June 20, 2022
Newsletter – June 2022
No New Novel Duty of Care to Passing Pedestrians
In Der v. Zhao, 2021 BCCA 82, the British Columbia Court of Appeal recently concluded that residential property owners do not have a duty of care to users of municipal sidewalks adjacent to their properties.
The appellant pedestrian slipped on the sidewalk immediately adjacent to the respondent’s residential property. The residential homeowners had shoveled snow from the sidewalk, and salted some areas of the sidewalk, but they could not recall if they salted the area where the slip and fall occurred. A City of Burnaby bylaw obliged property owners to clear a sidewalk of snow and ice by 10 a.m. each morning.
The court noted that there is no common law duty on the owner of property to clear snow and ice from public sidewalks adjacent to the property, despite the bylaw. There are however two exceptions to this general rule prohibiting liability:
- If a property owner controls the sidewalk by carrying out activities on the sidewalk, regulates who uses the sidewalk, or physically takes possession of the sidewalk, the property owner is considered to be an “occupier” of the municipal sidewalk and may become liable for pedestrian injuries. This situation usually applies to commercial property owners who place tables, chairs, or obstacles on sidewalks adjacent to their stores.
- A property owner’s responsibility extends to ensure that conditions or activities on their property do not flow off the property and cause injury to persons nearby. A classic example is water that flows off a property and freezes, causing hazardous conditions to pedestrians.
As a result of this case, the British Columbia Court of Appeal has conclusively laid to rest the question of whether residential property owners are liable at common law for injuries suffered by pedestrians slipping and falling due to ice on sidewalks adjacent to their properties. It is important to note however, that the two exceptions noted earlier are still alive and well.
In our view, the Court did not entirely resolve the issue of whether a commercial property owner is also entitled to rely on the general prohibition of liability. Courts may find it easier to find a close and direct relationship between a commercial property owner and members of the public who are invited to their premises. Commercial property owners may face a greater risk of liability, even if a slip and fall occurs on the thresholds of their property. Further, municipalities may not rely on their bylaws to ensure that snow and ice clearing work is performed, but must take steps to perform these services themselves, or ensure they are performed.
Beyond Coverage: The Added Benefits of Being an Additional Insured
Builder’s Risk and Wrap-Up policies routinely bestow the status of “additional insured” on as-yet-unknown parties, some of whom will, absent a claim, never be known to the insurer. The insurer is usually content to limit the risk of this uncertainty by defining the acceptable scope of coverage – excluding, for instance, claims based on professional negligence.
But, as the recent Ontario Court of Appeal decision in Scaffidi-Argentina v. Tega Homes Developments, 2021 ONCA 738 confirms, the benefit of being an additional insured can be broader than coverage. And insurers will want to make certain that their policies align the scope of that benefit with the scope of acceptable risk.
The Professional Uncovered
The appellant was the developer of a construction project in Ottawa. The developer obtained a wrap-up liability policy with a standard waiver of subrogation clause and a clause defining additional insureds as including “all contractors, subcontractors, engineering and architectural consultants”.
Adjacent property owners sued the developer and various parties engaged on the project for damages allegedly caused by excavation work. Among the named parties was an engineering consultant retained by the developer.
At an early stage, the consultant sought coverage under the wrap-up policy. This was denied, and, on application, the Court upheld the wrap-up insurer’s denial of coverage. The claims pleaded in the action fell unambiguously within the scope of a professional services exclusion. Although the Court accepted that the consultant was an additional insured under the policy, the consultant was not covered for the relevant claims.
There was nothing noteworthy about this outcome. Even though a given loss may not be within coverage – the insured remains an insured despite that.
But once the developer’s insurer settled the plaintiff’s claim, it sought to prosecute its cross-claim against the consultant. After all, the consultant carried professional liability insurance which could be expected to contribute to the claim. At that point, the consultant filed a response pleading waiver of subrogation and brought a motion to summarily dismiss the developer’s cross-claim.
Jumping the Subrogation Bar
The developer’s insurer highlighted the key feature of its cross-claim: the consultant was an additional insured, but had no coverage for the claim in question. In support of their position, they raised two cases which drew the Court’s particular attention: Intact, compagnie d’assurances c. Pétrifond Fondation compagnie ltée, 2010 QCCS 4916 and Thiess Pty Ltd and John Holland Pty Ltd v. Parsons Brinckerhoff Australia Pty Ltd,  NSWSC 173.
In Petrifond, the Quebec Superior Court determined that a wrap-up liability insurer could recover from an engineer who qualified as a named insured. There being no waiver of subrogation in the policy itself, the engineer relied on the general insurance principle barring subrogation against an insured. But the Quebec Court ruled that the professional services exclusion meant that the engineer could not rely on the general principle of non-subrogation.
