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Insurance - Where Multiple Insurers
MORE CASES
Part 2
. Loblaw Companies Limited v. Royal & Sun Alliance Insurance Company of Canada [privileged defence information]
In Loblaw Companies Limited v. Royal & Sun Alliance Insurance Company of Canada (Ont CA, 2024) the Court of Appeal considered an insurer appeal of a complex interlocutory application to declare 'duties to defend' and if so, the allocation of legal expenses between defendants, in five merged opioid class actions against several retailers, each with multiple insurers.
In these quotes, the court considers the multiple-insurer issue of 'privileged defence information', here in resolving an issue of a 'Defence Reporting AgreementS' (DRAs):[264] To be clear, as a starting point, none of the non-DRA insurers are entitled to privileged coverage information (privileged information as between the respondents and their separate coverage counsel). What then of Privileged Defence Information?
[265] Generally speaking, an insurer and its insured have a common goal. They both wish to defeat the action that has been brought against the insured. The defence lawyer is retained, typically by the insurer, to protect their aligned interests. Graeme Mew and R. Reena Lalji, in “The Insurance Defence Lawyer’s Conundrum: Conflicts of Interest and Ethical Dilemmas Between Insurer and Insured” (2003) 26:4 Adv. Q. 429, at p. 446, discuss the practice:In the vast majority of cases, the defence lawyer defends the insured acting on instructions and directions from the insurer. Unless there are limits issues, the insured is barely involved in the process other than as a witness .... Information gathered by the defence lawyer in the course of defending the insured is freely passed on to the insurer. [266] In Canadian and American jurisprudence and commentary, various legal constructs are utilized in practice so as to permit the insurer to have access to privileged information. The relationship amongst the insured, the insurer and defence counsel is tripartite in nature but, as mentioned, counsel’s primary duty is to the insured. When the interests of the insured and the insurer are aligned, common interest privilege protects against production of privileged information to third parties.
[267] Gordon Hilliker discusses the dilemma of the use of privileged information by insurers for coverage purposes when the interests of the insured and the insurer are not fully aligned at § 5.182 of Liability Insurance Law in Canada, 7th ed., (Toronto: LexisNexis Canada Inc., 2020):In the event that the claims are separate and discrete then sole counsel defending the action on behalf of the insured could still report to and take instructions from the insurer with respect to the covered claim but would have to keep confidential from the insurer privileged information pertaining to the uncovered claim, which would have to be defended in a manner consistent with the insured’s interests. The reason for keeping such information confidential from the insurer is that otherwise it could potentially be used by the insurer against the insured. For example, in the event that settlement negotiations with the claimant involved contributions from both the insurer and the insured then an insurer that was privy to their joint lawyer’s file with respect to the uncovered claim would have an unfair and improper advantage. [268] The author continues at § 5.212:The insurer is not, however, entitled to receive information that is outside the scope of the retainer and that may prejudice the insured’s position with respect to coverage. Nor, absent the insured’s informed consent, should defence counsel provide to the insurer privileged information that, while bearing on the liability issues, is coincidentally detrimental to the insured’s coverage position. ....
[275] Third, I do not interpret relevant case law as requiring disclosure of all Privileged Defence Information. In Trial Lawyers, the insured had a duty to disclose facts material to the claim including facts that voided coverage, but not all privileged information. In Fellowes, McNeil v. Kansa General International Insurance Co. (2000), 2000 CanLII 22279 (ON CA), 138 O.A.C. 28 (C.A.), it is clear from the comments at paras. 62-63, that privileged information relating to coverage issues which arise in the course of a solicitor-client relationship between defence counsel and the insured cannot be shared with the insurer.[20]
[276] A similar conclusion was more recently reached by the Quebec Court of Appeal in Commission scolaire de la Jonquiere. The insurers had defended a class action claim against the insureds pursuant to a reservation of rights. Following settlement of the class action, the insureds sought indemnity. By way of undertakings and requests for production, the insurer sought all communications exchanged between the insureds and defence counsel related to the analysis of the risks of the underlying litigation and the settlement negotiations. The insurer brought a motion to compel the insureds to produce not only counsel’s analysis that was contemporaneous with the settlement negotiations, but also all of the opinions given by defence counsel since the beginning of the retainer. Without examining the specific documents, the motion judge ordered the insureds to give written answers to the questions posed and to provide all of the undertakings. He did not set out guidelines for the production or reserve the insureds’ right to redact or object to certain documents.
