Production of SIU Documents

When seeking production of documents from a non-party, it is important to remember that it is not sufficient to only show relevance; it must also be unfair to proceed to trial without the documents.

In Boucher (Litigation Guardian of) v. Charles, 2013 ONSC 3120 (S.C.J.), the plaintiffs brought a r. 30.10 motion to obtain documents from a non-party, the Special Investigations Unit (SIU).  The action arose out of an accident between a cyclist and a police motor vehicle.  The SIU conducted an investigation and concluded there were no grounds to lay criminal charges against the officer.

In a r. 30.10 motion for production of documents from a non-party, the moving party must satisfy a two-part test: 1) the document must be relevant to a material issue in the action and, 2) it would be unfair to proceed to trial without having discovery of the document.  The test sets a high bar and is permissive rather than mandatory (i.e. if it is met, the Court may order production).

The SIU conceded relevance of all of its documents except for statements from two civilian witnesses who did not witness the event.  Master McAfee held that the documents were relevant, but the plaintiffs were not able to meet the second part of the test.  The witnesses had not consented to release of their statements, and the statements of witnesses given to police officers had been produced in the police file.  Master McAfee also considered the public interest.  The efficacy of the SIU's investigative process and its ability to discharge its mandate depends on maintaining the confidence of witnesses. 

Master McAfee ordered production of a statement by a deceased witness as he would not be available to testify at trial or to provide consent to release the statement.  The plaintiffs were not able to show that they would be prejudiced by proceeding to trial without the remaining documents.

First Circuit holds that flooding from roof is covered because roof is a dry land area

I've been discussing Fidelity Co-operative Bank v. Nova Casualty Co., __ F.3d __, 2013 WL 4016361 (1st. Cir. 2013), in which the United States Court of Appeals for the First Circuit held that property damage from a flooded roof was proximately caused by the inadequate roof drainage system, a covered loss, not by rainwater, an excluded loss. 

Nova, the insurer, argued that there was no coverage because the water that flooded the building was surface water excluded by the policy.  The court agreed that the water was surface water. It held, however, that the surface water exclusion did not apply.  Although the policy excluded damage from surface water, an amendatory endorsement provided coverage for flooding caused by the unusual or rapid accumulation or runoff of surface waters from any source.  The flood coverage provision defined "flood" as a "general or temporary condition of partial or complete inundation of normally dry land areas."  The court held that the roof is a "dry land area" under the standard technical definition of land, which includes buildings, fixtures and fences. 

First Circuit holds faulty workmanship exclusion does not apply to work done before insureds owned building

In my last post I discussed Fidelity Co-operative Bank v. Nova Casualty Co., __ F.3d __, 2013 WL 4016361 (1st. Cir. 2013), in which the court held that there was coverage for a flooded roof because the proximate efficient cause of the loss was the failure of a roof drain, a covered loss, not the rainwater that accumulated on the roof, an excluded loss.

The insurer, Nova, also denied coverage of the basis of a faulty workmanship exclusion, asserting that the inadequacy of the roof's drainage system was faulty workmanship.

The United State Court of Appeals for the First Circuit held that the faulty workmanship exclusion did not apply.  It held that the exclusion was "intended to prevent the expansion of coverage under the policy to insuring the quality of a contractual undertaking by the insured or someone authorized by him."  The record showed that the roof was repaired prior to the insureds' ownership and that the insureds did not repair, renovate or replace the roof or its drain.

The Onus at Status Hearings

The decision of Master Hawkins in 1745361 Ontario Ltd. v. St. Paul's Investments, 2013 ONSC 4642 (S.C.J.) reminds us that the onus at a status hearing is on the plaintiff.

In this case, there was a delay of between 13 and 25 months, depending on whether or not the plaintiff had served an affidavit of documents (the parties disputed whether it had been served).  The plaintiff also failed to comply with the Master's Order that it deliver material for a status hearing.

Master Hawkins emphasized that Rule 48.14(13) places the onus on the plaintiff to persuade the court that the action should not be dismissed for delay.  The plaintiff must demonstrate that he, she or it has an acceptable explanation for the delay, and that if the action is allowed to proceed, the defendant will suffer no non-compensable prejudice.

