NEWMARKET

COURT FILE NO.: CV-14-118469-00
DATE: 20150722

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

SKY SOLAR (CANADA) LTD.
Plaintiff/Moving Party

– and –

ECONOMICAL MUTUAL INSURANCE COMPANY and FIRSTBROOK, CASSIE & ANDERSON LIMITED
Defendants/Responding Parties

Rebecca Huang/Ian P. Katchin, for the Plaintiff/Moving Party

Sebastien Kamayah, for the Defendants/Responding Parties

HEARD: April 1 and May 15, 2015

REASONS FOR DECISION

DiTOMASO J.

THE MOTION

[1] The Plaintiff is an Additional Insured under an insurance policy issued by the Defendant insurer and broker. It has sued for coverage under the insurance policy and for damages for breach of utmost duty of good faith owed by the two Defendants in the handling of the coverage claim. The Plaintiff maintains that the Defendants have failed to produce relevant documents in the action and have improperly claimed privilege over the relevant documents that are discoverable. Therefore, the Plaintiff brings this motion to compel the Defendants to produce certain documents and to deliver a further and better affidavit of documents.

FACTUAL BACKGROUND

[2] The parties are not in disagreement regarding the factual background in which this dispute arises. The relevant facts are pleaded or alleged in the pleadings of the parties.

[3] The Defendant, Economical Insurance Company (“Economical”), is an insurance company carrying on business in Ontario. The Defendant, Firstbrook, Cassie & Anderson Limited (“FCA”), is an Ontario corporation and carries on business as an insurance broker.

[4] The Plaintiff, Sky Solar (Canada) Inc. (“Sky”), is an Ontario corporation and carries on business as a solar energy project developer. In January 2012, Sky issued an invitation to bid for the construction of four solar projects in Ontario, including that at 6 Manchester Court, Caledon, Ontario (“Manchester”) and 90 Whybank Drive, Brampton, Ontario (“Whybank”). Potential bidders were required to provide proof of insurance, including “general liability insurance with a minimum of $2,000,000.00 in coverage (with Sky named as an additional insured).”

[5] Marnoch Electrical Services Inc. (“Marnoch”) is an Ontario corporation in the business of providing commercial contracting and facility maintenance services. In January 2012, it submitted quotations to Sky with a certificate of insurance that named Sky as an Additional Insured (the “Certificate of Insurance”) on an insurance policy issued by FCA (as broker/agent) and Economical (as insurer) under an Expert Contractors Policy form identified as Policy No. 004884806 (the “Policy”). In January 2012, Marnoch was successfully selected as the contractor to construct the solar projects.

[6] Pursuant to the Policy’s Additional Insured Endorsement, Economical provided coverage to Sky (as an Additional Insured under the Policy), for “liability arising out of the operations of the Named Insured.” The Named Insured on the Policy is Marnoch.

[7] This action arises out of the failure of two transformers installed by Marnoch in two solar systems in Ontario. The major failure incident occurred in March 2013, and the minor failure incident occurred in August 2012.

[8] On or about August 19, 2012, the solar system at Whybank failed due to a fire that originated within the 500 KVA transformer (the “2012 Failure”). Sky claimed a net loss of $39,744 as a result of the 2012 Failure.

[9] Economical alleged that it “fully investigated the Whybank fire, including the retainer of an expert forensic engineering firm.” Despite Sky’s request for further and better productions from Economical, Economical has not produced the claims and investigation files in relation to the 2012 Failure.

[10] In or around October 2012, Marnoch completed the construction of the solar systems at Whybank and Manchester. Sky then transferred the systems to a purchaser.

[11] On March 14, 2013, the 500 KVA transformer at Manchester which was supplied and installed by Marnoch burned and shut down the entire system. At the same time, the 500 KVA transformer at Whybank was overheating. The Whybank system was also shut down as a precautionary measure. These failures are collectively referred to as the “2013 Failures.”

[12] Sky incurred liabilities, expenses, and costs to restore the two solar systems. It paid for the purchase and installation of replacement equipment including but not limited to 500 KVA transformers made by a different manufacturer. In addition, Sky was obligated to, and did compensate the new owner for the revenue lost during the three-month period when the systems were shut down for repair. As a result, Sky claimed damages of more than $600,000 from the 2013 Failures.

[13] Economical, again, alleged that it “fully investigated the Manchester Fire and Whybank Shutdown, again including the retainer of an expert forensic engineering firm.” Both Economical and FCA further alleged that they had “fully investigated … to the extent necessary to conclude Economical’s fact finding.” However, despite Sky’s request for further and better productions, both Economical and FCA have not produced the claims and investigation files with respect to the 2013 Failures.

[14] When Sky issued a demand letter dated September 20, 2013 to Marnoch for compensation, Economical retained a lawyer, John Cannings, to defend Marnoch. The Statement of Defence characterized Mr. Cannings as “Marnoch’s defence counsel,” not as coverage counsel.

[15] Sky has pleaded that it was part of Marnoch’s operation to supply and install the 500 KVA transformers, and that the transformers were defective, resulting in significant damages due to the 2013 Failures. As such, Sky says that the losses should be covered by the Policy under the Additional Insured Endorsement.

[16] On November 14, 2013, Sky submitted forms of Proof of Loss to FCA. On November 18, 2013, Economical denied coverage through Marnoch’s defence counsel, Mr. Cannings.

