Court File and Parties

Court File No.: 56704/16 Date: 2017-06-27 Superior Court of Justice – Ontario

Re: Donna Woods, plaintiff And: Craig Jones and TD Home & Auto Insurance Company, defendants

Before: Mr Justice Ramsay

Counsel: Joseph Dallal for the plaintiff; Daniel Siu for the defendant TD Home & Auto Insurance Company, no one for Craig Jones

Heard: June 26, 2017 at St Catharines

Endorsement

[1] The plaintiff asked for an order disqualifying Benjamin Dillon and any member of his firm from acting in this action for the defendant TD Home & Auto Insurance Company (“TD Insurance” or “TD”). I made the order from the bench, with written reasons to follow. These are they.

[2] The following facts are agreed for my purposes:

a. The plaintiff stopped her Corvette at a red light and was rear-ended by the defendant Craig Jones, who was operating an electric bicycle. b. Jones was not insured. c. The defendant TD Insurance was the plaintiff’s accident benefits insurer and insurer for damage done by an uninsured motorist. d. The plaintiff claimed accident benefits. TD denied the claim initially but ultimately settled. At that point the claim had got to the stage of an appeal before the Licence Appeal Tribunal. TD was represented by Mr Dillon on the claim. e. The plaintiff is suing Jones for negligence. TD is a defendant on the action for its coverage of damage caused by an uninsured motorist. Mr Dillon represents TD in this action. f. During the accident benefit claim, the plaintiff conveyed confidential information to the defendant TD. g. TD maintained a wall between its accident benefits adjuster and its tort adjuster and did not pass confidential information between them. h. Mr Dillon and his firm (in this case, TD’s legal department) have never acted as solicitor for either the plaintiff or Mr Jones.

[3] The plaintiff submits that Mr Dillon received confidential information from the plaintiff while his principal, TD Insurance, was in a fiduciary relationship with her, and that he is therefore disqualified from acting for TD on the tort claim, in which its interest is adverse to hers. The plaintiff submits that Dervisholli v. Cervenak, 2015 ONSC 2286 (Div. Ct) is binding and applicable authority. She also relies on Ascani v. Ascani, 2016 ONSC 5021 in which Master Champagne applied Dervisholli.

[4] TD submits that Dervisholli and Ascani are distinguishable because in the case at bar, only one insurance policy and one insured are involved and there is no danger of information passing to a third party.

[5] The starting point must be the Supreme Court of Canada’s decision in MacDonald Estate v. Martin, [1990] SCJ No. 41. In that case, the court dealt with a lawyer who had represented one party and then became a member of the firm that acted for the opposing party. The court said, among other things:

46 …In my opinion, once it is shown by the client that there existed a previous relationship which is sufficiently related to the retainer from which it is sought to remove the solicitor, the court should infer that confidential information was imparted unless the solicitor satisfies the court that no information was imparted which could be relevant. This will be a difficult burden to discharge. Not only must the court's degree of satisfaction be such that it would withstand the scrutiny of the reasonably informed member of the public that no such information passed, but the burden must be discharged without revealing the specifics of the privileged communication. Nonetheless, I am of the opinion that the door should not be shut completely on a solicitor who wishes to discharge this heavy burden.

47 The second question is whether the confidential information will be misused. A lawyer who has relevant confidential information cannot act against his client or former client. In such a case the disqualification is automatic. No assurances or undertakings not to use the information will avail. The lawyer cannot compartmentalize his or her mind so as to screen out what has been gleaned from the client and what was acquired elsewhere. Furthermore, there would be a danger that the lawyer would avoid use of information acquired legitimately because it might be perceived to have come from the client. This would prevent the lawyer from adequately representing the new client. Moreover, the former client would feel at a disadvantage. Questions put in cross-examination about personal matters, for example, would create the uneasy feeling that they had their genesis in the previous relationship.

[6] MacDonald Estate deals with a solicitor acting as solicitor for two opposing clients. In Dervisholli the Divisional Court applied the principle to an insurance company lawyer acting on an accident benefits claim and a tort claim on the basis that the insurance company, and therefore its lawyer, is in a fiduciary relationship with the claimant on the accident benefits claim, while in an adversarial relationship on the tort claim.

