December 16, 2022
Newsletter – December 2022
Should You Throw That Evidence Out?
The Court of Appeal of Saskatchewan recently released a decision that clarifies the law around spoliation and when the Court may make an adverse inference against a party when material evidence is destroyed before trial.
In the case Casbohm v Winacott Spring Western Star Trucks, 2021 SKCA 21, one of the issues before the Court was whether an adverse inference could be made against the defendant for throwing out a ladder shortly after an incident where the Plaintiff was injured. The Plaintiff, Casbohm, a truck delivery driver, was delivering a tractor trailer to the defendant, Winacott. As part of his delivery duties, Casbohm had to re-install an exhaust stack that was taken off the tractor trailer during transport. Winacott provided him a ladder to complete the task. While he was part way through re-installing the exhaust stack on the top of the tractor trailer, the ladder came out from underneath him, he fell to the ground and he suffered some injuries.
After the incident, the ladder was damaged. There was some disagreement between the parties on whether the ladder was damaged before or after the Plaintiff had his fall, but one thing was certain, the ladder was no longer usable after the incident. Winacott threw out the ladder shortly after the incident, basically because it was useless. The parties each applied for summary judgment against each other and among the issues at the hearing was whether Winacott’s disposal of the ladder should give rise to an inference that, had they kept the ladder and made it available for expert investigation, the evidence would be damaging to their defence.
The issue engaged the principles of spoliation. Spoliation occurs on the intentional destruction of evidence relevant to ongoing or contemplated litigation in circumstances where a reasonable inference can be drawn that the evidence was destroyed to affect the litigation. If a party does commit spoliation, or, in other words, intentionally throws out evidence, the Court is free to assume that, if the evidence had been preserved, it would undermine the case of the party that threw it out. The Court can then impose remedies that it sees fit including granting judgment against the offending party. So, the consequences of throwing out evidence can be determinative of the case itself.
In Casbohm, the initial judge concluded that Winacott had not thrown out the ladder with the intention of destroying relevant evidence, but rather threw the ladder out simply because it was no longer safe to use. The prerequisite of “intention” was absent, the presumption of spoliation was successfully rebutted and there was no inference made against Winacott for throwing the ladder out.
Casbohm appealed the judge’s decision and the Court of Appeal took the opportunity to clarify some misconceptions around the law of spoliation. Previously, case law had suggested that litigation must be ongoing or contemplated before an inference of spoliation could be drawn. Many defence counsel have argued that without notice of a claim, their clients were free to dispose of potentially relevant evidence. The same was true in Casbohm – the claim wasn’t started for nearly two years after the incident, and Winacott had no notice of a potential claim. Even still, the Court clarified that it is not the state of mind of the other party that is important, but rather the state of mind of the party that controls the evidence. For the analysis, it is less important if litigation is “ongoing or contemplated”, “existing or pending” or “reasonably foreseeable” as other Courts had suggested, but rather whether the actions of the party was an intentional attempt to destroy evidence that would affect the outcome of a trial.
Nevertheless, to provide some clarity the Saskatchewan Court of Appeal indicated that “reasonably foreseeable” litigation will trigger the requirement to retain evidence. However, “reasonably foreseeable” remains an ambiguous concept. For example, in Casbohm, the defendant took pictures of the scene and the ladder in anticipation of a potential claim. They knew Casbohm was injured, albeit they didn’t know the severity, and they were anticipating that some kind of claim might be forthcoming. All this was enough to raise the suspicions of the Court to a level that the defendant had to explain themselves, but eventually, they were able to convince the Court that they threw the ladder out as a safety issue, and not to affect the outcome of a trial.
