The B.C. Court of Appeal dismissed the appeal of a judge’s order directing the plaintiff to produce documents to the defendant insurer providing details of a mediated settlement the plaintiff agreed to on his wife’s behalf in another action arising from a MVA in which the plaintiff’s wife was injured. The Court found that although the “blanket” settlement privilege applied to the settlement documents, the documents fell within an exception to privilege because they were both relevant and necessary.

07. January 2005 0

Dos Santos (Committee of) v. Sun Life Assurance Co. of Canada, [2005] B.C.J. No. 5 2005 BCCA 4, British Columbia Court of Appeal

The B.C. Court of Appeal considered the plaintiff’s appeal of a judge’s order requiring the plaintiff to produce documents providing details of a mediated settlement the plaintiff agreed to on his wife’s behalf in another action arising from a MVA in which the plaintiff’s wife was injured. The plaintiff’s claim against the insurer, Sun Life, arose under a policy of long-term disability coverage under which the wife had benefits for loss of income. The long-term disability policy included a subrogation clause which stated that where the insured had a right of action against the third-party for recovery of loss of income, the insured was required to provide to the insurer reports of settlement negotiations with the third-party and copies of documents in the insured’s possession or control that related to the right of action against the third-party.

In the litigation related to the MVA, the defendant driver was held 100% at fault. Damages were then mediated between the plaintiff and ICBC, the defendant’s insurer, and a global settlement was reached. The court order approving the settlement specified terms allocating approximately $40,000 to the insurer for disability payments received by the plaintiff on his wife’s behalf.

The insurer claimed it was entitled to see the documents underlying the mediated settlement, so that it could tell what sum was paid in respect of lost income, past and future. The plaintiff claimed that the documents relating to the mediation and the settlement were privileged under the blanket privilege recognized by the B.C. Court of Appeal in Middlekamp et al v. Fraser Valley Real Estate Board et al (1992), 71 B.C.L.R. (2d) 276 or through solicitor’s brief (litigation) privilege. The insurer maintained that the documents were excepted from the privilege as necessary to the proper disposition of the dispute between the plaintiff and the insurer.

In chambers, the Master originally held that the insurer was entitled to know only what the settlement was and how the settlement was broken down amongst the various heads of damage. However, Mr. Justice Powers reversed the Master’s order directing the plaintiff to produce all the documents sought by the insurer.

The two issues on appeal were whether the documents relating to the mediation process were privileged either:

    1. under the blanket privilege protecting settlement negotiations; or
    2. by solicitor’s brief (litigation) privilege.

If either privilege applied, then the further issue was whether the documents fell within an exception to privilege.

Chief Justice Finch cited the judgment in Middlekamp, supra, which held that “blanket” settlement privilege protects documents and communications created for settlement purposes both from production to other parties to the negotiations and to strangers. Without such protection, the public interest in encouraging settlements would not be served. Chief Justice Finch found that privilege attached to the settlement communications with the defendant driver in the MVA litigation.

The main issue, therefore, was whether an exception to or waiver of privilege could be established in this case. To establish an exception in this case, the defendant was required to show that a competing public interest outweighed the public interest in encouraging settlement. An exception should be found only where the documents sought are both relevant and necessary in the circumstances of the case to achieve either the agreement of the parties to the settlement or another compelling or overriding interest of justice. Here, the plaintiff clearly put into issue the subrogation rights of the defendant insurer under the disability policy. Chief Justice Finch also found that the only way to establish objectively what the plaintiff actually received in compensation for lost earnings was to recognize an exception for these documents that would otherwise have been protected by settlement privilege. The relevance and necessity of the documents, therefore, militated in favour of recognizing an exception to settlement privilege in this case.

The Court of Appeal also dismissed the plaintiff’s appeal of the chambers judge’s ruling that the settlement documents were not protected by litigation privilege. Holding these documents to be protected by litigation privilege would be inconsistent with settlement privilege. Protecting settlement offers and mediation notes/summaries under litigation privilege would emasculate and subsume settlement privilege. Settlement privilege is premised on the special policy consideration of encouraging parties to settle. The same cannot be said of litigation privilege. Furthermore, the test for litigation privilege is difficult to apply to settlement offers and mediation notes/summaries. As well, it was difficult to see how the dominant purpose of these documents could be other than furtherance of a settlement, and specifically the avoidance of further litigation. Chief Justice Finch, therefore, found that the settlement offers or mediation notes/summaries were not protected by litigation privilege. While some of the expert reports and economic and actuarial evidence relied on to quantify the plaintiff’s wife’s pecuniary loss could attract litigation privilege, it was not established that these documents were, in fact, made for the dominant purpose of litigation. As a result, the appeal was dismissed.

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