[17] Sky has pleaded that Economical and FCA adopted an adversarial approach through Marnoch’s defence counsel with respect to its coverage request. Economical never contacted Sky for investigation or disclosed any documents or reports that were adverse to, or otherwise related to, Sky’s coverage request. Sky never received any explanation from the Defendants for the denial of coverage conveyed through Marnoch’s defence counsel. In fact, to date, Sky has never received any direct response from either Economical or FCA with respect to the Proofs of Loss. Sky was never contacted by an adjuster appointed by Economical with respect of the coverage request.

[18] Sky has included a claim for damages for breach of utmost good faith and fair dealing as against Economical and FCA. Paragraph 65 of the Amended Statement of Claim sets out allegations regarding FCA’s conduct in the handling of Sky’s coverage claim. Paragraph 71 of the Amended Statement of Claim sets out numerous detailed allegations regarding Economical’s conduct in the handling and denial of Sky’s coverage claim.

[19] The Defendants have served unsworn and then sworn Affidavits of Documents (“AOD”) with deficiencies. In letters dated December 17, 2014 and January 13, 2015, Sky’s counsel requested further and better productions from Economical and FCA, and specifically enumerated documents that must be produced. The documents fall into the following categories:

(1) Agency Agreement between Economical and FCA (paragraph 1 of the January 13, 2015 Letter);

(2) Underwriting file (paragraphs 2,3,4 and 5 of the January 13, 2015 Letter);

(3) Claims and investigations files (paragraphs 6, 7,9,11,12,13 and of the January 13, 2015 Letter); and

(4) Correspondence with Mr. Cannings (paragraph 8 of the January 13, 2015 Letter).

[20] Recognizing that some documents must be privileged, Sky’s counsel asked Economical and FCA to identify which privilege they intended to assert and the basis for the privilege claim.

[21] Sky’s counsel further determined that the Defendants had failed to produce the Policy in its entirety, and requested production of same. Economical and FCA have failed to respond to the requests or to produce the documents as requested.

ISSUES

[22] On this motion, the court is asked to decide whether Economical and FCA have failed to disclose and produce all relevant documents in their respective possession, power or control and, if so, whether they should be required to deliver a further and better sworn Affidavit of Documents. The issues can be divided into three parts as follows:

1. Four categories of outstanding documents;

2. a further and better Affidavit of Documents; and

3. inadmissible evidence in the Affidavits of Bradley Wells.

[23] The positions of the parties will be canvassed in respect of each issue.

ANALYSIS

Test of Relevance

[24] Under Rule 30.03(1) and (2) of the Rules of Civil Procedure, a party to an action is required to disclose “all documents relevant to any matter in issue in the action that are or have been in the party’s possession, control and power”, “whether or not privilege is claimed in respect of the document.”

[25] The pleadings determine the ambit of production. Where a party raises an issue in its pleading, all documents relevant to that issue shall be disclosed and produced. Morawetz J. made the following succinct statement in a 2012 decision on a motion for productions:

Relevance is determined by reference to the pleadings. A document is “relevant” if it is logically connected to and tending to prove or disprove a matter in issue.[^1]

[26] The Plaintiff also relies on Economical and FCA’s proposed discovery plan where these Defendants proposed to disclose every document relevant to any matter in issue in this action that is or has been in the possession, control or power of the party to the action as provided in rule 30.03 to 30.10 whether or not privilege is claimed in respect to the documents.[^2]

Production of Documents

[27] The first issue on this motion relates to the production of documents broken down into four categories.

• Agency agreement between Economical and FCA

[28] The pleadings have raised issues with respect to FCA’s authority in issuing the Certificate of Insurance with Sky as an Additional Insured, and Economical’s blameworthiness in its initial denial of Sky’s coverage request through Marnoch’s defence counsel (Mr. Cannings).

[29] Mr. Cannings initially denied coverage to Sky on the basis that FCA “never advised Economical of the issuance of the Certificates.” The Defendants admitted that Mr. Cannings was erroneous with respect to the initial basis cited for the denial of Sky’s request. However, it is questionable whether it was an error on the part of Mr. Cannings, an act of bad faith on the part of Economical, or negligence on the part of FCA. As such, Sky has pleaded that FCA was negligent in the handling of Sky’s insurance needs and the Certificate of Insurance, and that Economical breached its duty of utmost good faith by making allegations about FCA’s handling of the Certificate of Insurance.

[30] Sky submits that an issue was raised in the pleadings as to the relationship between FCA and Economical. It is alleged that FCA acted as a broker and/or agent for Economical. FCA issued the Certificate of Insurance to Marnoch with Sky as an added insured. Whether FCA acted as a broker or agent in issuing the Certificate is of utmost importance to both issues in this case, namely, the issue of coverage i.e. the sufficiency or insufficiency of coverage and the issue of bad faith i.e. how the claim was handled.

[31] Sky alleges that it was not properly serviced by FCA and/or Economical in protecting Sky in its dealings on the two projects with Marnoch. At the heart of this issue is the relationship between FCA and Economical. FCA and Economical in its defence only admit that FCA is an insurance broker but denies allegations found in its amended Statement of Claim at para. 11 where it is alleged that FCA was a captive broker and/or agent for Economical. Further, it is alleged that acting on behalf of Economical, FCA issued the policy to Marnoch and Sky.

[32] The defence position is that the agency agreement between FCA and Economical is irrelevant because Economical admits that it is bound by a Certificate of Insurance.