Ultimately, a finding of spoliation is highly fact specific. But if there is one take-away from the Saskatchewan Court of Appeal’s decision, it is that parties should not throw away potentially relevant evidence if they suspect that a claim might be forthcoming. Insurers, on either side of a claim, especially in property damage cases, should take immediate steps to identify potentially relevant evidence and make sure that it is set aside for safe storage. Even if a spoliation argument is unsuccessful it is always better to eliminate the possibility of it being an issue by preserving all of the evidence that you can. If it is not possible, taking as many pictures as possible can assist in combatting a spoliation argument. In this case, Winacott narrowly rebutted the presumption of spoliation, but other parties might not be so fortunate and liability may very well hinge on the decision to toss their evidence away.
One Contract or Three? Court Reaffirms the Contractual Relationships Created by the Standard Mortgage Clause
The BC Supreme Court recently released reasons for judgment re-affirming that the Standard Mortgage Clause (“SMC”) in an insurance policy represents a separate contract between the insurer and the mortgagee (in this case, a bank). The decision is also notable for its confirmation that a mortgagee does not have to collect from an insurer under the SMC in the policy and can instead elect at its option to pursue recovery through foreclosure proceedings (at least where the amount payable under the SMC is insufficient to discharge the entire mortgage).
In Royal Bank of Canada v. Kirkpatrick, 2022 BCSC 811, Royal Bank of Canada (“RBC”) brought an application for an order approving a sale of vacant land owned by the respondent, Kirkpatrick. The land previously had a single-family home on it, but the home was destroyed by fire in August 2020. As of the date of RBC’s application, there were four mortgages registered on title, with RBC being first in line.
Kirkpatrick had submitted a claim to his property insurers following the August 2020 fire. However, the insurers denied the claim on the basis of arson.
The insurance policy at issue included the Standard Mortgage Clause and listed RBC as the first loss payee. Prior to the application, the insurers offered to pay RBC the actual cash value of the home; however, this amount was insufficient to discharge RBC’s mortgage and RBC declined to accept payment choosing instead to pursue foreclosure and obtain an order approving the proposed sale (so that it would be made whole). Kirkpatrick commenced a coverage action against his insurers approximately 3 weeks prior to the application hearing date.
Kirkpatrick opposed the order approving the proposed sale on the basis that the property had not been fully and adequately marketed to support the sale. In addition, he sought an order for an extension of the redemption period and an order to have the foreclosure proceedings stayed pending resolution of the coverage action. With respect to his application for an extension of the redemption period, Master Robertson cited the two tests to be met in order to obtain an extension of the redemption period: 1) there must be a reasonable prospect of payment; and 2) the property must have sufficient value by way of security for the amount outstanding. Master Robertson found that the latter test appeared to have been met, but that Kirkpatrick failed to satisfy the first test. Specifically, Master Robertson held that the fact that Kirkpatrick had commenced a coverage action against its insurers for which he could receive payment, if successful, was insufficient to satisfy the court that there was a reasonable prospect of repayment.
Master Robertson also declined to order a stay of proceedings pending resolution of the coverage action. In doing so, she distinguished the present case from two earlier BC decisions relied on by Kirkpatrick in support of his position that a stay ought to be granted. She found that, unlike the precedents relied on by Kirkpatrick, the foreclosure proceeding and the coverage action did not involve the same contracts and the same parties. Rather, she noted:
 … There are multiple contracts at play here. There is the mortgage contract between RBC and the registered owner. There is the insurance contract between the registered owner and the insurer, and then there is a subcontract within that, the mortgage enforcement clause [i.e., the SMC], which creates a contractual relationship between the insurer and RBC.
Master Robertson then went on to note that Kirkpatrick essentially seemed to be trying to conflate the various separate contracts and that this was incorrect. Further, the court noted that RBC had no obligation to seek recovery under the SMC before it could commence foreclosure proceedings. While it had the option to do that, it was not obliged to. As such, the court found there was insufficient intermingling of issues to grant the stay pending resolution of the coverage action.
This decision serves as a reminder of the separate contractual relationship arising between a mortgagee and an insurer by virtue of the SMC in an insurance policy and the implications that flow from that. The decision also confirms that a mortgagee does not have to collect from an insurer under the SMC and can elect to pursue recovery through foreclosure proceedings instead.
