Court File and Parties

COURT FILE NO.: CV-15-65711 DATE: May 17, 2022

SUPERIOR COURT OF JUSTICE – ONTARIO

BETWEEN: Barbara Lynn Carroll by her litigation guardian Shannon Luknowsky, Plaintiff

AND: Aviva Canada Inc. and Pilot Insurance Company, Defendants

BEFORE: Honourable Mr. Justice Martin James

COUNSEL: Joseph Obagi, Counsel for the Plaintiff Brian G. Sunohara, Counsel for Defendants

DATE HEARD: August 5, 2021

REASONS FOR DECISION

James J

[1] This is a much-delayed decision due to the pandemic and other factors regarding a motion brought by the plaintiff for a further and better affidavit of documents. The plaintiff also requests an order requiring production of communications exchanged between Aviva Canada Inc. and counsel for Robert and Caroline McEwen and/or “Traders.” I understand that the reference to “Traders” to be intended to refer to the Traders General Insurance Company.

[2] This is the third motion on the issue of documentary production and the form of the affidavits of documents prepared by the parties. The first motion was brought by the plaintiff and the decision by Associate Justice Kaufman is reported at 2020 ONSC 4683. The second motion was brought by the defendants and was also heard by Associate Justice Kaufman and is reported at 2020 ONSC 6388.

[3] For reasons that are not explained, the motion was brought and argued on a draft, unsworn affidavit of documents. It may have been prudent to reject the motion on that basis alone, but due to the inordinate delay it seemed appropriate to provide some guidance to the parties on the issues raised.

[4] The dispute between the parties has its origins in an action for damages arising from an accident wherein the plaintiff sustained catastrophic injuries when struck by a vehicle while she was walking along a road. The defendants in the initial lawsuit were Robert and Caroline McEwen, the driver and owner respectively of the vehicle that struck the plaintiff. They were insured by the Traders General Insurance Company (“Traders”).

[5] The plaintiff’s own insurer was the Pilot Insurance Company (“Pilot”). Pilot was a named party in the initial lawsuit because the plaintiff’s damages far exceeded the McEwens’ policy limit of $1,000,000 and the plaintiff had the benefit an the OPCF 44R endorsement from Pilot which provided protection in the case of a claim against an inadequately insured motorist.

[6] At some point Aviva Canada Inc. “acquired” Pilot. The details of the acquisition are unclear including when it occurred. There is a lack of clarity in the evidence regarding the corporate relationships. Was Pilot subsumed into Aviva or did it maintain an independent existence, perhaps as a subsidiary corporation? The plaintiff says that unbeknownst to her, Aviva insured both parties at the time of the accident. The Court of Appeal in its decision following the trial of the initial action (reported at 2018 ONCA 902 at para. 4) said that Aviva was the insurer for the McEwens. At para. 5 the Court said that Pilot was the plaintiff’s insurer. At para. 6 the Court said, “By coincidence, the two insurance policies—the Aviva policy and the Pilot policy—are funded out of the same pocket, as Aviva has since acquired Pilot.” There is no mention of Traders. In an earlier decision in this action Associate Justice Kaufman said in his endorsement (reported at 2020 ONSC 6388 at para. 2) “that Aviva owns both Traders and Pilot Insurance”. It appears to be common ground for the purposes of this motion that Pilot and Traders are both owned by Aviva Canada Inc. I will refer to the entities as “Pilot/Aviva” and “Traders/Aviva”.

[7] The plaintiff says that Pilot/Aviva, as the plaintiff’s first party insurer, owed both contractual and good faith obligations to the plaintiff in two ways: pursuant to the OPCF 44R endorsement to contribute to a shortfall in the insurance coverage available from Traders/Aviva and as the plaintiff’s no fault accident benefits liability provider.

[8] The McEwens insurance limits were $1,000,000 payable by Traders/Aviva. The plaintiff’s OPCF 44R coverage provided up to an additional $1,000,000 payable by Pilot/Aviva.

[9] This motion is brought within the action for bad faith against Pilot/Aviva regarding how it handled the plaintiff’s claim in relation to the OPCF 44R endorsement. Quoting from Associate Justice Kaufman’s summary of the situation contained in his October 20, 2020, endorsement:

(5) The plaintiff commenced this separate action against Pilot and Aviva on September 11, 2015. She alleges that the defendants breached their duty of good faith by colluding with (Traders/Aviva) in the litigation of her tort claim. She argues that (Pilot/Aviva) breached its duty of good faith when it made joint offers to settle and refused to disclose their individual contribution to the joint offers. She claims damages in the amount of $1,000,000 for breach of the duty of good faith and $1,000,000 in punitive damages

[10] The moving party’s concerns were fueled in part by Pilot/Aviva’s changes in its representation. Initially, Pilot/Aviva retained Keith Smokum of Smokum, Zarnett Percival LLP to provide representation in response to the plaintiff’s OPCF 44R claim. On August 14, 2014, Pilot/Aviva change its counsel on the OPCF claim from Mr. Smokum to Robert Sutherland. On February 5, 2015, Pilot/Aviva retained Kevin Nearing on the OPCF issue, the same lawyer who had been hired by Traders/Aviva to represent the McEwens on the tort claim. The plaintiff objected to this perceived conflict of interest and Pilot/Aviva reinstated Mr. Sutherland to defend the OPCF claim.