[7] In Dervisholli, the plaintiff and the defendant were operators of two motor vehicles that were alleged to have been involved in an accident. By coincidence they were both insured by State Farm. State Farm therefore had to respond to the plaintiff’s accident benefits claim on her insurance policy and to defend the other driver for tort liability on his policy. As it happens, State Farm denied coverage on the basis that the accident had been staged and rather than defend the defendant, they added themselves as a statutory third party, but this was considered to be beside the point. The court held that State Farm was not entitled to use the same law firm in both proceedings.

[8] M.L. Edwards J. said:

56 This court has the opportunity to clarify the duties of an insurer like State Farm, which has the dual responsibility to provide both third party liability tort coverage as well as pay statutory accident benefits to a plaintiff. Whether or not an insurer is named as a defendant, or has itself added as a statutory third party where that insurer also has the contractual obligation to pay statutory accident benefits, such a situation triggers privacy concerns on the part of the claimant seeking payment of statutory accident benefits. In this situation, if it was not already made clear by the Bulletin, the insurer with those dual responsibilities has an obligation to set up a firewall that prevents, without the consent of the insured/plaintiff, any dialogue or any transfer of the plaintiff/claimant's confidential accident benefit file to the tort adjuster.

57 It does not matter that State Farm, with its responsibility to provide third party coverage and/or having added itself as a statutory third party, will ultimately come into possession of much of what is contained in the plaintiff's accident benefit file because of the disclosure obligations that the plaintiff has under the Rules. While this argument might have some preliminary appeal, in that State Farm and by implication the Reisler Law Firm will come into possession of most of the documentation found in the plaintiff's accident benefit file during the course of the tort proceedings, it fails to recognize that such information only comes into State Farm's possession with the consent of the plaintiff. State Farm does not have an automatic right to that information. The plaintiff has a privacy interest in the confidential health information supplied to State Farm, and it is only with the consent of the plaintiff, or by order of the court, that such information can be communicated to State Farm in its capacity as the statutory third party, or as the insurer obliged to provide coverage to the defendant, Cervenak.

58 State Farm had an obligation to maintain the confidentiality of the plaintiff's accident benefit file. State Farm may very well be one distinct corporate entity and, as such, has possession of both information found within the accident benefit file and the tort file under one roof. Nonetheless, the insurance industry has recognized and implemented the principle of a firewall between the accident benefit department and the tort department within an insurance company. While the bodily injury adjuster for State Farm might very well be tempted to take a surreptitious look at the accident benefit file, such conduct is not condoned within the insurance industry, as reflected in the Bulletin. 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 benefit side, by retaining the same law firm and disclosing confidential information to that law firm, resulted in a disqualifying conflict of interest as set forth in MacDonald Estate v. Martin, [1990] 3 S.C.R. 1235.

[9] In Ascani, Master Champagne applied Dervisholli to a case in which a wife was injured as a passenger in her husband’s motor vehicle. The insurer used one lawyer to respond to the wife’s accident benefits claim before an arbitrator, and a lawyer from the same firm to defend the husband in the wife’s tort action. Only one insurance policy was in question, but Master Champagne ruled:

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.

[10] In Dervisholli, then, the insurance company had two clients on two policies. In Ascani, the insurance company had two clients on one policy. In the case at bar TD Insurance has one client with two claims on one policy. The alleged distinction seems contrived. It has nothing to do with the principle of the thing, which is that for the sake of the integrity of the court, the legal profession and the accident benefits regime, someone who is required to disclose confidential information in a fiduciary relationship should not be cross-examined in court by the party to whom the confidential information was disclosed.

[11] The separation between TD’s accident benefits adjuster and its tort adjuster is beside the point. The same lawyer is privy to the information obtained by both sides of the file.

[12] For these reasons I disqualified Mr Dillon and his firm and removed him from the record.

J.A. Ramsay J.