Court File and Parties

Court File No.: CV-18-135 Date: 2021-02-09 Ontario Superior Court of Justice

Between: Marnic Geldhof, Plaintiff And: Absolute Exterior Solutions Inc. and Economical Mutual Insurance Company, Defendants

Counsel: James E. S. Allin, Counsel for the Plaintiff Bevin E. Shores, Counsel for the Defendants

Heard: February 2, 2021.

Before: Thomas, RSJ.

The Motion

[1] The plaintiff Marnic Geldhof, (Geldhof), brings this motion for an order compelling a representative of the defendant Economical Mutual Insurance, (Economical), to reattend at an examination for discovery and to answer refused questions.

[2] Counsel for the defendants Absolute Exterior Solutions Inc., (Absolute), and Economical resists on the basis that the information sought is privileged. The defendants further seek an order striking from the plaintiff’s motion material the references to the potentially privileged information.

Background

[3] Geldhof owns a home located in Wallaceburg, Ontario. In September, 2016 Geldhof hired Absolute to install a steel roof on his home.

[4] It seems without dispute that Absolute’s work was defective and the Geldhof residence was severely damaged by rain in the fall of 2016.

[5] For whatever reason, Geldhof’s home insurer denied coverage. When it was clear to Absolute that Geldhof would be looking to it for reimbursement for repairs, Absolute contacted its insurer, Economical.

[6] Geldhof had conversations with Rebecca Carley, (Carley), a claims adjuster with Economical. As would be expected, Carley had conversations with Absolute in an attempt to resolve this claim while continuing to dispute the position of Geldhof’s first party insurer, RBC/Aviva, that it need not respond.

[7] Ultimately, Economical retained Belfor Property Restoration, (Belfor), to carry out the repairs. Geldhof, however, is apparently a licenced carpenter. He was unhappy with what he saw as the substandard repair work of Belfor. It is his position that he undertook substantial repair work himself. It is Geldhof’s position that, as a result, he saved Economical money by reducing Belfor’s bill, and that he should be reimbursed for the labour and materials he expended to complete the repairs to his satisfaction.

[8] Geldhof made a claim to Economical for the value of his repair work at Belfor rates. Economical has not paid those amounts. As a result, this action was commenced claiming $100,000 for breach of contract.

[9] Geldhof’s claim in contract emanates from two letters which form part of the material before me and are referenced in the paragraphs of his affidavit that Economical moves to strike.

[10] It is not my intention to strike these paragraphs and the content of the letters is important to my resolution of this motion.

[11] There is no doubt that Geldhof and Carley spoke on the telephone on November 3, 2016 and that subsequently Carley wrote to both Geldhof and Economical’s insured, Absolute.

[12] The letter of November 9, 2016 from Carley to Geldhof is set out below:

This letter is a follow up to our conversation on November 03, 2016. Since our conversation there has been a development in the manner in which Economical Insurance can proceed.

While we do not agree with RBC / Aviva’s position to deny first party coverage to you under your Homeowners Insurance – Enhanced Plus Policy, we recognize the need to assist you with this claim.

Economical Insurance is prepared to hire a restoration company of your choice to complete the emergency clean up. We agree to pay 100% of the emergency clean up portion of this loss.

Economical insurance is prepared to hire a company of your choice to complete the repairs to your home at 7049 Dufferin Ave. in Wallaceburg. The total cost of repairs will be subject to depreciation and there will be an uninsured portion of the repair invoice. The new development here is that our insured has agreed to personally pay for this uninsured portion of the loss.

Should you and your family require an alternate living arrangement while the repairs to your home are underway, Economical Insurance will reimburse you for reasonable costs associated with the alternate living arrangement.

Further to our conversation I understand that you have retained counsel and I urge you to discuss this letter with your lawyer right away. Failure to mitigate your damages will negatively impact this claim.

[13] On the same date Carley, on behalf of Economical, wrote to Absolute confirming that Economical would hire a restoration company to clean up the home and a company of Geldhof’s choice to complete the repairs. That letter also asks Absolute to confirm that it was committed to paying the uninsured portion of these costs so that Geldhof was not out of pocket. The uninsured portion to be at least the value of depreciation applied by Economical.

[14] On the same date Absolute advised that they would pay any shortfall amount.

[15] At the examination for discovery of Carley held on September 10, 2020, counsel for the plaintiff Geldhof sought to question Carley about her work on this claim file after it was assigned to her. He sought production of all her notes as Economical’s adjuster on this claim and sought an answer as to why Economical was not paying Geldhof.

Positions of the Parties

[16] Counsel for the plaintiff Geldhof argues that at discovery he is entitled to all relevant information even if it is deemed inadmissible at trial, consistent with r. 31.06. It is his position that the information he seeks is relevant in that it forms context for the conversation and letters of November, 2016 and is important to understanding the creation of the contract.