[33] I find that production of the Agency Agreement is indeed relevant. Such an Agreement speaks to the arrangement between Economical and FCA which is relevant to at least two issues: (a) FCA’a authority and conduct in issuing the Certificate of Insurance to Sky; and (b) whether Economical acted in bad faith in making the allegation against FCA through Mr. Cannings as an initial basis to deny Sky’s coverage request. The Defendants have not produced any agreement such as the Agency Agreement showing the authority given by Economical to FCA in relation to the policy and they ought to do so. Counsel for Economical and FCA advises the court that such an agreement exists. The Defendants are ordered to produce such an Agreement and related documents to Sky on the grounds that these documents are relevant to the issues so identified.

• Underwriting File

[34] Sky requested that the Defendants disclose and produce the following documents in underwriting the Policy:

The entire underwriting file maintained by Economical in connection with Marnoch and the Policy as defined in paragraph 1(a) of the amended Statement of Claim, including but not limited to the underwriter’s memo to add Sky as an additional insured and the renewal of the Policy following March 2013 to the present.

[35] Sky submits that critical to the production of the underwriting file is an understanding of “Marnoch’s operations”. Sky submits that a key issue is understanding what were Marnoch’s operations covered under the Policy.

[36] Counsel for Sky cited the Certificate of Insurance found at page 191 of the Plaintiff’s Motion Record which identifies the Plaintiff as a certificate holder, Marnoch Electrical Services Inc. as the insured and Sky Solar (Canada) Ltd. as the Additional Insured. The broker is identified as FCA. Also cited at page 107 of the same Motion Record was the Additional Insured Endorsement to the commercial general liability policy as follows:

This insurance applies to those stated on the declarations as “Additional Insureds”, but only with respect to liability arising out of the operations of the Named Insured.

[37] Sky submits that it has coverage for liability arising out of Marnoch’s operations. Those operations include the supply of transformers which in this case Marnoch obtained from Marcus. It is alleged by Sky that Marnoch supplied defective transformers as part of their operations.

[38] The underpinning to Sky’s position can be found in Sky’s Amended Statement of Claim at Tab 2A of the Plaintiff’s Motion Record at page 12 para. 7 and page 25 para. 15.

[39] Further, Sky submits that Economical’s own internal documents demonstrate the importance of the underwriting process. Sky’s Supplementary Motion Record at page 25 speaks to the issuing procedures for Certificates of Insurance. Specifically in bold type there was the following note:

Underwriting Note: Reviewing the Certificate of Insurance request is an important underwriting tool to learn more about the insured’s scope of business operations, customers and products.

[40] Further, the following is noted:

Knowing to whom the Certificate is going and the type of work that is contemplated gives the underwriter an opportunity to review the major classifications on the risk. This will alert us if the insured is branching into a higher risk operation or product we need to correctly underwrite, rate and obtain an accurate premium.

[41] The email from Brenda Rose dated November 1, 2013, page 39 of the Plaintiff’s Supplementary Motion Record also identifies the underwriter and confirms the existence of an underwriting file.

[42] It is clear that the underwriting process is important in order for the insurer to properly assess the risk, properly determine the premium, and properly determine the coverage.

[43] While Sky maintains that it has coverage, such coverage is denied by the Defendants at paragraph 21 of the Statement of Defence where it is alleged that neither the Manchester fire nor the Whybank shutdown arose from Marnoch’s operations. It is clear that the parties have joined issue on this critical point.

[44] The Defendants submit that the underwriting documents do not relate to Sky. Rather, the commercial general liability policy was issued to Marnoch and not to Sky. Economical is prepared to accept Sky as an Additional Insured despite the fact that the Certificates of Insurance were not submitted to Economical and no requests were made to endorse the Policy. It is submitted that Economical is not denying coverage based on the scope of Marnoch’s operations but rather coverage was denied based on a factual determination. The Defendants submit that the fire arose not from Marnoch’s acts but rather from Sky’s acts for which the Policy provides no coverage. As for Marnoch’s operations, it is submitted that Marnoch’s operations are detailed in the Declarations attached to the Policy.

[45] I find that the production of the underwriter’s file for the entire policy ought to be produced by the Defendants. It is important to have a complete understanding of the underwriting process in this case involving not only Economical, FCA and Marnoch but also Sky. The question is not sufficiently answered by the Defendants when they say the underwriting process has nothing to do with Sky and further, the scope of Marnoch’s operations is clearly defined in the insurance Policy Declarations and no further inquiry is necessary on this point.

[46] Quite to the contrary, the description of Marnoch’s operations on the surface of those documents do not provide an answer regarding the underwriting process as to the assessment of risk, determination of the premium and most importantly in this case, the determination of coverage.

[47] I find that all of the documents and information received by Economical and FCA in relation to the issuance of the Policy are relevant to the court’s interpretation of Marnoch’s operations as underwritten by Economical, interpretation of the Policy and the Additional Insured Endorsement, and must be produced. Where Economical has pleaded no coverage and relied, in part, on the allegation that Sky’s losses did not arise from Marnoch’s operations, again production of the complete underwriting file is relevant to the coverage issue in this action and, therefore, the complete underwriting file must be produced.

