Reports of Claims Adjusters and Investigation Agencies Are Protected by Litigation Privilege

On March 6, the Québec Court of Appeal¹ rendered an important judgment regarding the disclosure of reports of claims adjusters and investigation agencies to the insured.

The respondents, who operate a farm, sued L’Union Canadienne, compagnie d’assurances (“Union”) for $2,254,000 as a result of Union’s refusal to indemnify them for damage caused by a fire. Union maintained that the policy was null ab initio and refused to pay the claim.

During the pre-trial examinations, the insureds asked to be provided with the reports of the claims adjuster and investigation agency that Union had commissioned. Union objected on the grounds that the reports were confidential and privileged, and covered by professional secrecy.

The judge before whom the objection was argued decided that there was justification in this case for not following the case-law holding such reports to be privileged and he ordered that they be disclosed to the insureds.

The judge concluded that it was appropriate to order that the reports be disclosed given the allegation against Union that it had unduly delayed in advising the insured of its decision regarding the validity of the policy. The Court was of the view that, in light of this allegation, the insureds were entitled to know when the information yielded by the investigation of the claim came to Union’s attention, and that the insureds were therefore entitled to obtain a copy of the reports.

Union appealed this decision, and the Court of Appeal maintained its objection to the insureds’ request to be provided with the reports.

The Court examined the two fundamental principles that limit the right to compel disclosure of documents in the course of litigation, namely professional secrecy and the litigation privilege. The Court pointed out that the two principles had been clearly distinguished by the Supreme Court in the Blank decision in 2006².

Professional secrecy

Union based its objection on numerous trial-court decisions holding that such reports are protected by professional secrecy³. However, the Court of Appeal did not follow this line of argument.

The Court first of all pointed out that in order for professional secrecy to apply, two essential conditions must be satisfied:

1. A legislative provision must impose an obligation of confidentiality on a person;
2. The confidential information must have been obtained in the context of a “helping relationship” and be in the exclusive interest of the person who disclosed it.

The Court emphasized that in the matter of Globe and Mail v. Canada (Attorney General)⁴  the Supreme Court of Canada concluded that professional secrecy is restricted to the 45 professional orders subject to the Professional Code⁵ .

The Court concluded that the claims adjuster and the holder of the permit for the operation of the investigation agency were not among the professionals governed by the Professional Code and that the information they gathered in order to prepare their reports was not obtained in the context of a “helping relationship”.

In the Court’s view, their work was not aimed at helping their confidant, but at informing their principal, Union. The Court accordingly concluded that the claims adjuster and the investigation agency permit-holder were not bound by professional secrecy.

The objection could therefore not be based on the professional secrecy privilege.

Litigation privilege

The purpose of the litigation privilege is to create a “zone of privacy” in relation to pending or apprehended litigation.

The Court found that all the conditions for invoking the litigation privilege were met in this case, insofar as both the applicable civil-law rules and the dicta of the Supreme Court in Blank were concerned:

• The privilege is intended to ensure the efficacy of the adversarial process, and to achieve this purpose, the parties must be allowed to prepare their arguments in private, without adversarial interference and without fear of premature disclosure;
• The documents being sought were commissioned by Union and prepared “exclusively or primarily” in anticipation of litigation, to be used in its defence;
• The fact that the reports were presumably prepared before the decision to deny coverage and annul the policy was made is not determinative. In this regard, the Court stated the following:

[TRANSLATION] [41] … The dispute in this case did not have to predate the preparation of the report in order for the privilege to apply. It is sufficient that a dispute be foreseeable, as the Supreme Court pointed out in the Blank decision referenced above. It would be unreasonable to require an insurer to immediately reject the insured’s claim – and thereby “create” a dispute – before conducting an investigation. Here, the reports were obtained and provided to appellant’s counsel solely in order to assist it in conducting defence proceedings against the respondents. I accordingly find that the investigator’s and claims adjuster’s reports are covered by the litigation privilege.

The reports at issue were thus covered by the litigation privilege, and consequently the opposing party could not compel their disclosure.

Thus, the Court restated and clarified the principles established in the previous case-law⁶.

Waiver of the litigation privilege in virtue of the insurer’s conduct

Having confirmed that the privilege applied, the Court then considered the insureds’ alternative argument that Union had waived the privilege because of the vagueness of certain allegations in its statement of defence and the pre-trial testimony of its representatives.

The Court preferred instead Union’s arguments to the effect that:

• The vagueness of certain allegations in its proceeding does not justify the inference that it thereby waived the litigation privilege attaching to the investigator’s and claims adjuster’s reports. In this regard the Court stated:

[TRANSLATION] [48] … The respondents are of course fully entitled to learn the facts that led to the appellant’s decision and to assert their rights but, in the absence of a waiver, they are not entitled to compel disclosure of confidential and privileged reports.

• The fact that Union’s representatives acknowledged the existence of the reports during pre-trial examinations does not in itself amount to a waiver. The Court specified that a waiver of the benefit of a privilege may be tacit, but it must then be voluntary, clear and self-evident;
• When a document is privileged and immune from compelled disclosure, it cannot be provided to the other party pursuant to article 398 of the Code of Civil Procedure, as it does not in and of itself prove the facts related therein.

Finally, the Court of Appeal dismissed as having “no legal basis” the respondents’ argument that their allegations concerning Union’s apparently reprehensible conduct and their claim for punitive damages justified disclosure of the reports:

[TRANSLATION] [54] … According to the respondents, the appellant’s reprehensible conduct in handling their claim justifies compelling it to disclose the reports at issue. This proposition has no legal basis. Reprehensible conduct, which can be compensated by an award of damages, does not justify disclosure to the other party of otherwise confidential evidence as a kind of “penalty”.

…

[56] With the utmost respect, the trial judge erred in ordering disclosure of the reports on this basis. Once it has been established that the privilege applies, it must be respected, even though disclosure of the protected information may be useful to the other party. To conclude otherwise would defeat the purpose of the privilege.

(emphasis added)

To summarize, this Court of Appeal decision is of considerable interest to the industry. It confirms that reports obtained by insurers when investigating a claim are confidential and do not have to be disclosed to the insured in the event of a lawsuit.