[17] Counsel brings to my attention the decisions of Sattva Capital v. Creston Moly, 2014 SCC 53 and Way v. Schembri, 2020 ONCA 691 at para. 21. Paragraph 47 of Sattva describes developments in the law regarding contractual interpretation:

[47] Regarding the first development, the interpretation of contracts has evolved towards a practical, common-sense approach not dominated by technical rules of construction. The overriding concern is to determine “the intent of the parties and the scope of their understanding” (Jesuit Fathers of Upper Canada v. Guardian Insurance Co. of Canada, 2006 SCC 21, [2006] 1 S.C.R. 744, at para. 27, per LeBel J.; see also Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, [2010] 1 S.C.R. 69, at paras. 64-65, per Cromwell J.). To do so, a decision-maker must read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract. Consideration of the surrounding circumstances recognizes that ascertaining contractual intention can be difficult when looking at words on their own, because words alone do not have an immutable or absolute meaning:

No contracts are made in a vacuum: there is always a setting in which they have to be placed. . . . In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.

[18] Counsel for the plaintiff acknowledges the presence of the term “without prejudice” in the November 9th letter to his client. But relies upon the principle that litigation privilege cannot be claimed once a settlement agreement has been concluded.

[19] I am referred to Sun Life Trust Co. v. Dewshi. In Sun Life the defendant brought a motion to strike certain paragraphs of the statement of claim and an affidavit claiming litigation privilege in the content.

[20] At paras. 16 and 17, Simmons J. discussed the effect of settlement on litigation privilege:

[16] In so far as the question of whether Sun Life falls within an exception to the rule is concerned, there would appear to be no doubt that litigation privilege ceases to apply where the matter in issue between the parties is either the existence, enforcement or interpretation of a settlement agreement.

[17] The following comments are made in Sopinka and Lederman, The Law Evidence in Canada (Toronto: Butterworths, 1992) at pp. 728, 730-1:

It is not an absolute rule that communications made bona fide to induce the settlement of litigation are never to be disclosed. Fraser J., in I. Waxman & Sons Ltd. v. Texaxo Canada Ltd., tersely listed the exceptions:

"... Also it would seem that where the correspondence constitutes or leads up to a new contractual relation, which is in issue, in some or all cases, it ceases to be privileged ..."

The exceptions to the rule of privilege find their rationale in the fact that the exclusionary rule was meant to conceal an offer of settlement only if an attempt was made to establish it as evidence of liability or a weak cause of action, not when it is used for other purposes.

[21] In Sopinka, Lederman and Bryant, The Law of Evidence in Canada (Lexis Nexis / Butterworths, Toronto and Vancouver, 1999) these concepts are discussed at p. 815-817:

D. Exceptions to the Privilege

4. Concluded Settlement Agreement in Issue

14.223 If the negotiations are successful and result in a consensual agreement then the communications may be tendered in proof of the settlement where the existence or interpretation of the agreement is itself in issue. Such communications form the offer and acceptance of a binding contract, and thus may be given in evidence to establish the existence of a settlement agreement. Some courts have made the overly broad statement that, once a concluded settlement is reached, the privilege is lost. This suggests that it is lost for the purpose of any subsequent suit whether between the parties or strangers, no matter whether the agreement itself is put in issue in subsequent proceedings.

14.224 However, the better view is that the privilege applies not only to failed negotiations, but also to the content of successful negotiations, so long as the existence or interpretation of the agreement itself is not in issue in the subsequent proceedings and none of the exceptions are applicable. The rationale behind the privilege supports this position. If the parties to settlement negotiations believed that their statements might be used by a third party in subsequent proceedings, whether or not they reached agreement, they might be less frank in those discussions. [emphasis added]

[22] The above passages were relied upon by Master Graham in Modine Manufacturing v. The Rose Corporation. In Modine, the defendant sought to strike from the statement of claim references to a negotiated release, the effect of which would be to eliminate questioning on this area in discovery. The defendant claimed the release and negotiations surrounding it were subject to settlement privilege.

[23] Master Graham resolved this issue at para. 38:

[38] As reflected in my decision on the proposed amendments to the Statement of Claim and the content of the proposed Reply, information relating to the alleged settlement between the parties that might otherwise be protected by settlement privilege is properly the subject of examination for discovery because the existence, enforcement and interpretation of the settlement are in issue in the lawsuit. Communications between the parties regarding the settlement, both before and after the alleged settlement was reached, are relevant to the issue of the true intentions of the parties with respect to the scope of the settlement. The questions relating to those communications must be answered.

[24] I acknowledge that the cases seem to use the terms “litigation privilege” and “settlement privilege” interchangeably. It would seem in a different context this might be important to me. Here it is not.

[25] Counsel for the defendants reminds the Court that Economical is not the insurer of Geldhof. Counsel resists the motion on the following grounds:

(a) There was never an agreement between Economical and Geldhof and the discussions and correspondence were only attempts to settle a claim that would become litigious. (b) An insurer’s investigation into the handling of a third party claim against the insured is privileged. (c) An adjuster’s file on a third-party tort claim against an opposing party is privileged and alleging a contract is not an end around a privilege.