• Claims and Investigation Files

[48] Sky requested that the Defendants disclose and produce the following documents in the claims and investigations files:

• The entire claim and investigation files maintained by Economical in connection with Marnoch’s and Sky’s coverage requests under the Policy following the failure incidents referred to at paragraphs 30 and 39 of the Amended Statement of Claim, prior to the denial of coverage on October 30, 2013;

• All electronic file notes maintained by employees and agents of Economical in relation to the failure incidents referred to at paragraphs 30 and 39 of the Amended Statement of Claim, prior to the denial of coverage on October 30, 2013;

• Correspondence between Economical and/or FCA in relation to Sky’s coverage request, prior to the denial of coverage on October 30, 2013;

• Documents from Economical and/or FCA in relation to Sky’s coverage request, prior to the denial of coverage on October 30, 2013;

• Correspondence between Economical and FCA relating to the failure incidents referred to at paragraphs 30 and 39 of the Amended Statement of Claim, prior to the denial coverage on October 30, 2013;

• Documents from Economical and/or FCA relating to the failure incidents referred to at paragraphs 30 and 39 of the Amended Statement of Claim, prior to the denial of coverage on October 30, 2013; and

• Correspondence between Marnoch and Economical/FCA in relation to the failure incidents referred to at paragraphs 30 and 39 of the Amended Statement of Claim, prior to the denial of coverage on October 30, 3013.

[49] Essentially, Sky seeks disclosure and production of the claims and investigation files of Economical in respect of the Whybank fire of August 19, 2012 and the Manchester fire of March 14, 2013. Sky seeks disclosure and production of the entire claims and investigation files that both Defendants had in relation to these two failures. Production would include files of their internal claims adjustors. Counsel for Sky advised the court that these claims and investigative files were really generated by Economical. Production of the internal claims adjustors files were not limited to the production of the files of Alia Henderson and Larry Schoch.

[50] Sky’s request is based upon a review of the pleadings. In the Defendants’ Statement of Defence paragraphs 18 to 22 starting at page 34 of Sky’s Motion Record it is alleged at paragraph 18 that Economical fully investigated the Whybank fire including the retainer of an expert forensic engineering firm. At paragraph 19, it is alleged that the Economical’s claims investigation determined that (i) the Plaintiff had taken over Marnoch’s operations at the site before the Whybank fire; and (ii) the fire did not arise from Marnoch’s operations.

[51] At paragraph 20, Economical pleads that it fully investigated the Manchester fire and the Whybank Shutdown again including the retainer of an expert forensic engineering firm. At paragraph 21 it is alleged that the Economical’s claims investigation determined that the two fires occurred approximately nine months after the solar systems at both locations were fully completed and operational and that neither the Manchester fire nor the Whybank shutdown arose from Marnoch’s operations.

[52] At paragraph 22 the Defendants specifically plead that the two fires and the Whybank Shutdown were fully investigated to the extent necessary to conclude Economical’s fact finding.

[53] Further, at paragraph 33, in the alternative, the Defendants deny owing a duty of care or of utmost good faith to the Plaintiff and, in any event, if such a duty existed, it was fully discharged when FCA issued the Sky Solar Certificates as instructed by Marnoch and “when the Economical completed a full investigation into the Whybank fire, Manchester fire and Whybank Shutdown claims.”

[54] Sky submits that as the Defendants have pleaded to full investigation for both failures, they ought to be compelled to produce claims and investigation fire files in respect of both losses.

[55] Sky also relies upon the decision in the Court of Appeal in Davies v. American Home Insurance Company 2002 62442 (ON SCDC), [2002] O.J. No. 2696 at para. 24 and 25:

I agree that “the evidence as to the manner in which the claim was processed is relevant to a bad faith claim”, and that “the information available to the insurer upon which it decided whether or not to pay the claim is critical”, and that “client-solicitor privilege cannot be raised to protect communications during the investigation, evaluation, assessment and decisions stages” (unless those communications are otherwise properly the subject of the privilege). I do not agree, however, that these principles lead to the conclusion that the legal opinion of the solicitor upon which the insurer may have acted is producible simply because its contents may be relevant and the plaintiff is asserting a bad faith insurance claim.

Respectfully, I think the Motions Judge erred in mixing the concepts of “solicitor-client privilege” and “investigative information” that it has gathered and that would otherwise be producible, behind the cloak of solicitor-client privilege simply by the expedient of placing control of the claim investigation in the hands of its lawyer. The legal opinion rendered by the lawyer to the client based upon the information obtained in the course of that investigation is another matter, however. It remains privileged, in my opinion, unless the insurer puts its state of mind in issue in the sense contemplated in Bank Leu and other related cases, or otherwise waves the privilege.

[56] Sky also relies upon the decision of Allen J. in Intact Insurance Company v. 1367229 Ontario Inc., 2012 ONSC 5256 where production of a complete copy of the claims file was in issue amongst other productions. In that case Allen J. provided a useful analysis of lawyer/client privilege and litigation privilege. Intact failed to provide evidence to support the applicability of privilege with the result that the documents at issue were producible.

[57] It is submitted by Sky that there was no litigation privilege to be relied upon by the Defendants because Sky had not sent a Demand Letter to Marnoch until September 20, 2013.

[58] The Defendants submit that the first letter of Mr. Cannings was dated October 21, 2013. It is in response to a letter sent by counsel for the Plaintiff. The proof of loss was submitted by the Plaintiff on November 14, 2013. Coverage discussions started on October 30, 2013 and not November 14, 2013. Sky already has a copy of the given Koerth Giffin report which was too voluminous to reproduce.

[59] The Defendants submit that because the Policy did not provide specific coverage for the transformers, all of the investigation file material is not relevant. It was submitted that by asking for these documents, Sky was essentially turning the commercial general liability policy into a property or fire insurance policy. Respectfully, I disagree with this submission.

[60] In this case there are two primary issues, namely coverage and a bad faith claim.

