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TOPSeptember 2017

Recent Cases Interpreting Insurance Exclusions:  While policies may be "standard-form", disputes over interpretation continue

By: Rory Barnable, Barnable Law P.C and Mahdi Hussein

Insurance coverage jurisprudence has its share of general principles. Lawyers even remotely familiar with the area may eagerly recite phrases like "contracts of adhesion", they may expound that "coverage is interpreted broadly while exclusions are interpreted narrowly", or perhaps at the opportune moment they may even throw out a "contra proferentem". Insurance "generalities" are so reliable that in Ledcor Construction Ltd. v Northbridge Indemnity Insurance Co., 2016 SCC 37 the Supreme Court of Canada assured us that parties interpreting insurance policies should resort to the general rules of interpretation that apply to insurance policies, adding further that appeal courts ought to apply a correctness standard of review as insurance policies constitute standard-form contracts not normally subject to negotiation. But although insurance coverage cases have generated well-established principles of interpretation, various cases within the last year confirm that the current state of the law does not provide all the answers or foreclose on future insurance coverage litigation.

A survey of recent insurance coverage cases over the past year confirm that interpreting exclusion clauses remains a nuanced and highly contestable topic. These recent cases display certain themes including the declining utility of legal terminology in insurance policies, the importance of plain and precise language, and suggest that (as before) the facts are what drive individual coverage determinations.

Tort Does Not Equal Contract

On the use of legal terminology, in CIT Financial Ltd. v. Insurance Corporation of British Columbia, 2017 BCSC 641, the British Columbia Supreme Court recently addressed distinctions between tort law and contract law when interpreting the meaning of an exclusion pertaining to "conversion". A lessee committed arson, and the decision addresses whether an exclusion referencing "conversion" ought to exclude the loss.


Common Interest Privilege in Peril

By: Pooja Mihailovich and Alexander Cobb
Osler, Hoskin & Harcourt LLP

A recent decision of the Federal Court in Minister of National Revenue v. Iggillis Holdings Inc., 2016 FC 1352, may have critical implications for the scope of common interest privilege in the commercial context. If this decision is upheld on appeal, parties to a commercial transaction or other arrangement will have to revisit their practices and may no longer wish to share privileged communications in this context unless they are represented by the same law firm. 

Common interest privilege operates, in limited circumstances, to negate the waiver of privilege that would otherwise occur when a privileged communication is shared with a third party. Prior to Iggillis, there had been widespread acceptance that parties to commercial transactions have entirely legitimate objectives in seeking to evaluate a particular legal risk applicable to, or affecting, a counterparty through a review of privileged materials. Where parties have shared a common interest in getting the deal done, both federal and provincial courts have been prepared to protect that common interest because there are economic and social benefits if parties engaged in commercial transactions are free to exchange privileged communications "without fear of jeopardizing the confidence that is critical to obtaining legal advice." The Federal Court's decision in Iggillis rejects all of the previous decisions and, in turn, casts significant doubt on this practice.

In Iggillis, the Canada Revenue Agency (CRA) was seeking disclosure of a legal memorandum prepared in the course of certain commercial transactions. The memo had been prepared by counsel to the purchaser to discuss the tax issues arising from the proposed transactions, and described a series of steps to permit the transactions to be completed on the most tax efficient basis to both parties. The purchaser's counsel circulated the memo to the vendors' counsel to ensure that vendors understood the steps to be undertaken, and the associated tax and legal risks. It was therefore useful in advancing negotiations but would also, if disclosed, provide the CRA with a "road map" of possible arguments to challenge the parties' tax position. The Court found that the memo was subject to solicitor-client privilege, but held that the privilege had been waived when it was shared with vendors' counsel.



Trumped Up Diagnosis Not a Precondition for Recovery of Damages for Mental Injury

By: Michael Duboff, Dutton Brock LLP

In an explicit repudiation of the widespread societal suspicion of psychiatry and mental illness, in Saadati v. Moorhead, 2017 SCC 28, the Supreme Court of Canada has refused to impose a requirement for a claimant to prove that he or she has a recognizable psychiatric illness in order to recover damages for mental injury.

Whereas Mustapha v. Culligan of Canada Ltd., 2008 SCC 27, spoke to the issue of causation in claims for mental injury, the Court's recent decision Saadati speaks to the issue of proof of damage in such claims. Specifically, the Court clarified whether it is necessary for a claimant to call expert evidence or other proof of a recognized psychiatric illness, in order to support a finding of legally compensable mental injury. 
At trial, the plaintiff successfully established that his personality had changed after an accident, based solely on the testimony of lay witnesses. The court did not rely upon a psychiatric expert to find that the plaintiff had proven his claim. The British Columbia Court of Appeal reversed the trial judge's decision, finding that the plaintiff was required to prove a recognizable psychiatric illness, and that expert medical opinion evidence was required. That decision has been overturned.

Brown J., writing for the Court, stated that there was no requirement for a claimant to demonstrate a recognizable psychiatric illness as a precondition to recovering damages for mental injury. The requirements for proving liability in negligence, namely proximity leading to a duty of care; breach of the standard of care; existence of "damage" which qualifies as mental injury; and causation (in fact and law), combined with the "serious and prolonged" threshold outlined in Mustapha, provide sufficient protection against unworthy claims. Where a trier of fact is genuinely uncertain about the worthiness of a claim for mental injury, those concerns should be addressed via a "robust application" of these elements.


"Don't Be Evil": Boilerplate Contract Theory and Public Policy - Douez v Facebook, Inc.

By:  Jason MacLean, Assistant Professor
University of Saskatchewan College of Law

Online contracts such as the one in this case put traditional contract principles to the test.

Anyone who wants to join the Facebook must register and accept its terms of use, which include a forum selection clause requiring all disputes between Facebook and its registered users be litigated in Santa Clara County, California. In Douez v Facebook, Inc., the Supreme Court of Canada considered for the first time the question of the enforceability of a forum selection clause occurring in an online boilerplate consumer contract. The Court's answers - rendered in three sets of reasons - illustrate the tension between legal doctrine and public policy with respect to contract enforceability, and, more generally, between the courts and legislatures as institutions of "public norm generation and legitimation, which guide the formation and understanding of relationships in pluralistic and democratic societies."

Facebook, Preferences, and Privacy

Facebook, not unlike Google, Twitter, and Instagram (which is owned by Facebook) is a pervasive advertisement-financed Internet platform. Contrary, however, to the dissenting opinion in Facebook, these platforms are far from free. As Tufekci argues, "the price they extract in terms of privacy and control is getting only costlier." As a Facebook user, Tufekci would "happily pay more than 20 cents per month for a Facebook or a Google that did not track me, upgraded its encryption and treated me as a customer whose preferences and privacy matter." In 2014, Facebook was valued at US$270 billion, and recorded profits of US$3 billion. Private, personal information is inherently valuable. "When billions of people hand data over to just a few companies, the effect is a giant wealth transfer from the many to the few."

Moreover, as another commentator observes, "if one's family, friends, and business associates are on Facebook ... using a competitor's service is not a reasonable choice."  


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