In Thiess, the Supreme Court of New South Wales concluded that an engineer could not avail himself of the subrogation bar because the exclusion of professional services meant that the engineer was not an insured under the builder’s risk policy.
The application judge distinguished both cases. Most significantly, there was no dispute that the consultant was, in fact, an insured under the policy. Moreover, the instant policy contained a waiver of subrogation clause whose terms would prevail over any general principle of insurance.
The application judge determined that the key issue was the interpretation of the insurance contract. The Court conceded that project documentation assigning responsibility for insurance might have been relevant to analyzing the policy, but here there was only sparse and unofficial documentation in place between the developer and consultant, none of which touched on the allocation of risk or duty to insure. There was, therefore, nothing but the waiver of subrogation clause itself to consider.
The application judge found the waiver of subrogation clause unambiguous. Subrogation was barred against any insured, without reference to coverage or to the availability of other policies. While the wrap-up insurer could have made provision for those circumstances, it did not, and the plain language of the policy would govern. The developer’s cross-claim was simply barred.
The Court of Appeal’s judgment was brief. They agreed that, absent project agreements relating to insurance coverage, the policy stood alone and had to speak for itself. The wording of the waiver of subrogation clause was open for the insurer to revise. There could be no question that the consultant was protected by the terms of the policy the insurer had drafted.
These decisions do not mean that insurers cannot recover against insureds who stand outside of coverage, but they make clear that they certainly cannot do so without careful and attentive drafting. Three points of advice stand out.
First, insurers should align the wording of waivers of subrogation and other insured rights with coverage. If certain risks are excluded, parties who create those risks must be clearly placed outside the protection of these rights by the policy wording.
Insurers should consider whether the “other insurance” provisions in their wrap-up wordings properly reflect their expectations. If excluded risks are to be covered by others, the wordings should ensure that participation will reflect that allocation.
Finally, insurers should consider whether their underwriting requirements suitably address contract documentation. The insureds’ allocation of risk among themselves may impact insurers’ respective positions. Even if the insurers exercise no control over that documentation, they will want to be alive to the risks it, or its absence, may present.
Litigation Privilege, Settlement Privilege, and Wedding Crashers
Can an adjuster claim litigation privilege over documents made before litigation starts? What makes a settlement offer a settlement offer? Does a mere reference to the existence of privileged documents in non-privileged communications waive privilege over those documents?
In a complex case that raises important claims handling points for insurers and their adjusters, the British Columbia Supreme Court answered all three questions. Litigation privilege extends to copies of documents that were created before litigation starts, provided the copies were collected by someone for whom litigation was a reasonable prospect. A demand to be released, even accompanied by a rationale, may not be enough to attract settlement privilege. And mere references to documents may not waive privilege over their contents.
McCarthy v. City of North Vancouver, 2021 BCSC 2517 involved personal injuries suffered when the plaintiff collided with several guests on the dance floor of a wedding. The plaintiff called one of the guests she collided with shortly after the wedding and the guest apologized for the incident via email.3
That guest then met with the plaintiff’s son-in-law to discuss the incident and took notes of her meeting.
On March 27, 2020, two years later, the groom told the guest that the plaintiff was going to file a notice of civil claim. On April 21, 2020 the bride and groom’s liability insurance adjuster interviewed the guest and took her statement. The guest learned a month later that the wedding couple’s insurer were going to issue a subrogated claim against her. She informed her home insurer who, in turn, retained their own adjuster to interview her.
The guest’s adjuster obtained copies of her April 2020 statements to the bride and groom’s adjuster, and collected copies of photographs and videos of the wedding made by various third parties.
The plaintiff’s lawyer served the guest with a notice of civil claim and contacted her adjuster to ask whether defence counsel had been assigned. The guest’s adjuster responded in an email saying that she saw no prospect of the guest being liable and demanding that the claim against the guest be dismissed. The adjuster wrote plaintiff’s counsel a further email explaining that she had witness statements and videos in her possession. Her emails acknowledged no possibility that the guest might be found at fault, and made no concession regarding costs.
Plaintiff’s counsel demanded the production of the documents the adjuster had referred to in her email. The adjuster objected, asserting privilege. And the application before the Court resulted.
The Court had to consider three issues:
a. Were documents gathered by the adjuster capable of being protected by litigation privilege?
b. Were her emails (and therefore, the references in them) protected by settlement privilege? and
c. Had the adjuster waived privilege over the documents she referred to in her email?
The plaintiff’s lawyer argued that litigation was not a reasonable prospect when the gathered documents were created. The Court agreed – notably, there was no evidence in the guest’s affidavit that she thought there might be a lawsuit when she took notes of her conversation with the Plaintiff’s son-in-law. But litigation was a reasonable prospect once the guest’s adjuster was appointed – responding to anticipated litigation was the entire reason she had been retained.
