State Farm Mutual Automobile Insurance Company v. Assessment Direct Inc. et al.

[Indexed as: State Farm Mutual Automobile Insurance Co. v. Assessment Direct Inc.]

Ontario Reports
Ontario Superior Court of Justice,
Lederer J.
May 27, 2014

120 O.R. (3d) 422 | 2014 ONSC 2877

Case Summary

Torts — Conspiracy — Merger — Defendants moving to strike claim of conspiracy to defraud on ground that it merged with underlying claim of fraud — Motion judge declining to strike conspiracy claim on ground that application of doctrine of merger was "vexed question" which should be left to trial judge — Defendants granted leave to appeal — Reason existing to doubt correctness of decision — Issue of whether merger can never be available at pleading stage one of general importance.

The plaintiff was an insurance company that provided statutory accident benefits. The defendants operated an assessment centre for individuals injured in motor vehicle accidents. The plaintiff brought an action against the defendants claiming that they submitted fraudulent treatment plans and invoices. The defendants brought a motion to strike a claim of conspiracy to defraud on the ground that it merged with the underlying claim of fraud. The motion was dismissed. The motion judge found that the circumstances appropriate to the application of merger was a "vexed question" and that there was a need for clarification surrounding that issue. He concluded that whether the doctrine of merger applied should be decided at trial, on a full record. The defendants moved for leave to appeal.

Held, the motion should be granted.

There was reason to doubt the correctness of the motion judge's decision, and the issue of whether merger can never be available at the pleading stage was a matter of importance such that leave should be granted.

Allstate Insurance Co. of Canada v. Fairview Assessment Centre Inc., [2013] O.J. No. 3849, 2013 ONSC 5446 (S.C.J.); Canada Cement LaFarge Ltd. v. British Columbia Lightweight Aggregate Ltd., 1983 23 (SCC), [1983] 1 S.C.R. 452, [1983] S.C.J. No. 33, 145 D.L.R. (3d) 385, 47 N.R. 191, [1983] 6 W.W.R. 385, 21 B.L.R. 254, 24 C.C.L.T. 111, 72 C.P.R. (2d) 1, 19 A.C.W.S. (2d) 352, revg [1981] B.C.J. No. 391, 123 D.L.R. (3d) 66, [1981] 4 W.W.R. 385, 26 B.C.L.R. 292, 57 C.P.R. (2d) 156, 7 A.C.W.S. (2d) 512, 1981 398 (C.A.), affg [1979] B.C.J. No. 1242, 103 D.L.R. (3d) 587, 48 C.P.R. (2d) 201, 1979 426, [1979] 3 A.C.W.S. 238 (S.C.); Dominion of Canada General Insurance Co. v. MD Consult Inc. (c.o.b. Toronto Regional Medical Assessment Centre), [2013] O.J. No. 1087, 2013 ONSC 1347, 19 C.C.L.I. (5th) 306, 227 A.C.W.S. (3d) 72 (S.C.J.) [Leave to appeal refused [2013] O.J. No. 5072, 2013 ONSC 6906 (Div. Ct.)]; Economical Insurance Co. v. Fairview Assessment Centre (August 26, 2011), Hainey J.; Hunt v. Carey Canada Inc., 1990 90 (SCC), [1990] 2 S.C.R. 959, [1990] S.C.J. No. 93, 74 D.L.R. (4th) 321, 117 N.R. 321, [1990] 6 W.W.R. 385, J.E. 90-1436, 49 B.C.L.R. (2d) 273, 4 C.C.L.T. (2d) 1, 43 C.P.C. (2d) 105, 23 A.C.W.S. (3d) 101; Perth Insurance Co. v. Osler Rehabilitation Centre Inc., [2013] O.J. No. 5408, 2013 ONSC 7033 (S.C.J.); Ward v. Lewis, [1955] 1 All E.R. 55, [1955] 1 W.L.R. 9 (C.A.), consd

