This article identifies a significant development in 2016 in British Columbia jurisprudence with respect to insureds' claims for litigation privilege over adjusters' reports produced well before the commencement of litigation.
There are different types of privilege. Solicitor-client privilege protects legal advice communications between a lawyer and client, while common interest privilege extends that protection by carving out an exception to waiver of solicitor-client privilege. When documents subject to solicitor-client privilege are disclosed to another party with a common legal interest, those documents remain protected despite disclosure. Settlement privilege protects communications that have been made in the course of negotiations to resolve a dispute. Litigation privilege is meant to create a zone of privacy in relation to pending or apprehended litigation, so that lawyers and their clients can freely investigate in preparation for trial. As the cases described below show, the protection afforded by litigation privilege is an important facilitator of the adversarial process.
The court application that is the subject of this article was for an order that Emil Anderson Maintenance Co. Ltd. ( "Emil Anderson"), a third party in an action, list and produce copies of adjusters ' reports, which were listed as privileged documents in Emil Anderson's amended list of documents. The matter was heard by Master Muir, who issued written reasons for judgement.
The underlying legal action, Plenert v. Melnik Estate 2016 BCSC 403 was one of 6 legal actions resulting from a multi-vehicle accident, which included a fatality, occurring on the Spuzzum Creek Bridge on Highway 1 north of the Village of Spuzzum, on November 26, 2010 at approximately 7:00 am. This area of highway is maintained pursuant to a maintenance agreement between Emil Anderson and the Provincial Ministry of Transportation. In the early hours of the morning a southbound tractor-trailer unit rolled onto its side on the bridge deck. Another tractor-trailer unit collided with it, sending one man to his death in the creek below. As a result a CN rail bridge was damaged, environmental damage occurred to the creek below and the bridge itself was severely damaged. An RCMP investigation ensued, which resulted in the Highway being closed until 8:00 pm that evening.
Early Investigations by Independent Insurance Adjusters
At the time of the accident, Continental Casualty Company ( "CNA") was the liability insurer for Emil Anderson in its capacity as road maintenance contractor. Under the policy of insurance, the Province of British Columbia was named as an additional insured. The policy required CNA to defend and indemnify Emil Anderson and the Province with respect to claims arising from the maintenance work performed on Highway 1. The earliest independent insurance adjuster's report was prepared at the instruction of CNA on December 15, 2010, 24 days post-accident. Further adjuster's reports listed as privileged were dated March 16, 2011, July 1, 2011, September 28, 2011, June 13, 2012, February 7, 2013 and May 29, 2013. It was Emil Anderson's position that all of the reports and witness statements contained therein were protected against disclosure by litigation privilege as they were produced in anticipation of litigation for the dominant purpose of litigation.
It was Emil Anderson's position that since CNA was a third party liability insurer in the context of this loss, all investigations which took place from the time of the accident onwards could only be for the purpose of assessing risk and preparing for future or prospective litigation.
Evidence Supporting Privilege
In support of its position, counsel for Emil Anderson produced affidavits from the Vice-President of Claims for CNA, along with affidavits from two independent adjusters retained by CNA to conduct a full investigation of the circumstances surrounding the loss.
In the affidavit of the Vice‑President of Claims for CNA, it was identified that CNA received an email from the Litigation and Claim Service Manager for the B.C. Ministry of Transportation enclosing an article describing the seriousness of the accident along with several photographs of the accident scene. In that email it was relayed to CNA that an adjuster for ICBC had asked the Ministry of Transportation for the schedule for sanding on Highway 1. It was the affidavit evidence of the Vice-President of Claims for CNA that in circumstances where serious accidents are reported, CNA is required to produce a large loss summary report notification, retain an independent insurance adjuster and conduct investigations to obtain statements from witnesses in anticipation of litigation. In this case, CNA immediately retained an independent adjusting firm and advised that firm via email that they required a full investigation with respect to this loss.
As noted above, two affidavits were prepared by the independent adjusters who actually conducted the investigations. Both independent adjusters stated in their affidavits that based on the seriousness of the accident and the fact that an independent adjuster had been retained, they anticipated litigation against Emil Anderson. Both adjusters went on to further state that there was no other reason for an investigation to take place aside from the fact that litigation was anticipated.
Counsel agreed that the test with respect to whether documents for which litigation privilege is claimed should be produced in litigation, as set out in Hamalainen (Committee of) v. Sippola (1992), 62 BCLR (2d) 254 at p. 260-261 (BCCA), can be properly summarized in the follow excerpt:
... a document which was produced or brought into existence either with the dominant purpose of its author, or of the person or authority under whose direction, whether particular or general, it was produced or brought into existence, of using it and its contents in order to obtain legal advice or to conduct or aid in the conduct of litigation, at the time of its production in reasonable prospect, should be privileged and excluded from inspection.