Having gathered copies of documents in preparation to defend the litigation, those copies were protected by litigation privilege. It did not matter that the original documents may have been prepared before the relevant cutoff date – the copies which were in the adjuster’s control were the documents in issue. These were protected by litigation privilege.
Although the adjuster had referenced privileged documents in her emails, the Court agreed that this was not enough to waive privilege. Privilege would be taken to have been waived if part of the document were disclosed, or if the adjuster had sought to rely on them while – fairness would the compel disclosure. But the mere reference to the document and its existence was not enough to meet that threshold – a reference of this kind would be no different than having the document properly listed in the party’s list of documents.
Having found that privilege over the documents was not waived, the court considered, as an alternative, whether the adjuster’s emails to the plaintiff’s lawyer attracted settlement privilege – another basis on which the referenced documents could be held to remain protected.
The court noted that writing “without prejudice” on communication is not enough to protect the communication. The application of settlement privilege depends on whether the communication was engaging in efforts aimed at settling the litigation.
The Court pointed to the absence of any acknowledgement of risk or any offers of consideration such as a waiver of costs in the adjuster’s email. There was nothing in it which could be taken as an opening or springboard for negotiation – it was merely a forceful positional statement. It was, in brief, a demand rather than an offer, and a mere demand, even in the context of litigation, could not attract settlement privilege.
Adjusters of third-party claims will find some comfort in the knowledge that their file materials, copies and originals, will probably be safely protected by litigation privilege. But they should note that there are limits to the protection which settlement privilege may offer. If they intend their communications with plaintiff’s counsel to be privileged, there must be enough in them to suggest that genuine efforts at a negotiation might follow. And it may be wisest to avoid disclosure of evidence, even cursory, rather than having to argue over how far into the realm of waiver one may have passed.
Reliance Disclaimer Holds Up: A Common Professional Services Exclusion Proves its Worth
In 0694841 BC Ltd v Alara Environmental Health and Safety Ltd, 2022 BCCA 67, the Court of Appeal upheld a Chambers Judge’s decision to dismiss a lawsuit against an environmental consultant on the basis that a disclaimer in its report prevented its use and reliance by a subsequent purchaser.
The close relationship between the consultant’s client and the subsequent purchaser in this case illustrates how powerfully effective this disclaimer language can be.
The Purchase and Report
A holding company (“069”) agreed to purchase a hotel and office building, then assigned its rights under agreement to a related entity, ITC. Both companies were controlled by the same director.
069 had retained Alara to conduct an environmental assessment as part of 069’s due diligence on the purchase. Alara prepared a report containing the disclaimer that “Alara will not accept liability for any loss, injury claim, or damage arising directly or indirectly from any use or reliance on this report by any person or entity other than the client”.
The Alara report was paid for by ITC. Payment was processed by an administrative assistant – Alara’s principals were not involved.
After ITC purchased the property, it discovered contaminants on site and sued Alara for negligent misrepresentation when preparing its report.
In order for ITC to succeed in its claim of negligent misrepresentation, it had to establish that Alara owed it a duty of care and that it was reasonable for ITC to rely on the report, despite the existence of the disclaimer.
Could ITC rely on Alara’s Report?
ITC argued that there were special circumstances which gave rise to a duty of care despite the report’s disclaimer, including:
- The previous and subsequent titleholders where controlled by the same individual director;
- The purpose of the report was to assist the director in his decision as to whether to purchase the building;
- Alara had seen the assignment agreement, and therefore knew that another party would ultimately be purchasing the land; and
- ITC paid for the report, which gave Alara notice of its involvement.
Despite these facts, the Court determined that it was not foreseeable to Alara that ITC would rely on its report, because:
- 069’s and ITC’s assignment agreement did not suggest to Alara that they had anything other than an arm’s length relationship;
- ITC never asked Alara for permission to use the report;
- Alara’s principals were not aware of the payment arrangements for the report; and
- the language of the disclaimer was clear.
Had any decision-maker at Alara known of the payment from ITC, it is at least arguable that Alara could have been estopped from relying on the exclusion. After all, knowing that ITC had paid for the report, Alara could have been said to have acquiesced by silence.
The Alara decision provides some idea of the kind of special circumstances that are required for negligent misrepresentation to be made out. It also serves as a reminder that those who choose the benefit of corporate veils must accept the burden – unitary control does not matter if the companies present separate faces to the world.
Had Alara known of the same “operating mind” behind 069 and ITC, it is possible that a duty of care could have been imposed on Alara. But ITC may still not have reasonably relied on the report given the clear and specific language of the disclaimer – unless it asked Alara for permission to use it.
Professional services firms will want to review existing limitation of liability clauses in their reports with confidence that these provisions hold up. But they will also want to ensure that they are not wilfully blind to signs, like those in this case, that the true user of their report is someone else.