[61] A court considering whether the duty of good faith owed by an insurer has been breached will look at the conduct of the insurer throughout the claims process to determine whether in light of the circumstances, as they then existed, the insurer acted fairly and promptly in responding to the claim.[^3]

[62] Ontario Courts have found that the only way that an insured can ascertain whether its coverage claim was handled improperly and in bad faith is by production of the insurer and broker’s internal files showing how they handled or should have handled, the coverage request, and the information available to them at the material time.[^4]

[63] Sky has pleaded that Economical breached the duty of utmost good faith and denied coverage “without conducting any adequate or competent investigation.” In the Statement of Defence, Economical repeatedly pleaded that it “fully investigated” the losses before denying the coverage.[^5]

[64] Economical has not produced any “electronic file notes” maintained by its employees or agents in relation to the 2012 and 2013 failures.

[65] Economical’s own production shows that it internally assigned at least two claim adjustors. However, their files have not been produced.

[66] I find the coverage and duty of utmost good faith issues are joined by the pleadings. Where Economical repeatedly pleads that it “fully investigated” the losses before denying coverage, Economical is compelled to produced their entire claims and investigation files in relation to the coverage claims and bad faith claims made by Sky regarding the 2012 and 2013 failures under the Policy prior to the denial of coverage in October 30, 2013 as requested. Similarly, FCA is also ordered to produce its entire claims and investigation files regarding these two losses for the same reasons.

• Correspondence with Mr. Cannings

[67] Sky submits that it is entitled to disclosure and production of correspondence between the Defendants and Mr. Cannings in relation to Sky’s coverage request. Sky is not seeking any privileged communications with Mr. Cannings in relation to the litigation between Marnoch and Sky. The dispute between Marnoch and Sky is a dispute about breach of warranty.

[68] The pleadings have raised issues about Mr. Cannings who was retained as defence counsel to defend Marnoch, but denied Sky’s coverage request on behalf of the Defendant insurer and broker. He has been identified by the Defendants as “Marnoch’s defence counsel” and not coverage counsel to the Defendants in relation to Sky’s coverage request.[^6]

[69] The first question is whether Mr. Cannings should have been retained for the defence of the complaint against Marnoch and at the same time being retained to act for Economical. The Statement of Defence never identified Mr. Cannings as coverage counsel. There is an issue as to whether or not his engagement is contrary to Economical’s internal conflict of interest policy found at page 301 of Sky’s Motion Record. Further, counsel for Sky submits that for the first time at the hearing of this motion was Mr. Cannings characterized as coverage counsel. Sky submits the Defendants cannot change their characterization of Mr. Cannings’ role in order to avoid production. In this regard, Sky relies upon a decision of the Supreme Court of Canada in Blank v. Canada (Minister of Justice), 2006 SCC 39, [2006] 2 S.C.R. 319 paras. 44 and 45:

The litigation privilege would not in any event protect from disclosure evidence of the claimant party’s abuse of process or similar blameworthy conduct. It is not a black hole from which evidence of one’s own misconduct can never be exposed to the light of day.

Even where the materials sought would otherwise be subject to litigation privilege, the party seeking their disclosure may be granted access to them upon a prima facie showing of actionable misconduct by the other party in relation to the proceedings with respect to which litigation privilege is claimed. Whether privilege is claimed in the originating or in related litigation, the court may review the materials to determine whether their disclosure should be ordered on this ground.

[70] Economical has effectively admitted to the relevance of its correspondence with Mr. Cannings with respect to Sky’s coverage by producing one email between Economical, FCA and Mr. Cannings which took place when FCA forwarded Sky’s coverage request to Economical. No other communications among them have been disclosed. These documents and communications are relevant to the issue of whether the Defendants acted in bad faith in using Marnoch’s defence counsel and an adversarial approach in denying Sky’s coverage claim.[^7]

[71] Counsel for the Defendants concedes that Mr. Cannings was acting as counsel for both Marnoch and Economical.

[72] Defence counsel submits that to the extent that Mr. Cannings communicated with Economical on the coverage issues pertaining to Sky Solar’s coverage, there is solicitor-client privilege. Sky submits that the burden is on the Defendants to demonstrate solicitor-client privilege and they have failed to do so. Counsel for Sky cited a line of authorities to support the proposition that the onus of establishing the factual prerequisite of the claim of litigation privilege over documents rests on the party that seeks to claim privilege. The same principle relates to a party seeking to assert solicitor-client privilege. Privilege in either case cannot be established merely by counsel asserting it.

[73] I find that a claim for privilege will not be established by merely asserting it. The party seeking the privilege bears the onus of showing on a balance of probabilities an evidentiary basis for the privilege. Broad privilege claims will fail if the party asserting the privilege has failed to meet its burden of proof.[^8]

[74] I find that the Defendants have not satisfied their onus of showing on a balance of probabilities an evidentiary basis for either solicitor-client privilege or litigation privilege regarding the correspondence of Mr. Cannings in relation to Sky’s policy and coverage request. Sky does not seek production of confidential communications between Economical and its counsel. However, Sky takes issue with Economical and FCA’s blanket protection over documents and communications that are otherwise discoverable. I find that Sky is entitled and the Defendants shall produce correspondence between Economical and/or FCA and Mr. Cannings in relation to Sky’s coverage request prior to a denial of coverage on October 30, 2013, save and except for any confidential communications.