Other cases referred to

Apple Bee Shirts Ltd. v. Lax, [1988] O.J. No. 658, 27 C.P.C. (2d) 226, 10 A.C.W.S. (3d) 115 (H.C.J.); Economical Insurance Co. v. Fairview Assessment Centre Inc., [2011] O.J. No. 5863, 2011 ONSC 7535 (Div. Ct.); Graye v. Filliter, [1997] O.J. No. 1243, 1997 CarswellOnt 5335 (Div. Ct.); Jevco Insurance Co. v. Pacific Assessment Centre Inc. (2014), 120 O.R. (3d) 43, [2014] O.J. No. 1704, 2014 ONSC 2244 (S.C.J.); Lonrho Ltd. v. Shell Petroleum Co., [1982] A.C. 173, [1981] 2 All E.R. 456, [1981] 3 W.L.R. 33 (H.L.); Normart Management Ltd. v. West Hill Redevelopment Co. (1998), 1998 2447 (ON CA), 37 O.R. (3d) 97, [1998] O.J. No. 391, 155 D.L.R. (4th) 627, 113 O.A.C. 375, 41 C.C.L.T. (2d) 282, 17 C.P.C. (4th) 170, 77 A.C.W.S. (3d) 518, 1998 CarswellOnt 251 (C.A.); Southam Co. v. Gouthro, 1948 248 (BC SC), [1948] B.C.J. No. 96, [1948] 3 D.L.R. 178 (S.C.); State Farm Mutual Automobile Insurance Co. v. Assessment Direct Inc., Yan Krivoruk, Alex Smolar, Arthur Buduryan and Roman Volfson (January 29, 2014), Penny J. (Ont. S.C.J.); Wolf v. Ontario (Attorney General), [2012] O.J. No. 569, 2012 ONSC 72 (S.C.J.)

Statutes referred to

Combines Investigation Act, R.S.C. 1970, c. C-23, s. 32(1)(c)

Criminal Code, R.S.C. 1985, c. C-46 [as am.], s. 380(1) [as am.]

Insurance Act, R.S.O. 1990, c. I.8 [as am.], ss. 438 [as am.], 439

Rules and regulations referred to

Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rule 62.02(4), (b)

MOTION for leave to appeal.

Sarah Jones and Catherine Keyes, for plaintiff/ responding party.

Richard H. Shekter, for defendants/moving parties.

[1] Amended endorsement of LEDERER J.: — This is a motion seeking leave to appeal an order made by Mr. Justice Penny where he declined to strike claims of conspiracy as against each of the defendants. He held that the decision as to whether the doctrine of merger applied was to be decided, at trial, on a full record.

[2] The defendants take the position that there are all manner of conflicting decisions surrounding the application of merger on motions brought, in response to statements of claim, where it is alleged that, in company with a nominate tort, there is a claim for conspiracy. In short, where there is a conspiracy to commit a tort and the agreement is acted on, it is said that the conspiracy adds nothing, is redundant and should be struck.

[3] The plaintiff, State Farm Mutual Automobile Insurance Company ("State Farm"), is an insurance company that provides accident benefits under the Statutory Accident Benefits Schedule to the Insurance Act. The defendant Assessment Direct Inc. ("Assessment Direct") operated an assessment centre for individuals injured in motor vehicle accidents. The personal defendants were directors and employees of Assessment Direct.

[4] The statement of claim says that Assessment Direct submitted certain treatment plans and related invoices to State Farm. It is alleged that these plans and invoices were fraudulent. They were not signed by the applicable treatment providers (their signatures were forged) and the treatments prescribed and charged for were not provided. It is also alleged that some or all of the defendants "conspired to defraud" State Farm by submitting the fraudulent claims for which they hoped to receive payment. It is alleged that the false claims were made and the payments received. In the action, damages of over $11 million are sought.

[5] A motion was brought seeking, among other things, to strike out the claim in conspiracy on the basis that it had merged with the underlying claim of fraud. This is the motion that was dismissed by Mr. Justice Penny and which the defendants now seek leave to appeal.