[277] On the appeal from the motion judge’s order, the court concluded at para. 25 that to preserve the insureds’ right to make full answer and defence, information received by counsel retained by the insurer should not be made available to the coverage side of the insurer. The court concluded that no blanket conclusion could be reached with respect to documents relating to the reasonableness of the settlement. Instead, these documents would have to be analyzed by the judge seized of the class action, who would decide whether they constitute information relevant to assessing the reasonableness of the settlement. With respect to the general request for all of the opinions given by defence counsel, the court concluded that the motion judge should not have permitted disclosure without qualification, especially without having first examined the documents:[39] In view of the double mandate of the lawyer hired by the insurer to defend its insured, there is no basis for concluding that the appellants waived professional secrecy or litigation privilege in respect of all possible exchanges they had with their lawyer. On the contrary, they were entitled to expect that the information exchanged with the lawyer was covered by professional secrecy and would not be disclosed to the head of the insurer that refused to indemnify them, even though the one handling the duty to defend was part of their circle of privilege.
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[41] In a dispute on the duty to indemnify pitting the insurer against the insured, the former may not use accounts, opinions, reports, or other information obtained through the performance of its duty to defend, unless the latter has given a waiver. Accounts are submitted to the head of the insurer handling the duty to defend with an expectation of confidentiality. Nothing justifies disclosing this information to the head of the insurer handling the duty to indemnify. . Loblaw Companies Limited v. Royal & Sun Alliance Insurance Company of Canada
In Loblaw Companies Limited v. Royal & Sun Alliance Insurance Company of Canada (Ont CA, 2024) the Court of Appeal considered an insurer appeal of a complex interlocutory application to declare 'duties to defend' and if so, the allocation of legal expenses between defendants, in five merged opioid class actions against several retailers, each with multiple insurers.
Here the court addresses 'conflicts of interest' that can arise where there are multiple insurers:[255] As to the issue of a reasonable apprehension of a coverage conflict, all Non-DRA Insurers reserved their rights with respect to intentional conduct with the exception of Chubb who provided a “full” reservation of rights. In support of the application judge’s finding on this issue, the respondents rely on dicta from Pope & Talbot Ltd., Re., at para. 7:The principle that insureds should receive a coverage neutral defence where the insurer has reserved its rights under the policy arises from the conflict of interest that exists when an insurer defends on a reservation of coverage rights basis. Two conflicts are manifest in that context:(a) the insurer’s natural desire to protect its own financial interests; and
(b) the lawyer defending the insured may, at the expense of the insurer, become privy to confidential information relevant to the coverage issue that is only disclosed as a result of the lawyer’s solicitor-client relationship with the insured. [256] The discussion in Commission scolaire de la Jonquiere c. Intact Compagnie d'assurance, 2023 QCCA 124, is also of note. There, the Court of Appeal of Quebec recently discussed the risk of conflict inherent in liability insurance policies when an insurer takes the position that the insured’s conduct is not covered by the policy. Although that case involved a claim by the insured against its insurer for coverage under the policy, the court’s underlying rationale is germane to this case. The court explained, at paras. 20-21 and 25-26, why silos between an insurer’s coverage team and its defence team are necessary:A liability insurer is in reality a two-headed hydra, a dicephalous creature with a single corporate identity, but with one head handling the defence of the insured, and the other watching over the finances of the insurer and making certain it indemnifies only covered losses. Each of these heads must make decisions based on the interest it defends and the information it possesses.
This separation must be preserved to give effect to the insurance contract. The insured is entitled to make full answer and defence at the insurer’s expense, without fearing that its defence will be dictated by the insurer’s financial interest. At the same time, to avoid damaging its financial performance and affecting all its insured, whether in terms of the coverage of certain risks or the setting of premiums, the insurer must indemnify only those losses that are covered. The principle of risk pooling, which is at the heart of the insurance industry, requires it. The insurer will pay only within the limits of the risk it has agreed to cover, based on the premium received. The potential for a conflict of interest is therefore very real, and the insurer must consequently put measures in place to ensure that it respects the coverage offered by the policy, while also providing a full answer and defence for its insured.