Any attempt to apply the rule when determining a claim of privilege with respect to a document necessarily requires that two factual determinations be made:
(a) was litigation in reasonable prospect at the time it was produced; and
(b) if so what was the dominant purpose for its production?
In the B.C. Court of Appeal case of Raj v. Khosravi, 2015 BCCA 49, it is noted that the threshold for determining whether litigation is in "reasonable prospect" is a low one. It does not require certainty, but the claimant must establish something more than mere speculation. Litigation can be properly said to be in reasonable prospect when a reasonable person, possessed of all pertinent information, would conclude it is unlikely that the claim for loss would be resolved without it. With respect to this point, in her reasons for judgment in the subject case, Master Muir wrote as follows (at para. 30):
I agree it was early days, but given the type and severity of the accident and the fact that another adjuster was making inquiries about road maintenance, I am satisfied that litigation involving Emil Anderson was in reasonable prospect at the time the claim was reported to CNA [sic].
The Dominant Purpose Test
In the case at bar, counsel for the ICBC insured, who brought on the application, advanced the position that one of the purposes for the early investigation must have been to investigate the facts of the accident and until those facts are determined it could not be said that litigation was the dominant purpose for the inquiry. It is noteworthy that all the cases relied on to support the ICBC insured defendant's position factually involved a universal insurer discharged with resolving many issues including fault, coverage, Part 7 claims and liability. Traditionally in British Columbia, cases involving a universal insurer have been found by the courts to involve both a litigation stage and an adjusting stage, when adjusters are investigating losses. In distinguishing the case at bar from cases relied on by counsel for the ICBC insured, Master Muir referenced the Ontario Superior Court decision of Panetta v. Retrocom Mid‑market Real Estate Investment Trust, 2013 ONSC 2386 and relied on the following passage (at paras. 61 and 62):
I think that, in third party or tort claims (as opposed to claims by an insured against his or her own insurer), there is not a preliminary investigation 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 naïve to think otherwise; and the fact that the investigation may be used to arrive at a pre‑loss settlement does not detract from the point that I make. The prospect of litigation inherently includes the prospect of settlement.
... there is no purpose for the creation of documents by an insurer in a tort context other than: (1) for anticipated litigation; (2) for setting reserves; or (3) for seeking legal advice. For completeness, I would add as a corollary to (1): for the purpose of settlement, which I see as inextricably entwined with "anticipated litigation ".
Master Muir was satisfied in this case that the documents in issue were protected against disclosure under the litigation privilege. She noted that the evidence before her supported the finding that CNA had a limited role as liability insurer, which included the duty to defend and indemnify Emil Anderson and the Province. It is noteworthy that she wrote that she would not go so far as to say that in all circumstance the investigations of liability insurers will be privileged, but that there was no evidence in this case that the subject reports were created for multiple purposes.
Subsequent Judicial Treatment
Panetta, the Ontario case, was cited again by the BC Supreme Court in Drewniak v Law, 2017 BCSC 1565, a slip and fall case in a private home. As was the case in Plenert, an application was made for an order that the defendants disclose an independent adjuster 's report as well as some audio statements that were collected by the adjuster.
The report and audio statements were created after the plaintiff's lawyer invited one of the defendants to contact their home insurer after the alleged slip and fall, indicating to the defendant that an action was being contemplated. The defendant did so, and the home insurer hired the independent adjuster who began interviewing witnesses.
Again, as in Plenert, the applicant argued that the adjuster's report should not be the subject of litigation privilege as, based on the timing and circumstances of its creation, the report was primarily, or even equally, investigative. Though Master Bouck easily dismissed the application, finding it a matter of common sense on the facts before her that the dominant purpose test had been met, it should be noted that a significant part of Master Bouck's relatively short reasons was spent discussing the continuum book-ended by the investigative and litigation-focused stages of an inquiry.
The two notable points just discussed suggest that, in cases of third party insurance claims in BC, the bar for finding that litigation was the dominant purpose of an adjuster's activities may be low, but the law is certainly not as clear-cut as it is in Ontario where the Superior Court has stated there is no preliminary investigation phase in such claims.
Thus, we are left with two key practice points to observe in the early stages of investigation after a loss has occurred:
- It is important that both insurance examiners and any independent adjusters/investigators involved understand that the investigation is being undertaken in the anticipation of litigation; and
- In circumstances where privilege claimed over investigations and reports is being challenged, it is absolutely essential that counsel prepare affidavits from both the insurer and the independent adjuster(s) who produced the reports, setting out all of the information that they had available to them with respect to the purpose of the investigation from the outset.
The ruling in Plenert is a valuable precedent that helps protect the confidentiality of early investigations conducted at the request of insurers in British Columbia. Contested hearings concerning whether documents in an insurance case are protected by litigation privilege will generally be determined on a case-by-case basis, depending on the facts and the specific knowledge and evidence of the insurers and independent adjusters at the time investigations were conducted.