[6] The test to be met on a motion such as this is:

62.02(4) Leave to appeal shall not be granted unless,

(a) there is a conflicting decision by another judge or court in Ontario or elsewhere on the matter involved in the proposed appeal and it is, in the opinion of the judge hearing the motion, desirable that leave to appeal be granted; or

(b) there appears to the judge hearing the motion good reason to doubt the correctness of the order in question and the proposed appeal involves matters of such importance that, in his or her opinion, leave to appeal should be granted.

[7] Counsel for the defendants says that either one or both of these requirements have been met.

[8] He set the stage by suggesting that, while the doctrine of merger was accepted and, for a number of years, consistently applied on pleadings motions, more recently, there has been confusion as to the limits and efficacy of motions brought on this basis at this point in the proceedings. In his decision, Mr. Justice Penny referred to the circumstances appropriate to the application of merger as a "vexed question". He concluded that:

The matter is not free from doubt. There is clearly need for clarification surrounding this issue.

[9] In a similar situation, in Jevco Insurance Co. v. Pacific Assessment Centre Inc., 2014 ONSC 2244, Mr. Justice Perell observed:

The merger principle has bedeviled pleaders, and it has become dysfunctional.

And:

[T]he case law is divided and inconsistent.

[10] There have been other attempts to obtain leave to appeal where this court has refused to apply merger. These have failed: one of them because the motion judge had "correctly decided not to apply the doctrine of merger at the pleadings stage".

[11] To follow this argument, it is necessary to go back to the origins of the application of merger in the context of an allegation of conspiracy. In Ward v. Lewis, Lord Justice Denning observed:

It is important to remember that when a tort has been committed by two or more persons an allegation of a prior conspiracy to commit the tort means nothing. The prior agreement merges in the tort.

[12] It is helpful to consider the substance of conspiracy as it has evolved in Canadian law. The seminal explanation is found in Canada Cement Lafarge Ltd. v. British Columbia Lightweight Aggregate Ltd., 1983 23 (SCC).

[13] This was an appeal to the Supreme Court of Canada. At trial, the respondent (the plaintiff) had obtained a judgment in an action for conspiracy. Damages in the amount of $750,000 were awarded by the trial judge. The respondent had alleged that a conspiracy to lessen competition in the production of cement had compelled it to go out of business. An appeal to the Court of Appeal had been dismissed. The decision of the Supreme Court of Canada granted the subsequent appeal on the basis that either the damages suffered by the respondent flowed from its own involvement in the illegal combine or because there was no causal connection between the conspiracy and the damage alleged by the respondent. "It would appear that in these unusual circumstances the respondent must fail whichever way the claim is advanced."

[14] The court examined the limits of a civil action for conspiracy. It had been understood that such an action could arise only where the predominant purpose of the conspiracy was to injure the plaintiff, that is to say, the conspiracy had to be directed at the party who commenced the action and that damage had been the result. It was the "end" sought by the conspirators that was fundamental to the cause of action. On that basis, the action in Canada Cement Lafarge would have to fail.

[15] Canada Cement Lafarge considered whether there was another basis on which a claim for conspiracy could be founded. The appellants had pleaded guilty to a charge of conspiring to prevent or unduly lessen competition in the production of cement, contrary to s. 32(1)(c) of the Combines Investigation Act.

[16] What was made apparent by this decision is that, in Canada, there is a second form of the tort of conspiracy, this one driven not by the end (harm to the intended victim), but by the means (the agreement to, and the undertaking of, an unlawful act).

[17] Counsel for the defendants began his submission that leave be granted by proposing that the decision of Mr. Justice Penny failed to properly recognize the distinction between the two bases for the tort of conspiracy.

[18] To understand the next step in this reasoning, it is necessary to turn to Hunt v. Carey Canada Inc., 1990 90 (SCC).

[19] The defendant obtained an order striking the Statement of Claim as disclosing no reasonable cause of action. The Court of Appeal reversed that decision. The subsequent appeal to the Supreme Court of Canada was dismissed. It was not "plain and obvious" that the claim could not succeed.