Dolden Wallace Folick LLP Successfully Resists Insured’s Attempt to Withdraw from Statutory Dispute Resolution Process
In King v Aviva Insurance Co of Canada, 2022 BCSC 973, Mike Libby, Paul Dawson, and Ouran Li (representing multiple insurers) successfully resisted an application by an insured seeking to withdraw from the mandatory dispute resolution process under the Insurance Act (the “DRP”). The DRP governs disputes arising from issues of quantum and scope following property damage to insured property.
The DRP is a mandatory process: it arises under provincial insurance legislation and as a statutory condition to property insurance policies. It may be invoked by either insurer or insured after the insured delivers a proof of loss and a dispute arises between them “as to the value of the insured property, the value of the property saved, the nature and extent of the repairs or replacements required or, if made, their adequacy, or the amount of the loss or damage.”
The insured in this case was the owner of a residential strata lot and her suite sustained water damage. She made claims under her homeowner’s policy and under the strata corporation’s property policy but could not reach an agreement regarding the required scope of repair. Because of this dispute, restoration work could not be completed on her suite and it remained uninhabitable.
The insured became frustrated with the process and sought orders from the court setting aside the DRP and requiring that the coverage dispute be addressed as part of her lawsuit against the insurers seeking coverage and alleging bad faith. The insurers opposed the application to set aside the DRP.
The Court ultimately determined that while the DRP became a frustrating experience for the insured, this was not enough to set it aside.
In King, the insured initiated the DRP and designed her lawyer as her appraiser. The insurers each designated an insurance adjuster as appraisers but agreed that they would cooperate to perform the inspection and provide a joint submission as to the extent of the damage and the scope of necessary repair. They also agreed that they would work out an apportionment between the two policies once the umpire rendered his decision.
Before delivering her submissions, the insured’s lawyer ceased acting. The insured then tried to withdraw from the DRP two days after the insurers submitted their joint submissions to the umpire.
Shortly thereafter, she applied to the court to set the DRP aside. The insured disputed the two insurers’ approach to appraisal, and objected to the two appraisers’ joint submission to the DRP umpire. She further agued that because the umpire could not address coverage issues, the DRP would not conclude the matter, as it still needed to be determined whether her homeowner’s policy, the strata policy, or both should respond. The insured argued that all of these factors made the DRP unduly cumbersome and that it would be simpler and more efficient to address the issues in court.
The Court’s Approach and Analysis
The court began by describing the mandatory nature of the DRP and then set out its purpose:
“…the purpose of mandating a formal resolution process of the type at issue here is to facilitate the settlement of material issues “without recourse to the courts”: …Formal dispute resolution is available only once the parties have functionally reached a stage and a level of disagreement in respect of a particular issue that might otherwise result in litigation. Mandating an alternative means for resolving that dispute benefits both sides to the contract, as well as the civil justice system generally. Non-judicial resolution processes avoid (or reduce) the delay and expense associated with litigation. They facilitate enhanced access to justice for consumers by removing the barriers associated with a court-based process. They also avoid the unnecessary use of judicial resources”.
In dismissing the insured’s application to set aside the DRP, Justice Skolrood differentiated this case from others where issues in dispute are intertwined with other factual and legal issues that are beyond the jurisdiction of the Umpire, and emphasized the following:
- The process was mandatory, and the issues before the umpire fall squarely within the terms of the statutory condition which enables it;
- The insured’s other claims (such as a breach of the duty of good faith) are largely independent of the scope and valuation questions before the umpire;
- The DRP had advanced to the stage where “it would be antithetical to the principles of proportionality, efficiency and fairness to require the parties to essentially start all over and engage in a lengthy and potentially expensive court process.”; and
- By permitting the DRP to continue, the plaintiff was still able to bring the remaining issues (including – if necessary – the question of apportionment between insurers) before the court.
Thus, the insured’s application to terminate the DRP was set aside with costs awarded to the insurers.