[11] Quoting again from Associate Justice Kaufman’s endorsement:

(3) It is undisputed that (Traders/Aviva) and (Pilot/Aviva) offered to settle the action in early September 2015 for $1,757,500 plus costs. On September 10, 2015, the plaintiff indicated to counsel for (Pilot/Aviva) that she would be willing to resolve the action against it separately if (Traders/Aviva’s) contribution to the joint offer was less than the full amount of its limits ($1,000,000 plus costs). She asked that (Pilot/Aviva) confirm if its contribution to the $1,757,500 joint offer exceeded $757,500. (Pilot/Aviva) and (Traders/Aviva) did not reveal their respective contributions towards the joint offer. On September 11, 2015, the insurers offered to settle the claim for $2,150,000, inclusive of interest and costs. In the end, the parties never reached an agreement and the matter proceeded to trial.

[12] The trial resulted in damages awarded in favour of the plaintiff for $2,600,000 including costs of $375,000, thereby exceeding the coverage available under both policies.

[13] In the present lawsuit the plaintiff obtained an order requiring the Pilot/Aviva to produce a further and better affidavit of documents disclosing all relevant documents relating to its conduct throughout the investigation and assessment of the plaintiff’s underlying claim, its conduct through the settlement negotiation process and its conduct of the underlying trial. Pilot/Aviva was also ordered to consider whether any post trial documents were relevant to the issues raised in the pleadings and if so, disclose those documents. In his ruling Associate Justice Kaufman made it clear that while he required Pilot/Aviva to list and describe certain documents from the Pilot/Aviva’s files, the issue of whether privilege attached to any of them was beyond the scope the motion.

[14] The plaintiff says that the further and better affidavit of documents did not disclose all the documents ordered to be disclosed by Associate Justice Kaufman.

Position of the Plaintiff

[15] The plaintiff alleges that Pilot/Aviva breached its duty of good faith by colluding with its related company, Traders/Aviva. They were represented by the same counsel, retained a joint expert and made joint offers to settle.

[16] The plaintiff says that Pilot/Aviva breached its obligations to her by refusing to disclose its individual contribution to the joint settlement offer.

[17] The plaintiff is seeking another order that Pilot/Aviva produce a further and better affidavit of documents correcting the deficiencies in the current Schedule B list of documents and, where solicitor and client privilege has been improperly claimed, to disclose those documents in a revised Schedule A.

[18] The plaintiff relies on the decision in Sky Solar (Canada) Ltd v. Economical Mutual Insurance Company, 2015 ONSC 4714. Sky Solar was a solar energy developer. It invited tenders on several projects that included a requirement that the successful proponent provide proof of insurance including general liability insurance with a minimum of $2,000,000 in coverage with Sky Solar named as an additional insured. Marnoch Electrical Services Inc. was the successful bidder. The action arose due to the failure of two transformers in 2012 and 2013 which resulted in claims against Marnoch. Economical retained John Cannings to defend Marnoch. Sky Solar contended that Economical and its broker, FCA, adopted an adversarial approach through Marnoch’s defence counsel. Sky Solar never received an explanation for the denial of coverage or a response to its Proof of Loss. It was never contacted by an adjuster appointed by Economical.

[19] Sky Solar included a claim for damages for breach of utmost good faith and fair dealing against Economical and FCA. Upon receipt of the defendants’ Affidavit of Documents, Sky Solar sought a further and better affidavit that included production of the agency agreement between Economical and FCA, the underwriting file, the claims and investigations file and correspondence with Mr. Cannings.

[20] The court held that the two primary issues were coverage and the bad faith claim and went on to say:

[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.

[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.

[66] I find the coverage and duty of utmost good faith issues are joined by the pleadings. Where Economical repeatedly claims pleads that it “fully investigated” the losses before denying coverage, Economical is compelled to produce 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 un the Policy prior to the denial of coverage in (sic) 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.

