This was an application by the Defendant Insurer for bifurcation of a trial for breach of contract following the denial of long-term disability benefits, and a claim of breach of good faith and fair dealing. The Plaintiff Insured claimed a breach of good faith both in considering the claim for long-term disability benefits, and the Insurer’s conduct in continuing to deny the claim after litigation was commenced. The court ordered bifurcation, and held that the post-litigation allegations necessarily raised issues about the advice taken by counsel. The Insurer would have to retain new counsel and may require the breach of privileged communications. Prejudice to the Insurer outweighed that which would be suffered by the Insured by the delay and expense of two trials.

Stuart v. The Manufacturers Life Insurance Company et al, [2004] B.C.J. No. 729,  Supreme Court of British Columbia

The Plaintiff Insured was an employee with RBC Dominion Securities Inc., which had a contract with Manulife. Manulife provided long-term disability benefits for RBC’s covered employees. The Plaintiff became disabled in 1999, and Manulife initially accepted his claim for short-term disability benefits. When it came time to be covered by long-term disability, Manulife denied liability.

The original Statement of Claim alleged a breach of duty of good faith in failing to consider the claim for disability benefits, and a breach of contract of insurance. After receiving the Statement of Claim, counsel for the Insurer demanded particulars, and subsequently the Plaintiff amended the Claim to add allegations that the duty had also been breached by specific actions taken by the Insurer and its counsel after the filing of the Writ. The Plaintiff also added a claim for aggravated damages.

The Insurer argued that bifurcation was required to sever the Plaintiff’s contractual claim from the bad faith claim. As the Plaintiff’s bad faith claim brought into issue actions taken after the filing of the Writ, the Insurer intended to rely on the defence that it acted on the advice of counsel. The court reviewed the authorities and summarized them as standing for the general proposition that bifurcation can be considered and ordered where the defence would require the breach of privileged communications, where counsel would essentially become a witness, where continuation of the unified action would require the Defendant to retain new counsel, and where the delay associated with bifurcation and its attendant costs and inconvenience did not outweigh the prejudice that the Defendant would suffer by having to disclose privileged communications.

The court held that logic suggests that the advice of counsel will come into play whenever post-litigation conduct is raised. With respect to the prejudice to the Plaintiff, the court held that the trial date was already set in this matter, the contractual claim could be decided without delay thus minimizing any prejudice to the Plaintiff. Bifurcation was ordered.

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