Canadian Independent Adjusters’ Association Annual General Meeting and Conference in Winnipeg

The Supreme Court of Canada, over the past decade, has endorsed a more plaintiff-friendly standard, according to laywer Anthony Fletcher of Filmore Riley LLP. Fletcher spoke at a seminar at the Canadian Independent Adjusters’ Association’s general meeting and conference in Winnipeg, Man.

In light of this, adjusters should not only examine “but for,” but also note any breach of care wherein a party might be at fault, Fletcher explained.

Causation is the link that must be established between a defendant’s wrong and the plaintiff’s loss. The plaintiff must prove that “but for” the defendant’s negligence, any harm would not have occurred, Fletcher explained.

The court’s new standard is not meant to replace the “but for” test, Fletcher said, but it is “uniquely positioned to subsume” the traditional measure. “Where the ‘but for’ test may prevent the plaintiff from establishing causation to the long-held standard, they might still succeed by meeting a lower standard, requiring only that the defendant materially contributed to the creation of their injury.”

There are three relatively recent cases that have dealt with causation at the Supreme Court level: Athey v. Leonati (1996), Walker Estate v. York-Finch General Hospital (2001) and Resurfice Corp. v. Hanke (2007).

Material contribution

In Hanke, Supreme Court of Canada Chief Justice Beverley McLachlin reiterated that the “but for” test was the basic test for determining cause. “This fundamental rule has never been displaced and remains the primary test for causation in negligence actions,” she wrote.

She went on to say that there are special circumstances — which the law sees as exceptions to the ” but for” test — and therefore a material contribution test is applied.

Cases in which the material contribution test is applied correctly require two things:

* It must be impossible for the plaintiff to prove negligence on the part of the defendant using the “but for” test “due to factors that are outside the plaintiff’s control.”

* “It must be clear that the defendant breached a duty of care owed to the plaintiff, thereby exposing the plaintiff to an unreasonable risk of injury, and the plaintiff must have suffered that form of injury. In other words, the plaintiff’s injury must fall within the ambit of the risk created by the defendant’s breach.”

In those exceptional cases in which these two requirements are satisfied, McLachlin wrote, liability may be imposed, even though the “but for” test is not satisfied, because it would offend basic notions of fairness and justice to deny liability by applying a “but for” approach.

Fletcher said the second test is no test at all: it’s simply an application of negligence. How this test will be applied, however, is a work in progress, he said. The meaning of material contribution is still unclear and how it will affect the “but for” test has yet to be seen.

“It is arguable that this test makes causation as we know it under the ‘but for’ standard entirely redundant,” Fletcher said.

Fletcher added the courts have been known to take a somewhat liberal approach in the search for equity between parties, mainly where “fairness and justice” demand it, as McLachlin stated.

This type of “plaintiff-friendly” change is generally not good news for the insurance industry, Fletcher observed.

“The very introduction of a secondary potentially singular test for causation expands the potential for plaintiffs to succeed in negligence actions,” Fletcher said.

Because of this, loss investigations must also take on a different scope; it is no longer enough to analyze causation just from a ” but for” perspective, as any breach of care that creates even a potential for risk to another party must be identified and reviewed, Fletcher notes. In addition, restrictions on the plaintiff’s capacity for meeting the ” but for” test requires deliberation.

“In appropriate, yet largely unidentified, circumstances, the contest in negligence actions may well become the two-tier test for the applicability of the ‘material contribution’ test of causation rather than simple adherence to the traditional ” but for” standard,” Fletcher said

Developments in privilege

A recent decision by the Supreme Court of Canada in Blank v. Canada 2006 SCC 30 settles certain points regarding litigation privilege, Ted Bock, a partner at Aikins, MacAulay & Thorvaldson LLP, told delegates during a CIAA seminar in Winnipeg.

The decision, however, may affect insurers involved in separate legal actions associated with the same matter. In addition, adjusters will need to take further steps if they want to cloak their notes in litigation privilege.

Litigation privilege protects both the documents and communication relating to matters that are in litigation or matters in which litigation is a likely possibility.