No Scraping, Please. Or Else, Class Actions for Privacy Breach May Follow
By David Girard, Dolden Wallace Folick Calgary, Email: firstname.lastname@example.org
In Severs v Hyp3R Inc., 2021 BCSC 2261, the Supreme Court of British Columbia certified a class action for a privacy breach claim against the defendant Hyp3R Inc., and granted damages to the plaintiff class as an aggregate award.
The proposed representative plaintiff was an Instagram user who alleged that she and a number of other Instagram users had their account information illegally collected by the defendant. The process by which this information was collected, often referred to as ‘scraping’, was in breach of Instagram’s policies by which third party companies who wish to gain access to Instagram’s user data, including the defendant, are bound.
On June 10, 2020, the defendant was served with the notice of civil claim, and on September 18, 2020, the proposed representative plaintiff obtained a default judgment for damages to be assessed (as a result of the defendant’s failure to defend the litigation). The plaintiff then brought an application to have the action certified as a class action, to define the class, have class counsel appointed, to certify common issues, and to provide answers to those common issues.
After holding that no law prevented it from certifying a class proceeding in default, the Court proceeded to certify the action as a class proceeding. In doing so, the Court held the following:
1. A valid cause of action. The Court turned to consider whether a valid cause of action existed, assuming all facts pleaded to be true. It considered the privacy legislation of British Columbia, Saskatchewan, Manitoba, and Newfoundland and Labrador, all of which create somewhat comparable torts for breach of privacy. It then considered all of the remaining common law jurisdictions being Ontario, Alberta, New Brunswick, Nova Scotia, Prince Edward Island, Yukon, the Northwest Territories, and Nunavut), and held that in all of those provinces, the plaintiffs could rely on the tort of intrusion upon seclusion. Thus, on the facts before it, the Court held that the defendant had committed the respectively applicable privacy torts.
2. An identifiable class of two or more persons. The Plaintiff sought an order defining the relevant class as all individuals in Canada (to the exclusion of Quebec) who were Instagram users with a public profile between April 4, 2018 and the certification date. The Court so defined the class.
3. Common issues. The Court found that common issues proposed by the plaintiff met all necessary requirements.
4. A preference for a class proceeding as the appropriate procedure. The plaintiff argued, and the Court agreed, that the alleged misconduct was common to all plaintiffs and that aggregating the claims of all class members was beneficial to them and the Court.
5. An appropriate proposed representative plaintiff. The Court was satisfied that the proposed representative plaintiff could ably represent the class and that no conflicts of interests or the need to create any subclasses arose in this case.
Given that the proceedings were by default, the Court found that the defendant had collected the personal information of Canadian Instagram users outside of Quebec without their authorization and used that information for commercial purposes. In so doing, the Court held that the defendant had breached the privacy law statutes of all 4 provinces having such statutes, and that in all other provinces, the defendant had committed the tort of intrusion upon seclusion. After reviewing some cases considering the quantum of damages in other cases, the Court granted the class members $10.00 each in damages, which represented a judgment of $24,921,378.
This case is interesting because it is so dissonant with a number of other cases decided before or since in British Columbia, Saskatchewan, and Ontario. This arises from the fact that it is typically very difficult for plaintiffs to obtain the certification of a privacy class action. In particular, Courts have often highlighted that there is a lack of common issues and that a class action is not the preferred process. In that context, one can only wonder whether the Court’s decision in this case is more a matter of the defendant’s failure to defend the matter, rather than a shifting wind in favour of plaintiffs.
Ontario Court Continues to Find That Privacy Tort “Intrusion Upon Seclusion” is Not Viable Against a Hacked Organization
In the case of Obodo v TransUnion, 2021 ONSC 7297, between June and July 2019, hackers accessed the credit profiles of 37,444 persons whose financial information was held by TransUnion. The hacker used valid credentials belonging to one of TransUnion’s customers to access the financial information. A class action was commenced as a result, with allegations of intrusion upon seclusion, negligence and a breach of provincial privacy statutes. The Ontario Superior Court of Justice allowed the certification motion in part: while the claim in negligence was certified, the claim for intrusion upon seclusion failed.
The Court relied on the decision in Owsiani k v. Equifax Canada Co., 2021 ONSC 4112, where the Divisional Court of Ontario held that the tort of intrusion upon seclusion “had nothing to do with a database defendant”. The Court refused to find that Owsianik was wrongly decided, despite intrusion upon seclusion claims for data breaches caused by hackers having been certified in other cases.
Like in Owsianik and Obodo, we continue to see claims for intrusion upon seclusion failing at the certification stage where there has been a data breach caused by an unidentified hacker (see, for example, Del Giudice v Thompson, 2021 ONSC 5379 and Winder v Marriott International, Inc., 2022 ONSC 390). Claims in negligence, among others, are being allowed, although the challenge for plaintiffs has, and will continue to be, to prove their damages.
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