of three pages in length for my consideration.

Master Nathalie Champagne DATE: August 11, 2016