Documents used for the purpose of advising on or conducting litigation or potential litigation are usually cloaked in privilege.

“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,” Bock said reading from Claiming Privilege in the Discovery Process by R.J. Sharpe. “In other words, litigation privilege aims to facilitate a process (namely, the adversary process).”

When privilege applies

In order for litigation privilege to be applicable to a document, two conditions must be met, Bock notes.

* There must be a reasonable prospect of litigation at the time it was produced.

* The dominant purpose for its production must be for the conduct of the litigation in question.

Litigation privilege is intended to be a narrow test — a zone of privacy as it were — and “it isn’t intended to be a ballroom,” Bock said. “It’s intended to be a storage room or a broom closet.” He said most agree there ought to be full disclosure, but the courts realize there needs to be a zone of privacy in which counsel can collect information for the case. Only the client, or the party, can waive litigation privilege, not the lawyer.

However, recent decisions by the Supreme Court of Canada suggest documents and conversations are not permanently cloaked in litigation privilege. One of those decisions is Blank v. Canada (2006).

Blank v. Canada

Sheldon Blank was the director of Gateway Industries, a Winnipeg manufacturer, when he was charged in the mid-1990s with various federal environmental regulatory offences. The charges involved alleged pollution of the Red River and reporting requirements. All of the charges against him and the company were overturned and/or stayed, Bock said, but not before lengthy and expensive litigation resulted in the failure of the company. Blank won the battle, but not the war. His company is now defunct.

Blank sued the federal government, alleging it had abused prosecutorial powers. He attempted to obtain documents prepared by the federal government in its prosecution against him. These documents had been protected by litigation privilege in the original trial. Blank claimed the government’s baseless charges had ruined him and that he would need to look at the information collected in order to prove his case.

The question before the Supreme Court of Canada was whether or not privilege over the documents survived the termination of the initial criminal proceedings and carried forward to these new set of proceedings.

Further expensive and lengthy litigation ensued; the Supreme Court of Canada found in favour of Blank. The court ruled Blank should have access to documents and that the litigation privilege ended when the initial proceedings terminated.

This ruling entitled Blank to take a walk through the files to see what the federal government had been doing and what had motivated the government it in its prosecution against him, Bock sa id.

When privilege ends

According to the Supreme Court, litigation period ends “on the termination of the litigation that gave rise to the privilege,” Bock said. “Somewhat unhelpfully, the court then said that of course that will be subject to exception.”

The exception the courts carved out is subject to a claim of privilege if it involves the same or related parties and the same or related source. In other words, the litigation privilege will continue if the same or related parties are involved in a case involving the same or related source.

“I say it’s an unhelpful exception because one would have thought if it were ever going to apply, it would have applied to the Blank case. Because we’re dealing with exactly the same people and they’re (arguing) exactly the same thing and yet the courts said no this is a different case,” Bock said.

The case does not elaborate on how this exception is going to apply. This might have ramifications for insurance companies, since plenty of cases related to the industry that involve the same party, Bock said. For example, very frequently the same insurer has a connection with similar losses, such as product liability cases.

The court also found litigation privilege applies whether or not counsel represents a litigant, which Bock said was of importance to adjusters. Adjusters are frequently creating documents they feel ought to be protected by litigation privilege, but counsel has not yet been retained.

However, Bock notes that writing “in contemplation of litigation” at the top of the page is not enough. An adjuster must be able to say why they believe there was a reasonable prospect of litigation, which is why careful notes are vital.

“It’s not enough simply to invoke the magic words at the top of the report ‘in contemplation of litigation,'” Bock said. “You have to be able to explain why did you use those words. These aren’t magic words — this is not Harry Potter invoking a spell: ‘Well, now it’s privileged, I can go on to my next file.'”

Bock recommends that adjusters take the time to write out the factors that led them to conclude there was a reasonable prospect of litigation at the time — why they thought the other side was going to make a claim for compensation, or why they thought there was a reasonable prospect of subrogation.

It is best to determine early on if there is a potential for litigation, Bock suggested.