The statutory dispute resolution process applicable to property damage claims is well known but often forgotten or underused. It should be remembered that “The dispute resolution provisions under the Act are clearly intended to reduce the duration and expense of litigation and encourage settlement of disputes outside of court as they are a simple, cost-effective method to resolve disputes at an early stage.”
Courts have generally taken a rather strict interpretation of the provisions of the Insurance Act, which require that the parties proceed to a quasi-judicial determination of a “dispute” surrounding the value of insured property and nature and extent of any repairs required, once DRP has started.
This decision lends firm support to the position that the DRP is intended to serve a very useful function and that it should not be set aside in the absence of compelling reasons to do so.
Double Trouble – A Review of Recent Jurisprudence Regarding “Double Recovery” in Canada
When are Plaintiffs Entitled to “Double Recover” from a Loss?
It is a long-established tort principle that the common law prevents an aggrieved person from being entitled to compensation beyond the full amount of his or her loss. While the prohibition on “double recovery” exists, it is subject to two exceptions.
In IBM Canada Ltd v. Waterman, the Supreme Court of Canada reaffirmed the two exceptions to double recovery: 1) charitable gifts and donations, as persons should not be discouraged to aid those in misfortune, and 2) where the plaintiff held a private insurance policy prior to the loss, this is commonly referred to as the “private insurance exception.”
The Private Insurance Exception
The private insurance exception can permit a plaintiff to recover twice – once from the tortfeasor and once from the proceeds of private insurance.
The private insurance exception has been reviewed by the Supreme Court of Canada on three occasions in IBM Canada Ltd., Ratych v. Bloomer, and Cunningham v. Wheeler. In these cases, the Supreme Court of Canada, while reiterating the principle against double recovery, maintained the private insurance exception.
The idea behind this exception stems from Bradburn v. Great Western Rail Co., where the court found that it would be unjust to allow a negligent tortfeasor to benefit from a private insurance policy that a plaintiff has proactively funded themselves in the event of a loss. The court describes the premiums paid by the plaintiff as a prudent man “laying away for a rainy day,” as such, the only party that should bare the benefits is the plaintiff himself.
Where the Private Insurance Exception Does Not Apply
In Napoleone v. Sharma, the Supreme Court of British Columbia stated “Whether the plaintiff has paid for private insurance or has obtained these benefits through an employment contract, the exception will apply.” In Napoleone, it was irrelevant that it was the plaintiff’s husband who secured benefits through his employment. However, the plaintiff’s claim was dismissed as there was no evidence to show that consideration was passed between the plaintiff’s husband and his employer in respect of the private coverage him and his wife were receiving.
The Ontario Superior Court in Henry v. Zaitlen, arrived at a similar conclusion to Napoleone. In Henry, while agreeing that the plaintiff’s long term disability (“LTD”) benefits were an indemnity against the past income loss claim, the court found that the plaintiff could not establish that he personally contributed to the cost of those benefits.5 As such, the LTD benefits must be deducted from the loss of income claim except where the third party who paid those LTD benefits has a right to subrogation.
Double Recovery in Statute
Certain provinces have prevented double recovery in statute, for example, in the Ontario Insurance Act and the Alberta Insurance Act. As an attempt to eliminate double recovery in tort awards arising from injuries sustained in motor vehicle accidents, section 626.1 (now section 570) of the Alberta Insurance Act, was implemented. This section introduced mandated deductions from loss of income awards which include Canada Pension Plan contributions, Employment Insurance premiums, private disability benefits, and income tax deductions.
Similarities can be found in the Ontario Insurance Act at section 267.8 which states that an insurer may deduct specific benefits from a loss of income award, including any benefits received, or that were available, through the statutory accident benefits schedule.
Private insurers should be aware that instances exist where plaintiffs are entitled to “double recovery.”
In general, the common law prevents double recovery that may flow from a benefit that has been received in relation to a loss. Although, the court may nevertheless apply the private insurance exception if the plaintiff has contributed in order to obtain entitlement to that benefit.
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