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Therefore, to preserve the insured's right to make full answer and defence, it is essential for information received from the lawyer retained by the insurer to be accessible only to the head of the insurer handling the duty to defend. Nothing must spill over to the one overseeing decisions having to do with the refusal to indemnify. [257] It will be rare that an early general reservation of rights that is almost standard form gives rise to a reasonable apprehension of conflict. However here, the reservations were specific to intentional conduct and the pleading of intentional conduct in the Class Actions is pervasive. In this regard, RSA’s submission, as referenced at footnote 7, on the extent of the conduct-based claims in the Class Actions is informative. . Loblaw Companies Limited v. Royal & Sun Alliance Insurance Company of Canada [right to associate]
In Loblaw Companies Limited v. Royal & Sun Alliance Insurance Company of Canada (Ont CA, 2024) the Court of Appeal considered an insurer appeal of a complex interlocutory application to declare 'duties to defend' and if so, the allocation of legal expenses between defendants, in five merged opioid class actions against several retailers, each with multiple insurers.
Here the court addresses the relatively novel multiple-insurer issue of the 'right to associate' between multiple insurers in the conduct of their defence:[252] Turning to the right to associate, as the application judge noted, an insurer’s right to associate in the defence has not been discussed in any detail in the case law. Although not dealing specifically with CGL insurance, guidance may be found in § 23 of the American Restatement of the Law of Liability Insurance (Am. Law. Inst. 2019) definition of the right to associate in the defence. Unless otherwise stated in the insurance policy, the right to associate includes:(i) the right to receive information from the insured and defence counsel, upon request, that is reasonably necessary to assess the insured’s potential liability and to determine whether the defense is being conducted in a manner that is commensurate with that potential liability[18], and
(ii) a reasonable opportunity to be consulted on major decisions in the defense of the action that is consistent with the insurer’s level of engagement with the defense of the action. [253] As explained in the Restatement: “The right to associate allows an insurer to manage its exposure by giving the insurer the opportunity to exercise a voice in the defence of the legal action. The right to associate is not the right to direct the defence of the action. It is the right to be heard in the course of the defence and to obtain information reasonably necessary to be heard.”[19] . Loblaw Companies Limited v. Royal & Sun Alliance Insurance Company of Canada ['defence reporting agreement']
In Loblaw Companies Limited v. Royal & Sun Alliance Insurance Company of Canada (Ont CA, 2024) the Court of Appeal considered an insurer appeal of a complex interlocutory application to declare 'duties to defend' and if so, the allocation of legal expenses between defendants, in five merged opioid class actions against several retailers, each with multiple insurers.
Here the court considers aspects of a 'defence reporting agreement' (DRA), which is a declaration order sought between parties to limit risk of solicitor-client and litigation privilege breaches were there are multiple defence counsel, required when the court holds that sufficient reasonable apprehensions of a conflict of interest exist. A central issue to be considered here is that of the contractual duty of good faith that the insureds and insurers owe the each other:(4) Defence Reporting Agreement and Ancillary Issues
[196] The fourth issue relates to the DRA. The respondents sought a declaration that only those insurers who sign the DRA be entitled to associate in the defence of the Class Actions and receive defence-side reporting. Such reporting would include information and documents subject to litigation privilege and/or solicitor-client privilege as between the respondents and defence counsel (“Privileged Defence Information”). The respondents viewed such an agreement to be necessary because: (1) the various insurers insured different entities who may have conflicting interests; and (2) many of the insurers had issued reservations of rights with respect to intentional acts alleged in the underlying litigation.
