Production Of Lawyer's Opinion Letters Regarding
What is the effect on the scope of solicitor-client
privilege and litigation privilege (material prepared with the dominant
purpose of use in anticipated or existing litigation) when the insurer's
investigation of a claim on the policy is controlled by its solicitors?
How much of the investigation file does the insurer have to produce?
What effect does a bad faith claim have on the insurer's production
The Ontario Superior Court recently considered a case
involving these issues in two decisions rendered in the same case, Davies v. American Home Assurance Co.,  O.J. No. 677
(S.C.J.) and Davies v American Home Assurance Co., 
O.J. No.960 (S.C.J.). Davies is an action on a disability policy
in which the insured also claimed punitive damages for bad faith.
The two decisions deal with different privilege and production issues.
The issue in the first case was whether lawyers' opinion letters
had to be produced. The second decision deals with the insurer's
investigation file. Put another way, the first case deals with solicitor-client
privilege; the second with the privilege now called the "litigation
privilege: the privilege for material prepared under the dominant
purpose of anticipation of litigation or for use in litigation.
This note will examine the first decision. Our May newsletter contains
a note examining the second decision.
Both decisions contain comments by the judge, and
results, which appear startling at first blush and appear to alter
generations of settled law applicable to the solicitor-client and
litigation privilege without reference to any case law, treatises,
or commentary. Both decisions have been held out, by some in the
industry, as important, new, limitations on the scope of the privileges
and, in the context of actions against insurers, important tools
for plaintiffs seeking to compel more disclosure. However, when
looked at closely, the decisions are nothing of the sort. They are,
notwithstanding some of the sweeping generalizations suggested by
the judge, nothing more than fact based decisions which do not change
existing law; indeed, should be looked at as applications of existing
law and are arguably correct given the facts as found by the judge.
Whether those findings of fact were correct is an entirely different
question that we do not need to consider. The generalizations by
the judge which can be read as departures from existing law -- it
is probably safe to assume the judge did not think she was departing
from existing law given that she did not refer to any authorities
-- if they are to be treated as departures are nothing other than obiter comments delivered without analysis of the issues.
Davies, a dentist, lost a finger in an incident he
alleged was an accident. He made a $500,000 claim on his accidental
death and dismemberment policy issued by American Home. That was
the amount payable under the policy in the event of an accident
causing the loss of a finger. American Home declined to pay. The
reasons do not disclose the insurer's grounds for the denial prior
to the commencement of the action.
Davies sued alleging breach of contract for failure
to pay and claimed the $500,000 policy payment for loss of a finger
due to injury caused by an accident. He also alleged bad faith and
claimed punitive damages on the basis of the insurer's manner of
investigation and failure to pay. The basis for American Home's
refusal to pay is not explained in the reasons. All we are told
is that there was no formal denial until the Statement of Defence
was served and that it was in its Statement of Defence that the
insurer, alleged, for the first time, that the injury was not due
to an accident but was intentionally self inflicted.
The incident giving rise to the claim occurred in
September 1997. The proof of claim was provided to the insurer shortly
afterwards. American Home first consulted counsel in November 1997.
It had not denied the claim as of the time counsel was retained.
After that, according to the reasons, American Home admitted that
the rest of its investigation was "controlled by counsel"
and the insurer "neither honoured or denied" the claim.
The action was commenced and the Statement of Claim served in May
1988. The Statement of Defence was served on May 18, 1988. The formal
denial did not occur until the insurer filed its Statement of Defence.
The plaintiff moved for production of "the complete
claims file, the claims handling manuals, the reserve particulars,
legal opinions, investigation details and the financial information
about the defendant company." American Home resisted production
on the basis of solicitor client privilege for some of the material
(the correspondence with counsel including the opinions) and litigation
privilege (material prepared in anticipation of or for use in the
litigation) for the other material. Plaintiffs' counsel did not
suggest that defence counsel's letters to American Home were not
privileged under solicitor-client privilege. Rather, plaintiff's
counsel submitted that the privilege had been waived because American
Home had put its state of mind in issue in the action. The Statement
of Defence is not quoted in the reasons; however, this sort of argument
makes sense only if American Home, in its Statement of Defence or
at discovery, stated that it was relying on the nature of the advice
given to it by counsel and that the investigation was controlled
by counsel as defences to the allegations of bad faith against it.
The court ordered production of the opinions.
The first issue was whether, assuming the opinions
were privileged, the privilege had been waived when American Home
put its state of mind in issue; that is, when it defended the bad
faith claim on the basis that it had not acted in bad faith as it
was relying on the advice and direction of counsel. It has long
been settled that privilege is waived when a party puts into issue
its state of mind and relies on legal advice as the basis, in whole
or in part, for that state of mind: see, for example, Samoila
v. Prudential  O.J. No. 2746 (S.C.J.) and Bank Leu
Ag v Gameng Lottery Corp.  O.J. No. 3949 (S.C.J.). That
should have been the end of the matter with production ordered on
this basis. However, it was not even though Court accepted that
that was the law and American Home did not challenge that law. Instead,
American Home tried to distinguish the law on the basis that the
insurer's state of mind had first been put in issue by the plaintiff.