[26] In support of its position, the defendants argue that the discussions between Geldhof and Carley were clearly subject to litigation/settlement privilege as (1) there was the clear potential for litigation, (2) the communications were made “with the express or implied intention it would not be disclosed in a legal proceeding in the event negotiations failed”, and (3) the purpose was to attempt to effect a settlement. (Hollinger Inc. (Re) (2011), 2011 ONCA 579, 107 O.R. (3d) 1 (C.A.) para. 16).

[27] The defendants maintain that the plaintiff seeks this information from Economical in a classic fishing expedition attempting to prop up a weak contractual claim. They ask me to draw a clear distinction here as this is really a third-party claim which demands strict adherence to the concept of privilege.

[28] In Panetta v. Retrocom Mid-Market Real Estate Investment Trust, 2013 ONSC 2386, Quinn J. considered a slip and fall claim which took place in a commercial parking lot owned by Retrocom. Wal-Mart was the commercial tenant and its insurers spoke to the plaintiffs. The motion, in part, sought the notes and file contents of Retrocom’s contact with Wal-Mart’s adjusters which were the subject of a refusal at discovery.

[29] Quinn J. provides some significant conclusions at paras. 40 and 61 of Panetta:

[40] It was correctly pointed out by Wahlman in her submissions that, in examining the authorities dealing with the issue of the disclosure of notes, records and files of insurance adjusters, we must be careful to distinguish first-party claims (with their attendant contractual and statutory obligations) from tort claims. The case before this court is a tort claim.

[61] I think that, in third-party or tort claims (as opposed to claims by an insured against his or her own insurer), there is no preliminary investigative phase where privilege does not attach to notes, reports and files of adjusters. In third-party insurance claims, the sole reason for any investigation by or on behalf of an insurer is because of the prospect of litigation. It is naive to think otherwise; and the fact that the investigation may be used to arrive at a pre-lawsuit settlement does not detract from the point that I make. The prospect of litigation inherently includes the prospect of settlement.

[30] As pointed out by defendants’ counsel, the nexus between litigation privilege and without prejudice settlement privilege, was considered by Weekes J. in Allan v. CHC Casinos Canada Ltd., (2005), 77 O.R. (3d) 653 (S.C.J.): … “I am not persuaded that in circumstances such as these there is a difference between investigating a claim for the purpose of negotiating a settlement and investigating a claim for the defence of litigation. They are simply way points on the same path.” (Allan, para. 12).

Analysis

[31] Both counsel took the position on this motion that I could resolve the issue as to the relief claimed without determining the ultimate issue in the litigation; that is was there a contrast between Geldhof and Economical? That becomes difficult when the strength of the plaintiff’s position is that he is entitled to have his questions answered as those answers may inform the terms and existence of the contract itself.

[32] Without determining the contractual issue, I offer the following reflections on the correspondence between Economical and Geldhof, dated November 9, 2016:

(1) The letter is “without prejudice”; (2) The letter ends with the following paragraph “Further to our conversation I understand that you have retained counsel and I urge you to discuss this letter with your lawyer right away. Failure to mitigate your damages will negatively impact this claim.” (3) There is no discussion about payment for any work done by Geldhof himself.

[33] We know that Geldhof was content that Belfor commence the repairs, and consistent with the content of the letter, Economical paid Belfor for the work it completed.

[34] In the circumstances here, I find that the plaintiff is entitled to question Carley about any other communications she had with Geldhof during the time of these negotiations. The plaintiff is also entitled to know Carley’s position on the terms of the resolution of the potential claim at the time Belfor was retained to complete the repairs. There is an argument here that a contract was in place and the plaintiff is entitled to explore the communications further, but only to the extent set out here.

[35] Except to that extent however, I find that the investigative steps taken by Carley as the adjuster on this claim remain privileged as do the contents of her file, including her notes. Counsel for the defendants appropriately directed Carley to refuse to answer those questions. The plaintiff can point to no conversation and no document that he seeks disclosed. The plaintiff cannot be allowed to cast the net as wide as his counsel wishes.

[36] As to the final question posed by plaintiff’s counsel “why is Economical not paying Mr. Geldhof”, that question contemplates that Carley would provide the entire factual and legal basis for the defence. The question is improper, and in any event, was answered by the response “that the defendants have taken issue with the claims and put the plaintiff to the proof of them.”

Conclusion

[37] Considering how this motion has been resolved, should the plaintiff seek to question Carley on the areas I have permitted, Carley will reattend to answer those questions. The cost of the reattendance will be borne by the plaintiff.

[38] At the time of argument, I asked counsel to attempt to agree on appropriate costs, win or lose. If that has taken place, I would ask that that amount be communicated to me. If there has been no agreement, I will receive the written submissions of both parties limited to five pages each (not including the bill of costs) directed to the trial co-ordinator in Chatham. If written submissions are not received within 30 days of the release of these reasons, there will be no order as to costs.

Regional Senior Justice B. G. Thomas Released: February 9, 2021.