Delivery of a Properly Particularized Schedule B to the Defendants’ Affidavit of Documents by Economical and FCA

[75] Sky seeks delivery of a properly particularized Schedule B to the Affidavit of Documents by each Defendant. This would involve identifying the documents, describing their nature and setting out the privilege claimed and the grounds for that privilege. Blanket claims of solicitor-client privilege and litigation privilege amounting to nothing more than bald assertions neither create nor clothe documents with either kind of privilege.

[76] A broad claim for solicitor-client privilege was specifically rejected in Intact Insurance Co. v. 1367229 Ontario Inc. where Allen J. stated:

The basic principles that govern lawyer/client privilege are commonly known. The party seeking the privilege has the onus of showing on a balance of probabilities an evidentiary basis for the privilege [General Accident Assurance Co. v. Chrusz, 1999 7320 (ON CA), [1999] O.J. No. 3291 (Ont. C.A.), at para. [95]]. It is well known that privilege does not attach to all communications or documents that pass between a lawyer and their client. The privilege attaches only when legal advice is sought from or provided by the client’s lawyer [Davies v. American Home Assurance Co. (2002), 2002 62442 (ON SCDC), 60 O.R. (3d) 512 (Ont. Div. Ct.), at para. [22]]. [Emphasis added][^9]

[77] Solicitor-client privilege applies only to confidential communications between the client and its solicitor and does not apply to facts that are otherwise discoverable. A party seeking privilege cannot simply cloak notes, documents or communications with privilege really because a lawyer was involved or handled the documents.[^10]

[78] A party seeking solicitor-client privilege is required to establish that the documents are (a) a communication between a lawyer and a client for the purpose of seeking or giving legal advice; and (b) the parties intended it to be confidential.[^11]

[79] As previously discussed in respect of the Cannings communications, Sky does not seek the production of confidential communications between Economical or its counsel. However, Sky takes issue with Economical and FCA’s assertion of blanket protection over documents and communications that are otherwise discoverable.

[80] As for litigation privilege, once again, the onus rests on the party seeking litigation privilege. That party is required to establish two elements: (a) that litigation was contemplated; and (b) that the documents for which privilege is sought were created for the dominant purpose of litigation. This is a conjunctive test. As such, courts have refused to accept the claim of litigation privilege over the documents prepared after the time of litigation was contemplated, where there was no evidence that the subject documents were prepared for the dominant purpose of litigation.[^12]

[81] In Kennedy v. McKenzie, Ducharme J. at para. 23 held that the onus of establishing the factual prerequisites of the claim of litigation privilege over a document rests on the party that seeks to claim privilege. Further, in order to discharge this preliminary onus, the party resisting production is not required to give particulars that would destroy the benefit of any privilege which might properly attach to the documents. However, Ducharme J. observed that in order for a proper determination to be made, they must provide a sufficient description of the documents, the circumstances of their creation and the dominant purpose. He held that once that once this is done, the onus shifts to the party seeking production to justify production on the basis of one of the reasons set out in paras. 42 to 46 of his decision.

[82] Sky submits that the Defendants have not satisfied their onus of establishing the factual prerequisites of the claim of litigation privilege. Further, the Defendants have failed to provide a sufficient description of the documents, the circumstances of their creation and their dominant purpose. I agree.

[83] I have reviewed the Draft Supplementary Affidavit of Documents submitted on behalf of FCA. At Schedule B solicitor-client privilege, there was only reference to correspondence, notes and/or memoranda between FCA and its lawyers Snowden LLP, coverage counsel directly related to legal advice or legal assistance from April 23, 2014 to date. This itemization and description is insufficient. There must be an itemization of documents which are identified by date and sufficient description in order to ascertain what those documents are. We have nothing of the sort apparent in this document. Accordingly, FCA shall produce an itemized and particularized Schedule B relating to solicitor-client privilege.

[84] In respect of litigation privilege I make the same observation. There is one generic reference to correspondence dated October 31, 2013 which relates to handwritten notes. Further and better particularization is required by date and by individual description of each and every written note.

[85] In respect of internal correspondence while there is specific identification of FCA internal emails on November 5 and November 6, 2013, I cannot say the same in respect of correspondence between FCA and Economical for period November 5 – 6, 2013 and April 24 – 28, 2014. Each of the pieces of correspondence between the Defendants needs to be itemized and identified by specific date and descriptor.

[86] I have reviewed the Draft Second Supplementary Affidavit of Documents on behalf of Economical. At Schedule B, solicitor-client privilege, there are two entries. The first entry describes certain correspondence, notes and/or memoranda between Economical and its lawyers John Cannings Barristers and Snowden LLP, coverage counsel directly related to legal advice or assistance. The entry relates to these documents between October 21, 2013 to date. These documents need to be itemized and provided with an individual date and descriptor. Further, under the heading of Solicitor-Client Privilege there are a number of documents that are generically described as documents listed under category B litigation privilege below, to the extent they contain any information directly related to legal advice or assistance. These documents range from October 31, 2013 to April 28, 2014. Once again, this is insufficient. The documents must be individually itemized with a proper description and specific date.

[87] Regarding litigation privilege, while certain dates have been ascribed to Larry Schoch’s handwritten notes about Sky’s claim for coverage, the description remains the same for all of those notes generated between October 31, 2013 and April 24, 2014. Further, there are dates set out between October 31, 2013 and April 24, 2014 which again would describe Mr. Schoch’s electronic system notes regarding Sky Solar’s claim for coverage. Nothing more is indicated. In respect of the handwritten notes and electronic system notes, further description is required. The generic descriptor regarding Sky Solar’s claim for coverage is not sufficient.

