Privilege over investigation materials

The recent decision in Plenert v. Melnik Estate, 2016 BCSC 403 provides an additional arrow in the quiver of insurers and insureds seeking to claim privilege over investigative documents and adjusters’ reports prepared prior to the commencement of litigation.

The Plenert matter involved a motor vehicle accident in which the Defendants commenced third party proceedings against a road maintenance contractor, Emil Anderson Maintenance Co. Ltd. (“Emil Anderson”). At issue was whether Emil Anderson was required to disclose preliminary reports and witness statements prepared and obtained by its independent adjusters.

Emil Anderson argued that the documents at issue were produced at a time at which litigation was in reasonable prospect and for the dominant purpose of litigation – ie: they were protected by litigation privilege. This claim of litigation privilege was made despite the fact the initial e-mail reporting the incident to the liability insurer was noted as being made out of an “over-abundance of caution”.

To bolster its position that all reports and witness statements were protected by litigation privilege, Emil Anderson relied on affidavits from its liability insurer and two independent adjusters setting out their views that litigation was likely from the outset and that the liability insurer only retains insurance adjusters to conduct investigations and witness interviews in order to prepare for litigation.

While Emil Anderson took the position that there was no investigative stage in this matter, the Defendants argued that the law established that there was a continuum to an investigation. The Defendants stated that the documents at issue were prepared to investigate the facts of the accident. Until those facts were determined, litigation could not be said to have been in reasonable contemplation.

Emil Anderson relied on the Ontario Superior Court of Justice’s decision in Panetta v. Retrocom Mid-Market Real Estate Investment Trust, 2013 ONSC 2386 to bolster its position. The Court in Panetta stated the following at paras. 61 and 62:

    [61]     I think that, in third-party or tort claims (as opposed to claims by an insured against his or her own insurer), there is no preliminary investigative phase where privilege does not attach to notes, reports and files of adjusters. In third-party insurance claims, the sole reason for any investigation by or on behalf of an insurer is because of the prospect of litigation. It is naive to think otherwise; and the fact that the investigation may be used to arrive at a pre-lawsuit settlement does not detract from the point that I make. The prospect of litigation inherently includes the prospect of settlement.
    [62]     I agree […] that there is no purpose for the creation of documents by an insurer in a tort context other than: (1) for anticipated litigation; (2) for setting reserves; or (3) for seeking legal advice. For completeness, I would add, as a corollary to (1): for the purpose of settlement, which I see as inextricably entwined with “anticipated litigation.”

Despite the fact that there was clear evidence that the initial reporting of the accident was out of an abundance of caution, not the certainty or even likelihood of a legal action, not to mention that the documents were prepared during the “early days”, Master Muir accepted Emil Anderson’s claim of litigation privilege.

Master Muir held that the type and severity of the accident along with the fact that another adjuster had made enquiries about road maintenance were sufficient to make a finding that litigation was in reasonable prospect at the time the documents were created. She further relied on the affidavit evidence of the liability insurer and independent adjusters to make a finding that the dominant purpose for the creation of the documents was for potential litigation. Master Muir concluded:

    I do not go so far as to say that in all circumstances the investigations of liability insurers will be privileged, but I am satisfied that the documents in issue in this case are protected by litigation privilege. There is no evidence that they were created for multiple purposes. The evidence is that the only reason for the investigation was to defend against potential litigation, which I have found was reasonably in contemplation. That evidence is supported by the limited role of the liability insurer in this matter, which was to defend and indemnify Emil Anderson […].

This decision will no doubt be of assistance to insurers and insureds going forward in attempting to claim privilege over adjusters’ materials prepared even at the earliest stages of a claim.