Information contained in written statement insured gave to insurer – is the insured required to provide this information at examination for discovery?

In Sangaralingam v. Sinnathurai, [2011] ONSC 1618, when examining the defendant for discovery, counsel for the plaintiff requested that the defendant provide information contained in the written statement he gave to his insurer following the motor vehicle accident. Defendant’s counsel refused to provide the statement or the contained information on the grounds that it was protected by litigation privilege.

A motion was made to a master who ruled that the defendant was not required to provide the information in the statement on the basis that the defendant had already been examined for discovery at length and the plaintiff also received a copy of the statement the defendant provided to the police following the accident. Therefore, such questioning would be solely with respect to the credibility of the defendant.

The master’s decision was appealed. The motions judge required the defendant to answer the question. The motions judge relied on the principle that questions on discovery seeking the facts of a party’s case do not offend privilege even though the source of the facts is a document over which privilege is being asserted.

There was a further appeal to the Divisional Court. Justice Herman referred to the test for when litigation privilege should be set aside as provided by Justice Ducharme in Kennedy v. McKenzie, [2005] O.J. No. 2060: where “the materials being sought are relevant to the proof of an issue important to the outcome of the case and [that] there is no reasonable alternative form of evidence that can serve the same purpose”.

Upon application of this test to the case at hand, Justice Herman concluded that in the course of the examination for discovery, counsel for the plaintiff had the opportunity to ask questions of the defendant that were relevant to the material issues. The defendant was co-operative and was not withholding information. Therefore, there was an alternative means available to obtain the relevant information and as a result litigation privilege should not be set aside.

Also, with respect to whether the request was directed solely to the credibility of the defendant, Justice Herman stated that it was his opinion that the sole purpose of the question being asked was to find out what the defendant told his insurer and therefore was asked for the sole purpose of credibility.

Competing Duties: Duty of an Insured to Disclose Material Changes v. Duty of an Insurer to do Due Diligence

The duty to disclose a material change in risk in an automobile insurance policy was recently considered by Howden J. in the case DeKoning v. Vector Insurance, [2009] O.J. No. 3461 (S.C.J.).

The Court had to balance competing duties. An insured has a duty to disclose material changes to the policy. An insurer has a duty of due diligence to obtain publicly or readily available information.

An insured under an automobile liability policy failed to report her knowledge to her auto insurance company of the driving record of her dependent teenager who was listed on the policy as an occasional driver.

The insurer took the position that represented a breach of a statutory condition of the policy and permits the insurer to treat the policy as void ab initio and unenforceable.

In this instance, the guardian had added the 16 year old as an occasional driver to her policy by telephone through her broker. The insurer obtained the driving record of the teen showing that his record was clear. Nearly a year later, the son had his license suspended by reason of demerit point accumulation. He had several traffic convictions, including speeding. The guardian assisted the teen in ensuring that all fines were properly paid. The teen did not drive the insured motor vehicle until his suspension ended.

Neither the guardian nor the teen reported to the insurer the fact that his license had been suspended. They subsequently claimed that they did not know of a duty to do so.

The insurer never obtained a subsequent driving record which it could have done for a fee of $12.00.

A few months later, the son was driving with three passengers when a serious accident occurred resulting in one of his passengers suffering catastrophic injuries.

The catastrophically injured passenger obtained a judgment for over $18 million dollars. The insurer made itself a statutory third party throughout those proceedings and took the position that the policy was void ab initio. The limit for third party claims on the insurer was $1 million.

The mother and son brought an action against the broker and insurer, claiming that the policy of insurance is binding and enforceable and seeking a declaration that the insurer was obligated to provide them with a defence in the passenger action. They also claimed indemnity from the insurer for all damages and costs assessed against them in the passenger action.

The Court considered the duty of good faith on insureds to disclose material changes in risk to insurers. The Court noted that Statutory Condition #1 requires an insured to notify the insurer or agent (broker) of any change in the risk material to the contract. The Court reviewed case law which imposes an obligation on an insured to disclose material facts, and then noted that in this instance, only the insurer knew that a couple of traffic tickets and a license suspension were material. Further, the insurer was aware that the additional insured was a novice driver when it added him to coverage and the insurer did not take any additional steps to update its records with respect to his driving record.

The Court held that the guardian as the named insured did not fail in her duty to disclose a material change in the risk since it was not clear in the policy that the driving tickets and suspension were material changes.

The insurer had a duty of due diligence to obtain a further driving record. Therefore, the insurer had no ground in law to void the policy and was obligated to indemnify its insureds.