[88] Regarding internal correspondence between the dates of November 5 and 7, 2013 the documents referred to need to be individually described with specific dates ascribed to those documents.

[89] I make the same comment with respect to correspondence between FCA and Economical for periods November 5 – 6, 2013 and April 24 – 28, 2014. All the documents referred to need to be individually identified, properly described and specifically dated.

Striking certain paragraphs in the Affidavits of Bradley J. Wells

[90] Firstly, Sky submits that certain paragraphs contain personal opinions and argument on the merits with this motion which Sky says asserts impermissible. Secondly, Sky submits that certain paragraphs in Mr. Wells’ affidavits constitute a waiver of privilege vis-à-vis the communications between Mr. Wells and the clients. Sky seeks to have those paragraphs struck. To this end, two charts were prepared on behalf of Sky; one to deal with improper evidence and the other to deal with the waiver of privilege. Sky seeks a declaration that the Defendants have waived privilege over the professional communications with Mr. Wells that are pertinent to the matter raised in the Wells affidavits.

[91] On behalf of the Defendants, it was submitted that a lawyer’s affidavit was appropriate on a procedural motion such as this. However, it is the content of the affidavits which raises issues. Counsel for the Defendants agrees that in respect of the Wells’ affidavits there are the same two discreet issues.

• Motion to Strike – Alleged improper evidence of Bradley J. Wells

[92] Sky submits that it is not appropriate for an affidavit to contain legal opinions or argument. A lawyer should not swear an affidavit on highly contentious issues. See Ferrara v. Cardenas 2014 ONSC 7119 at para. 15.

[93] Also in issue is paragraph 5, Supplementary Affidavit of Bradley J. Wells sworn March 9, 2015 (“Wells Supplementary Affidavit”).

[94] In respect of paragraphs 12, 15, 16 and 17, all of these paragraphs indicate that to the best of Mr. Wells’ knowledge and belief, Economical has produced all relevant documents and has not located and likely does not have in its possession, control or power any underwriting material referring to Sky Solar. I am of the view that Mr. Wells can depose to these matters as he has. However, I attach little or no weight to this evidence. The better evidence would have come from an affidavit sworn by representatives of his clients.

[95] As for paragraphs 20 and 21, he is in a position to offer his belief about litigation privilege. Once again, when litigation privilege attaches regarding the arbitration proceeding is of less concern to this court. As for when litigation privilege attaches in this action (as of October 30, 2013), is just one factor that this court considers in a determination of the litigation privilege issue.

[96] For these reasons, I would not strike any of the impugned paragraphs.

• Waiver of Privilege

[97] Sky submits that privilege was waived. The Defendants acknowledged that they produced relevant and privileged documents at Tabs 11 – 13 and 15 of FCA’s Affidavit of Documents and 16 – 18 of Economical’s Affidavit of Documents.

[98] I have already considered the litigation privilege issue. I have found that the Defendants have not satisfied their onus to establish that the documents were created for the dominant purpose of litigation. Litigation privilege cannot be asserted to protect from disclosure evidence of a party’s blameworthy conduct. (See R. v. Welsh 2013 ONCA 190 at para. 147).

[99] The party seeking to rely on litigation privilege must establish two elements: (a) that litigation was contemplated; and (b) that the documents for which litigation privilege is sought were created for the dominant purpose of litigation. (See Kennedy v. McKenzie, supra, at paras. 20 and 23).

[100] Documents created for the purpose of investigation are not protected by litigation privilege simply because there was a contemplation of a denial of coverage and anticipated litigation to the anticipated denial. (Heasley v. Labelle 2013 CarswellOnt 17572 at para. 13).

[101] Even though documents prepared after the date on which litigation was first contemplated are presumptively privileged, they may be excluded from privilege if their dominant purpose was not directed at the litigation at bar. (Mamaca v. Coseco Insurance Company, 2007 CarswellOnt 8133 at para. 14).

[102] I have found that the Defendants did not satisfy their onus to establish litigation privilege nor was there evidence adduced that the dominant purpose of the documents was directed towards the litigation at bar. I further found that broad privilege claims will fail if the party asserting the privilege has failed to meet its burden of proof and the Defendants have failed to meet their burden.

[103] I further cited the Intact Insurance case (supra) for the proposition that where relevant documents are pertinent to a bad faith claim against the insurer, the insurer asserting litigation privilege must provide an evidentiary basis for the claim to privilege, such as an affidavit from the claims handler. There was no such affidavit tendered in evidence by a claims handler at Economical.

[104] Mere submission of a claim does not cast the parties in an adversarial role. The Plaintiff submitted proofs of loss on November 14, 2013. Economical denied coverage by correspondence dated November 18, 2013.

[105] An insurance company’s investigation of a policy owner’s loss is not or should not be considered to be a state of anticipation of litigation. (See General Accident Assurance Company v. Chrusz 1999 7320 (ON CA), 1999 CarswellOnt 2898 (C.A.) at paras. 38 and 50).

[106] Lastly, the only way that an insured can ascertain whether his claim was treated in bad faith by his insurer is by production of the insurer’s internal file showing how it handled the investigation and the information available to it when it determined whether to honour the claim or provide coverage. This makes almost every document in the insurer’s file critical and relevant to the issue of bad faith. (Royal & SunAlliance Insurance Co. of Canada v. Fiberglas Canada Inc., 2002 CarswellOnt 3232 at para. 16.