The judge was not inclined to accept that distinction; however,
avoided the issue by deciding to not decide the question on the
basis of waiver.
It is also long settled law that an insurer has to
produce the documents that are created in the process of it fulfilling
its policy obligations. The judge held, properly, that American
Home had a duty to investigate the claim and then stated, on that
basis, without reference to any authorities whatsoever -- no prior
cases, no treatises, no articles - that the solicitor-client privilege
"cannot be raised to protect communications during the investigation,
evaluation, assessment and decision stages." Taken literally,
that proposition amounts to a radical departure from existing law.
It would mean that a party could not claim privilege for any legal
advice it sought as to what it should do. However, it is unlikely
that the judge intended that meaning, given the next sentence in
the reasons. The judge wrote: "If legal opinions were protected
by client-solicitor privilege where "the investigation was
controlled by counsel" instead of by the insurer, whose duty
it is to act in good faith towards the insured, then that would
encourage insurers to delegate such responsibility to counsel.
The conclusion that should be drawn from the second
quotation is that the judge viewed the conduct of the lawyers, in
the circumstances, as not being conduct as American Home's solicitors
in their capacity as lawyers, but as American Home's agents to fulfill
its non-delegable duty to investigate. Since the lawyers were not
acting as lawyers, the solicitor-client privilege never attached.
Therefore, the judge concluded that the opinion letters had never
been privileged and so ordered their production.
Contrary to some of the suggestions floating around
the insurance bar and industry, the case is not good authority
for the proposition that correspondence with counsel is never privileged,
or somehow loses privilege, whenever bad faith is alleged against
the insurer. Any uncertainty about that that might arise from some
of the sweeping generalizations in the reasons is dispelled by the
terms of the order made by the judge, which she set out specifically
in the reasons: production of lawyers opinions was limited to a
the period ending 3 days after the action was commended, which seems
to be the date the Statement of Claim was served. So, the case is authority for the proposition that where the insurer delegates its
investigation duty to counsel, it risks a court concluding that
counsel's conduct was not as lawyers but merely as, in substance,
agents for the insurer to conduct the investigation. That is what
the court found happened. As such, it was conduct outside of the
solicitor-client relationship and therefore subject to discovery.
There should not be anything surprising about that conclusion.
The concern that appears to have underlain the judge's
conclusions was a sort of "floodgates" worry that allowing
American Home to claim privilege for these documents might allow
it to hide the entire investigation within the ambit of privilege.
That was stretching the point too far and American Home did not
make the argument. It would have been applicable if American Home
had tried to shelter its entire claims file under either branch
of the privilege, but it did not. So, while this concern really
was not there, it does show the problem resulting from counsel's
involvement in the insurer's performance of the investigation duty
in a capacity which is not clearly limited to that of giving legal
We should not lose sight of the fact that American
Home had not denied the claim when counsel was appointed. The claim
was never denied, formally, until the delivery of the defence. American
Home "simply" did not pay the loss on receipt of the formal
claim. The propositions of law that a case turns literally establishes
depend on its facts. Its conclusions have to be understood in that
context. Anything else is obiter. Obiter comments by our appellate
courts (with or without analysis of law) have to be listened to. Obiter comments by judges on preliminary motions are of far
There is nothing particularly novel about the proposition
that clients who allow their lawyers to take on responsibilities
beyond providing legal advice may find that that privilege does
not apply to that conduct and material relating to that conduct.
We are aware of that limitation in other circumstances: the limitations
on solicitor-client privilege where the lawyer is in-house and has
corporate (non legal) responsibilities as well solicitor's responsibilities.
A corporation cannot bring the lawyer's conduct of his or her corporate
obligations within the ambit of solicitor-client privilege.
The problem stemmed from counsel's control of the
investigation. That should not have been a surprise. It would have
been better had Justice Kiteley referred to relevant authority.
It existed. There are cases approaching a century or more old, by
now, which are still good law and easily found, that establish the
principle that where the lawyer acts in a multiple capacity for
the client -- only one of which creates privilege -- the client
has the obligation of establishing with "reasonable clearness
and freedom from doubt" that the material was prepared in a
privileged context: see, for example, Beale v City of Toronto,16
P.R. 386; Curgrove v. McKay (1902), 3 O.L.R. 63; and, the
somewhat more modern decision in Presswood v. International Chemalloy
Corp. (1976), 11 O.R. (2d) 164 (H.C.J.)