[21] On the issue of correspondence between Mr. Cannings and Economical, Sky Solar sought production of documents in relation to the coverage issue but not in relation to the litigation between Sky Solar and Marnoch. The statement of defence never identified Mr. Cannings as coverage counsel but defence counsel advanced this characterization for the first time at the hearing of the motion. Defence counsel submitted that to the extent that Mr. Cannings communicated with Economical on the coverage issues, there was solicitor-client privilege. The court noted that the onus of establishing a privilege rested with the party asserting it and concluded that the defendants had not met their onus in relation to correspondence on coverage issues leading up to the denial of coverage. The court also noted that privilege does not attach to all communications or documents that pass between a lawyer and his or her client, only when legal advice is sought from, or provided by the client’s lawyer.

[22] The plaintiff also relies on Blank v. Canada (Minister of Justice), 2006 SCC 39 which stands for the proposition that litigation privilege does not protect from disclosure evidence of the claimant party’s abuse of process or similar blameworthy behaviour. Even where the materials sought would otherwise be subject to litigation privilege, the party seeking disclosure may be granted access to them upon prima facie showing of actionable misconduct by the other party. Litigation privilege attaches to documents created for the dominant, rather than substantial, purpose of litigation which is more compatible with the contemporary trend favouring increased disclosure. Litigation privilege should be viewed as a limited exception to the principle of full disclosure and not as an equal partner of the broadly interpreted solicitor-client privilege.

Position of the Defendants

[23] Pilot/Aviva opposes the plaintiff’s motion for another further and better affidavit of documents.

[24] The defendants also rely on the Blank case for the proposition that litigation privilege can exist following the completion of the litigation that gave rise to the privilege if there are subsequent, closely related proceedings that involve the same or related parties and that arise from the same or a related cause of action.

[25] It says that the plaintiff is seeking production of privileged documents. Litigation privilege does not end where there are closely related proceedings. The plaintiff’s current bad faith action is closely related to the plaintiff’s initial action.

[26] In Smith v. London Life Insurance Company, 2007 CanLII 745, the Divisional Court dealt with a situation where the plaintiff commenced an action for disability benefits which were ultimately reinstated. Before the settlement of the coverage action, the plaintiff commenced another action alleging breach of duty of care including duty of good faith and fair dealing based on the insurer’s “unwarranted, willful and high-handed conduct” that was carried on with “conscious disregard for the plaintiff’s rights”. The disability claim and the bad faith claim were found to be “closely related” within the meaning of the Blank case.

[27] There is no “bad faith insurance claim” exception to either litigation privilege or solicitor-client privilege. Also, the plaintiff has not shown that solicitor-client privilege has been waived.

Discussion and Analysis

[28] Specifically, the notice of motion requests “an Order requiring production of any and all communications exchanged between Aviva and counsel for the McEwens and/or Traders”. Under the Heading “Grounds for the Motion”, the plaintiff says in part as follows:

“(b) the Defendants’ Schedule “B” does not comply with the Order of Master Kaufman, dated October 20, 2020”.

[29] No particulars are provided for the bald assertion in subparagraph (b) unless one assumes that the particulars are set out in the following subparagraphs (c) and (d) which provide:

“(c) the Defendants have improperly claimed solicitor and client privilege on exchanges with third parties which are not the proper subject-matter of solicitor and client privilege;

(d) the Defendants have failed to provide dates of documents identified in Schedule “B” of their further and better affidavit of documents;…”

[30] In their responding motion record, the defendants included a draft “revised further and better affidavit of documents” bearing the same date as the previous affidavit of documents, being September 4, 2020. Considering the controversy respecting the defendants’ affidavit of documents, one would have thought that the revised further and better affidavit of documents would have been sworn and dated subsequent to the previous affidavit of documents. This does not, however, appear to have been the case.

[31] The defendants state that their revised further and better affidavit of documents addresses the missing dates in their previous draft and now the description of their Schedule “B” documents includes the date of the document.

[32] This would appear to leave the alleged “improperly claimed solicitor and client privilege” as the only issue. However, the responding affidavit of Andrew Yolles appears to provide some insight into this ambiguous state of affairs when he states at paragraph 3:

The documents that appear to be in issue in the plaintiff’s motion are Documents 146, 147, 164, 168, 458, 465, 490 and 504 of Schedule “B”. The basis for privilege for all these documents should have been described as “litigation privilege” in addition to “solicitor-client privilege”.

[33] The affiant goes on to provide a brief description of these documents, presumably because claims of litigation privilege must be supported by affidavit evidence.