[107] Sky relies on Split Vision Eyewear Inc. v. The Economical Mutual Insurance Company, 2010 BCSC 396 at paras. 90, 91, 93, 94, 97 and 101) in support of the proposition that a client is taken to have waived solicitor and client privilege if her/his counsel swears an affidavit on their behalf on a matter of substance. Where this happens, everything that was available to defence counsel when he made that representation to the court – his file, should be available for scrutiny by the court and the Plaintiff. (Split Vision Eyewear, supra, at paras. 90 and 91)

[108] When a lawyer “enters the fray”, and provides evidence in the form of an affidavit, his client is taken to have waived privilege. A party cannot use privilege as a sword, nor can a party disclose a part of a communication which is favourable, while hiding part of a communication which is unfavourable. A party cannot use a solicitor to avoid having to give evidence under oath. (Split Vision Eyewear, supra, at paras. 93 and 94).

[109] Further, where the insurers investigated the loss, denied coverage, and then chose to tender the affidavit of a legal assistant [lawyer] as opposed to a party itself to represent the merits of the defence court – the insurers must accept the consequence, which is to make available the contents of defence counsel’s file at the time the representation was made. To do otherwise would be to do what Wigmore forbids: to disclose as much as the party pleases while withholding the remainder. (Split Vision Eyewear, supra, at para. 101)

[110] In this case, no affidavits were forthcoming from the clients but rather came from the clients’ lawyer and the Defendants must face the consequences.

[111] Accordingly, the Plaintiff is entitled to the communications and records between Mr. Wells and the Defendants referenced in paragraphs 11, 12, 18 and 19 of Mr. Wells’ affidavit sworn February 26, 2015. As well, the Plaintiff is entitled to the communications and records between Mr. Wells and the Defendants referenced in paragraphs 5 and 6 of Mr. Bradley Wells’ supplementary affidavit sworn March 9, 2015 found at Tab 1 of the Supplementary Responding Motion Record. Mr. Wells’ affidavit sworn February 26, 2015 is found in the Responding Motion Record at Tab 1.

[112] I find the Defendants have waived privilege and they are entitled to disclosure and production of those documents deposed to by Mr. Wells at the various paragraphs cited in his two affidavits.

CONCLUSION

[113] For the reasons given, the Defendants shall produce the following documents to the Plaintiff within 30 days of this order:

(a) The Agency Agreement between Economical and FCA and other related documents

(b) The complete Underwriting file;

(c) Claim and Investigation files in relation to the 2012 Failure and 2013 Failure (more particularly described at para. 48 herein);

(d) Correspondence between Economical and/or FCA and John Cannings in relation to Sky’s coverage request prior to a denial of coverage in October 30, 2013, save and except for any confidential communication;

(e) Delivery of a Properly Particularized Schedule B to the Affidavits of Documents of Economical and FCA; and

(f) Communications and records between Bradley J. Wells and the Defendants referred to in his Affidavit sworn February 26, 2015 at paras. 11, 12, 18 and 19 and referred to in his Supplementary Affidavit sworn March 9, 2015 at paras. 5 and 6.

[114] Costs shall be determined by way of written submissions. Counsel shall exchange a concise statement regarding costs, no longer than two pages, a Costs Outline, a Bill of Costs, together with a Brief of Authorities and file same with my judicial assistant at Barrie within 30 days of this Order.

DiTOMASO J.

Released: July 22, 2015

[^1]: Sycor Technology Incorporated v. Kiaer, 2012 ONSC 5285 (S.C.J.), at para. 23
[^2]: Affidavit of Bradley J. Wells sworn February 26, 2015, Exhibit H
[^3]: 702535 Ontario Inc. v. Non-Marine Underwriters, Lloyds London, England, 2000 5684 (ON CA), 2000 CarswellOnt 904 (C.A.) at para. 30
[^4]: Mamaca (Litigation Guardian of) v. Coseco Insurance Co. 2007 CarswellOnt 1828 (S.C.J.), at para. 12, aff’d 2007 CarswellOnt 8133 (S.C.J.), leave to appeal denied (S.C.J. Div. Crt.); Royal & SunAlliance Insurance Co. of Canada v. Fiberglas Canada Inc., 2002 CarswellOnt 3232, aff’d 2002 CarswellOnt 8491 (SCJ), at para. 16
[^5]: Amended Statement of Claim, para. 71(b), Tab 2A. Sky’s Motion Record, p.24; Statement of Defence, paras. 18, 20 and 22, Tab 2B, Sky’s Motion Record, pp.34‑35
[^6]: Amended Statement of Claim, para. 71(a), (b), Sky’s Motion Record, p.24; Statement of Defence, para. 24, Tab 2B, Sky’s Motion Record, p.35
[^7]: Email dated November 15, 2013 from Mr. Larry Schoch (Economical) to Mr. Warren Griths (FCA) and Mr. John Cannings, Sky’s Motion Record, p.156
[^8]: General Accident Assurance Co. v. Chrusz (“General Accident Assurance”), 1999 7320 (ON CA), 1999 CarswellOnt 2898 (C.A.) at para. 95
[^9]: Intact Insurance Co. v. 1367229 Ontario Inc. (“Intact Insurance”), 2012 CarswellOnt 11874 (S.C.J.) at para. 14
[^10]: Blank v. Canada (Department of Justice) (“Blank”), supra, at para. 28
[^11]: Intact Insurance, supra, at para. 15
[^12]: Kennedy v. McKenzie, 2005 CarswellOnt 2109 (S.C.J.), at paras 20 and 23