Can you claim solicitor-client privilege against your own insurer?

By Benoît G. Bourgon and Nicholas J. Krnjevic, from our Insurance Law Practice Group.

July 12, 2017 — On June 20, 2017, the Court of Appeal of Québec confirmed that an insured cannot invoke solicitor-client privilege to refuse to provide its insurers with legal opinions upon which it relied to settle a claim in which it was a defendant (Chubb Insurance Company of Canada c. Domtar inc., 2017 QCCA 1004).

In 1998, Domtar [the “Insured”] concluded a transaction with Weston in virtue of which Domtar would incur penalties if it would be subject to a takeover. Eight years later, it merged with Weyerhaeuser by way of arrangement.

Weston concluded that this triggered the penalty clause. When Domtar refused to pay, Weston filed a claim for $110 million in Ontario. After mediation, the parties agreed to a $50 million settlement.

Upon receipt of a notice of claim, after consideration, Chubb denied coverage and refused to take up Domtar’s defence.

Domtar then sued Chubb in Quebec, claiming the $50 million paid to Weston plus the costs of defending the suit in Ontario.

Domtar also alleged that the settlement with Weston was fair.

As part of the proceedings in Quebec, the parties agreed to several preliminary undertakings. Chubb requested documents, correspondence and legal opinions related to the Weston/Domtar claim. Domtar refused, claiming that these were subject to solicitor-client privilege.

The trial judge agreed with Domtar’s position, ruling that a party cannot implicitly forfeit its right to raise the privilege.

All three judges of the Court of Appeal came to the same conclusion, although for different reasons: Domtar could not invoke solicitor-client privilege and had to disclose the requested documents.

Justice Schrager, with Justice Mainville concurring, was of the view that because of Domtar’s claim, the Court had to decide whether the loss was covered by the insurance policy and whether the settlement agreed upon by Domtar was fair, under the circumstances. On the basis of the “at issue” doctrine, the majority of the Court decided that the Insured’s claim was implicitly referring to privileged information which, therefore, became an issue. Since those issues had been raised by the Insured, it was barred from claiming solicitor-client privilege to deny its insurer the right to the requested documents.

On the other hand, Justice Vézina concluded that, under article 2471 C.C.Q., Domtar was required to inform Chubb of all circumstances surrounding the loss. It could not claim compensation from Chubb while denying it the right to ascertain whether the risk was covered and whether the damages paid to Weston were justified, under the circumstances. According to Justice Vézina, all documents demanded by the insurer were the core of the information that the Insured was obliged to provide.

In addition, he also considered that Domtar had waived the right to invoke solicitor-client privilege for the documents related to the arrangement since it had already disclosed these documents to Weyerhauser during the 1998 negotiations. There no longer was a secret.

The case is very important since the Court of Appeal, on the basis of the “at issue” doctrine, ruled that, when the nature of the claim involves legal advice that it received, the Insured must provide its insurer with all documents and communications pertaining to the underlying litigation for which it seeks compensation, including the opinions obtained from its lawyers. In such circumstances, an insured is barred from raising solicitor-client privilege.

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