One would be remiss if one did not mention that the
judge made all of her comments about the privilege obiter by ruling, after spending numerous paragraphs explaining why the
privilege did not apply, that American Home's material did not satisfy
its onus "to establish an evidentiary basis for the assertion
of privilege" so that, therefore, "the evidentiary basis
to protect solicitor and client communications has not been established."
This was not offered as a restatement of the meaning of her views
on the significance of counsel's conduct in controlling the American
Home investigation. It was given as additional reason for ruling
that production would be ordered.
In any event, what the case stands for, then, is that:
(1) where counsel controls the conduct of the insurer's investigation
before and counsel is appointed before the denial of the claim, and (2) the insurer relies on that fact in the defence of
a bad faith claim, then all of the material relating to the conduct
of the investigation including the instructions and advice of counsel
is relevant. The judge did not specifically mention the importance
of the reliance issue in her grounds for dismissing the privilege
claim; however, she said enough to make it clear that was part of
She stated that opinions whose productions were sought (she called
them evidence) was "relevant to the allegations of bad faith
as pleaded." Relevance controls production of documents. If
a document is not relevant, it does not have to be produced.
What made the opinions relevant is that, according
to the reasons, American Home relied on the advice of counsel as
the explanation for its refusal to pay and for how it conduct the
investigation. Given that, is it at all surprising that production
In passing, it should be noted that the judge was
probably wrong in concluding that American Home had neither honoured
or denied the claim, prior to the commencement of the action, although
that error is irrelevant to the result. Given the nature of the
policy, it is probably safe to assume that it was accident insurance
to which Part VII of the Insurance Act applies. If so, then under
section 300, Statutory Condition 10, the $500,000 became payable
once 60 days had passed after the delivery of the proof. After that,
American Home did not need to make a formal denial. The fact it
had not paid was, in effect, a denial of the claim. It is probably
safe to assume there was a time for payment clause that applied
even if the Statutory Condition did not. So, American Home was,
in fact, in breach of its policy by not paying, assuming the claim
was valid, probably from about the time it retained counsel. It
was, at the least, in breach of its obligation to respond to the
claim in some fashion.
Should the fact that American Home had, effectively,
denied the claim by not paying the claim on or before the expiration
of the period for payment have made a difference to the result?
Would it have made a difference? The answer to those questions seems
to depend on how one classifies the opinion letters. It seems there
should and would be no difference on the judge's analysis of the
facts and the law, since American Home claimed privilege solely
on the basis of the solicitor-privilege and the judge held, essentially,
that the lawyers were not acting just as lawyers for the insurer
but were conducting American Home's investigation: carrying out
the insurer's contractual duty to the insured to investigate the
claim so that the solicitor-client privilege did not apply. However,
on these facts, American Home might have (although it did not do
so) also claimed privilege, if the facts permitted, for the lawyers'
opinions under the litigation privilege. It is certainly reasonable
to suspect that a good argument could be made that a lawyer's opinion
which is sought after the insurer is in breach of its policy obligations
may be characterized, properly, as being sought because the insurer
is very concerned about litigation; indeed that might be the dominant
We have to conclude that argument was made because
the reasons indicate that the only basis upon which privilege was
claimed was solicitor-client. There is, though, a very good reason
why American Home would not have bothered to claim litigation privilege
for the opinions. That privilege means only that one cannot
be compelled to produce the document. It does not protect the contents
of the document. The opposing side is entitled to ask about the
contents and find out everything in there by asking the right questions.
So, the litigation privilege would not have helped American Home
if what it was concerned about was disclosure of the advice in the
The court faced three production related issues: (1)
the effect on the scope of solicitor-client privilege and litigation
privilege (material prepared with the dominant purpose of use in
anticipated or existing litigation) when the insurer's investigation
of a claim on the policy is controlled by its solicitors? (2) How
much of the investigation file does the insurer have to produce?
(3) What effect does a bad faith claim have on the insurer's production
obligations? The decision under consideration provides some guidance
on the first and third questions. As to the first, solicitor-client
privilege may be lost. As to the third, nothing, really, unless
we say that the case tells us the insurer will have to produce the
material upon which it relies for its defence including legal opinions
upon which it purports to justify its conduct. That, of course,
is nothing novel. This conclusion is supported by the fact that
Justice Kiteley did not refer to Samoila v Prudential (2000),
50 O.R. (3d) 65 (S.C.J.) on this issue even though, she referred
to it for other reasons: on the issue of the insurer having put
its state of mind in issue. Samoila is now the notorious
and leading case on the issue of the effect of bad faith claims
on an insurer's production obligations. We will examine Samoila and recent cases applying it in a future newsletter. Of interest
is the following: The opinions in issue either supported American
Home's defence against the bad faith allegations or they would not.
If they would not, why did American Home try to rely on them? If
they did, why not produce them? What did American Home have to lose
by producing the reports and avoiding setting a problematic precedent,
if the case is precedent at all?
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