[34] In the Blank case, the Supreme Court of Canada addressed the differences between litigation privilege and solicitor-client privilege by quoting with approval from an article by R. J. Sharpe (as he then was) in “Claiming Privilege in the Discovery Process”, in Special lectures of the Law Society of Upper Canada (1984), 163 at pp. 164-65 as follows:

It is crucially important to distinguish litigation privilege from solicitor-client privilege. There are, I suggest, at least three important differences between the two. First, solicitor-client privilege applies only to confidential communications between the client and his solicitor. Litigation privilege, on the other hand, applies to communications of a non-confidential nature between the solicitor and third parties and even includes material of a non-communicative nature. Secondly, solicitor-client privilege exists any time a client seeks legal advice from his solicitor whether or not litigation is involved. Litigation privilege, on the other hand, applies only in the context of litigation itself. Thirdly, and most important, the rationale for solicitor-client privilege is very different from that which underlies litigation privilege. This difference merits close attention. The interest which underlies the protection accorded communications between a client and a solicitor from disclosure is the interest of all citizens to have full and ready access to legal advice. If an individual cannot confide in a solicitor knowing that what is said will not be revealed, it will be difficult, if not impossible, for that individual to obtain proper candid legal advice.

Litigation privilege, on the other hand, is geared directly to the process of litigation. Its purpose is not explained adequately by the protection afforded lawyer-client communications deemed necessary to allow clients to obtain legal advice, the interest protected by solicitor-client privilege. Its purpose is more particularly related to the needs of the adversarial trial process. Litigation privilege is based upon the need for a protected area to facilitate investigation and preparation of a case for trial by the adversarial advocate. In other words, litigation privilege aims to facilitate a process (namely, the adversary process), while solicitor-client privilege aims to protect a relationship (namely, the confidential relationship between a lawyer and a client).

[35] It seems clear that litigation privilege can be at odds with the trend towards more fulsome disclosure and that the privilege must sometimes yield to the truth-seeking function of modern litigation. In General Accident Assurance Co. v. Chrusz (1999), 1999 CanLII 7320 (ON CA), 180 D.L.R. (4th) 241 (Ont. C.A.) at p. 256 Carthy J.A. said:

Our modern rules have truncated what would previously have been protected from disclosure… The “zone of privacy” is an attractive description but does not define the outer reaches of protection or the legitimate intrusion of discovery to assure a trial on all of the relevant evidence… In effect, litigation privilege is the area of privacy left to a solicitor after the current demands of discoverability have been met. There is a tension between them to the extent that when discovery is widened, the reasonable requirements of counsel to conduct litigation must be met.

[36] In Davies v. American Home Assurance Co. (2002), 2002 CanLII 62442 (ON SCDC), 60 O.R. (3d) 512 (Div’l. Ct.) the plaintiff dentist sued his insurer due to the loss of a finger in a woodworking accident, alleging bad faith in the processing of his claim. The motion judge granted to the plaintiff a very broad disclosure order, including future documents, before a further and better affidavit of documents had been delivered. On appeal, the Divisional Court observed that there was no exception to the privilege rules for bad faith claims and that privilege claims, properly asserted, trumped relevance.

[37] The present case is different. The question in this case is whether the privilege claims are properly asserted, to which I will add a second question, namely, by what mechanism can or should the presence and scope of a privilege be determined?

[38] As a starting point, I accept the plaintiff’s allegations regarding the conduct of Pilot/Aviva, stacked against the little that is known about the privilege claims, justifies further scrutiny.

[39] This leads me to the consider the propriety of judicial review of contested documents in the circumstances of this case. Toronto-Dominion Bank v. Leigh Instruments Ltd. (Trustee of) (1997), 1997 CanLII 12113 (ON SC), 32 O.R. 3d 575 is an example of numerous situations where the court exercised its jurisdiction to inspect contested documents to adjudicate a privilege claim within the context of the issues raised, the presence or absence of waiver and, with regard to litigation privilege, the competing policy considerations such as disclosure as a tool of the truth-seeking function of the courts. In addition, judicial review of privilege claims is expressly provided for in rule 30.4(6).

[40] I find that this is an appropriate case to have the contested documents reviewed as the best means of balancing the competing positions/interests of the parties.

Disposition

[41] Production numbers 146, 147, 164, 168, 458, 465, 490 and 504 of Schedule B of Exhibit “A” to the affidavit of Andrew Yolles are to be reviewed by Associate Justice Kaufman to determine whether they ought to be produced or are protected by privilege.

[42] The defendant shall deliver the documents to Associate Justice Kaufman within fifteen days.

[43] Associate Justice Kaufman may give such further directions as he sees fit.

[44] The defendants shall deliver a sworn copy of its draft further and better affidavit of documents within fifteen days.

[45] If the plaintiff seeks to have further documents reviewed, she shall do so by notifying Associate Justice Kaufman who shall determine the issue in such manner as he may direct.

[46] If the parties cannot agree on the issue of costs, the plaintiff may file a costs outline within 15 days and the defendants shall have 15 days to respond. No right of reply.

Justice M. James

May 17, 2022