[197] Aviva and Zurich both agreed to the DRA, and Liberty indicated a willingness to sign such an agreement. AIG, who is both a primary and an excess insurer, and the other excess insurers, Chubb, QBE, and Markel, were all opposed to the DRA. Markel brought a separate but related application for a declaration that, with the exception of coverage related inquiries or advice contained in solicitor-client privileged communications with SDM’s coverage counsel, Markel was entitled to full unfettered disclosure of all relevant information, documentation, facts and reports in the possession, power or control of its insured, SDM and Sanis. It also raised other ancillary issues. The application judge stated at para. 155 that RSA did not expressly take a position on the proposed DRA.
[198] The application judge granted the respondents’ application. The application judge ordered that only those insurers who entered into the DRA would be entitled to associate in the defence of the claims and receive Privileged Defence Information.[17] The application judge also dismissed Markel’s application.
[199] All insurers who were opposed to the DRA appeal from the application judge’s order. In addition, Markel appeals from the dismissal of its application.
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(iii) The DRA
[207] The DRA was stated to allow the parties to work openly and cooperatively on the defence of the claims, which would include the sharing of Privileged Defence Information relating to the defence of the claims. The DRA established a two-level reporting system. The first dealt with Privileged Defence Information relating to the defence of the Class Actions. The second dealt with public facing information that was not privileged and confidential and which comprised pleadings, productions, transcripts of examinations, expert reports served on other parties, motion records and decisions and orders of the court (“Public Facing Information”).
[208] All insurers would receive Public Facing Information from time to time as reasonably requested. Nothing in the DRA would restrict the insurers’ right to receive Public Facing Information and to associate in the defence of the Class Actions. However, Privileged Defence Information would be available only to those insurers who executed the DRA. The DRA required the insurer to maintain ethical screens to ensure that Privileged Defence Information is not received by any person other than the designated authorized representatives.
[209] In addition, in the event of a development that would require a substantial reserve change or a payment (such as the scheduling of a mediation or an anticipated offer to settle), the respondents would provide a “Reserve Report” to the insurer. It would consist of a liability and damages assessment that could be shared with non-authorized representatives of the insurer provided they had a higher financial authority than the authorized representative with the highest financial authority. The Reserve Report would be used solely to support a reserve and/or payment request in excess of the authorized representatives’ financial authority and for no other purpose including the determination of coverage for the claims.
[210] The insurer and its authorized representatives were not to use the Privileged Defence Information or the Reserve Report for any purpose other than the defence and/or settlement of the claims. The authorized representatives would not be involved in the assessment or determination of coverage issues or the defence of any other person or entity in relation to the Class Actions absent consent of the respondents.
[211] The parties agreed in the DRA that there is a common interest privilege with respect to Privileged Defence Information and any Reserve Report.
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(d) Standard of Review
[234] Whether a reasonable apprehension of a conflict of interest exists, whether a particular reporting proposal adequately addresses that potential conflict, and whether different insureds must be separately represented are questions of mixed fact and law. They are therefore reviewable for palpable and overriding error: Housen, at para. 37. The court continues extensively at paras 235-289 to resolve this DRA appeal issue - involving several legal issues including conflict of interest, duty of good faith, excess insurers and duty to defend (all of which are extracted under other sub-topics).
. Loblaw Companies Limited v. Royal & Sun Alliance Insurance Company of Canada [standard of review]
In Loblaw Companies Limited v. Royal & Sun Alliance Insurance Company of Canada (Ont CA, 2024) the Court of Appeal considered an insurer appeal of a complex interlocutory application to declare 'duties to defend' and if so, the allocation of legal expenses between defendants, in five merged opioid class actions against several retailers, each with multiple insurers.
Here, the court considered the SOR applicable to an appeal on the issue of the payment of defence costs between the several defendants:(c) Standard of Review
[63] The interpretations of the standard-form CGL insurance policies in this case are reviewable for correctness: Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, [2016] 2 S.C.R. 23, at para. 4. However, on a duty to defend application, issues involving the factual matrix specific to the parties in the proceeding may attract a deferential standard of review: AIG Insurance Company of Canada v. Lloyd’s Underwriters, 2022 ONCA 699, 474 D.L.R. (4th) 502, at paras. 34-38.
[64] That said, the overarching question of the proper legal approach to allocating defence costs in the context of long-tail claims is an extricable question of law subject to a correctness standard: Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235, at para. 31; Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at para. 53.
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