[20] The court considered the prospect of merger. It was contended that, because the plaintiff alleged that the defendants had engaged in various tortious acts, it was not open to the plaintiff to proceed with the claim for conspiracy. The argument failed.

[21] The statement of claim alleged both forms of conspiracy identified in Canada Cement Lafarge.

[22] In her reasons, Madam Justice Wilson observed that, by pleading in this way, the plaintiff had covered the alternative forms of conspiracy defined in Canada Cement Lafarge.

[23] The question that remains is whether this is inexorably the case. Is the application of the doctrine of merger something which must be left to the trial?

[24] In Jevco Insurance Co. v. Pacific Assessment Centre Inc., Mr. Justice Perell concluded that:

[I]t is time to eulogize the passing of the merger principle as a basis to challenge a pleading.

[25] It was his view that what fell out of Hunt v. Carey Canada Inc. was direction from the Supreme Court of Canada that the merger principle could no longer be relied on at the pleading stage.

[26] The current case law does not confirm this proposition.

[27] In Perth Insurance Co. v. Osler Rehabilitation Centre Inc., the plaintiff insurer sued for fraud and conspiracy relating to SABS benefits. The conspiracy claim was struck because it added nothing to the fraud claim.

[28] There are cases which see this differently.

[29] In Economical Insurance Co. v. Fairview Assessment Centre, the conspiracy claim was dismissed because the pleading failed to allege special damages, but the court also suggested merger could not apply where unlawful statutory acts were pleaded.

[30] The defendants moved for leave to appeal.

[31] In Dominion of Canada General Insurance Co. v. MD Consult Inc., Madam Justice Allen refused to apply merger where conspiracy allegations relied on unlawful acts under the Insurance Act and the Criminal Code.

[32] Dominion of Canada General Insurance Co. was also the subject of a motion for leave to appeal which did not succeed.

[33] What this review reveals is that there has been an evolution in how merger is to be approached and some uncertainty as to how these cases are to be resolved.

[34] Where the conspiracy is directed at an identified party and the facts reflecting the presence of conspiracy and the underlying tort are the same, merger applies.

[35] However, where the claim for conspiracy is founded in an agreement to act unlawfully and the facts relied upon are different from those supporting the underlying tort, merger cannot apply.

[36] It is with this background that the motion for leave to appeal is to be considered.

[37] Mr. Justice Penny referred to the fact that in this case there is a pleading of unlawful acts arising out of a breach of the Insurance Act that is not tortious.

[38] The problem with this reasoning is that it may suggest that once conspiracy through an unlawful act is pleaded, merger can never apply at the pleading stage.

[39] Counsel for the defendants submitted that the statement of claim does not distinguish between the factual foundation for the conspiracy and that of the fraud.

[40] The conspiracy is described as the agreement of the personal defendants to set up the assessment centre to perform unlawful acts including submitting fraudulent treatment plans and invoices.

[41] The statement of claim alleges misuse of the names and authorizations of 11 medical professionals in filing false claims.

[42] The statement of claim also alleges concealment of the conduct from the insurer.

[43] This allegation reflects the form of conspiracy where the predominant purpose of the defendants' conduct is to injure the plaintiff.

[44] The pleading also references breaches of the Insurance Act and Criminal Code provisions relating to fraud.

[45] Counsel for the defendants submitted that these statutory references add nothing beyond the core allegation of fraud.

[46] The statement of claim alleges that the conspiracy was carried out and resulted in payments for services not provided.

[47] There is reason to doubt the correctness of the decision below. It presumes that whenever conspiracy by unlawful act is pleaded, merger cannot apply at the pleadings stage. This does not necessarily follow.

[48] Given the conflicting authorities and the need for clarification, the issue is of sufficient importance to justify granting leave to appeal.

[49] The court also notes the broader policy question whether motions based on the merger doctrine remain useful or merely tactical.

[50] The motion is granted.

[51] If the parties are unable to agree as to costs, written submissions may be provided according to the schedule set out by the court.

Motion granted.

End of Document