The plaintiff's affidavit used at the status hearing provided no explanation for the delay and was silent on the issue of prejudice to the defendant.  On the contrary, the defendant delivered an affidavit setting out that two critical witnesses had disappeared.  Accordingly, the plaintiff had failed to discharge its onus under r. 48.14(13) and the action was dismissed.

Although the onus is on the plaintiff, one has to assume that the affidavit filed by the defendant setting out the prejudice it suffered as a result of the delay was helpful to the Court.

1st Circuit holds that efficient proximate cause of water damage from leaky roof is failure of drain, not rain

Matthew and Sondra Knowles owned a five story rental property building.  Nova insured the building.

The Nova policy contained an exclusion for water damage, but an amendatory endorsement deleted the exclusion.  (This is why I can't give advice about coverage under a policy unless I have the complete policy.)  An additional endorsement added flood coverage for loss attributable to "flood, meaning a general and temporary condition of partial or complete inundation of normally dry land due to the unusual or rapid accumulation or runoff of surface waters from any source."

The policy also contained a "rain limitation" which excluded coverage if a loss suffered to the interior of the building was caused by or resulted from rain, whether driven by wind or not, unless the building first sustains damage by a covered cause of loss to its roof or walls through which the rain enters.

A tropical storm caused a significant amount of water to accumulate of the roof of the building.  The water overwhelmed the rooftop drain and pooled on the roof, eventually leaking through the building's two skylights, resulting in property damage.

Nova denied the claim in part on the basis of the rain limitation. 

Due to the financial losses, the Knowles defaulted on their mortgage and Fidelity took title to the property.  Fidelity then brought an action against Nova. 

In Fidelity Co-operative Bank v. Nova Casualty Co., __ F.3d __, 2013 WL 4016361 (1st. Cir. 2013), the United States Court of Appeals for the First Circuit found that the rain limitation did not exclude coverage. 

The court applied the "efficient proximate cause test" or the "train of events test" set forth in Jussim v. Mass. Bay Ins. Co., 415 Mass. 24 (1993).  Under that test, if the efficient proximate cause of a loss is an insured risk then the policy provides coverage even if the final form of the property damage, produced by a series of related events, appears to take the loss outside the terms of the policy.  The court noted that the efficient proximate cause test applies to any policy that does not have an anti-concurrent causation clause. 

Nova's experts had determined that the blocked or inadequate roof drain caused water to accumulate of the roof, flooding it.  Thus, the blocked or inadequate drain set in motion a train of events that caused the interior water damage.  "The failure of the drain must properly be determined the efficient proximate cause of the damage, not the rain."  The court found that the blocked or inadequate roof drain was a covered loss under the  policy, so that the policy provided coverage for the damages. 

When worker's compensation collides with freedom of religion

Worker's Comp Insider has a fascinating article about a lawsuit in which a religious sect called the Hutterites, with similar roots to Mennonites, have been forced to purchase worker's compensation insurance for its communal work crews who receive no wages as such and have sworn not to ever sue anyone on pains of being banned from the sect. 

Excess Insurance

Excess insurers may be interested in the recently reported decision of ACE INA Insurance v. Associated Electric & Gas Insurance Services Ltd., [2012] O.J. No. 6500 (S.C.J.).

ACE insured Toronto Hydro, which was sued over an explosion that occurred in the underground parking of a high-rise apartment building.  AEGIS was the excess insurer.  Although there was no explicit duty to defend under the AEGIS policy, ACE brought an application that AEGIS had a duty to pay defence costs pursuant to the doctrine of equitable contribution.

The AEGIS policy was an "indemnity policy" rather than a "liability policy".  Under its policy, AEGIS limited its indemnity obligation where there is other insurance, and limited its duty to indemnify to defence costs incurred by the insured, not those incurred by a third-party such as ACE.  Defence counsel had been appointed by ACE rather than the insured.  AEGIS's obligation was only to indemnify defence costs at the end of the litigation, where the costs were not covered by other insurance.    

Justice C.J. Brown rejected the argument that AEGIS had an equitable duty to contribute to defence costs despite the clear wording of the policy.  There is no equitable obligation to defend where an excess policy precludes a duty to defend.  In addition, a relevant factor was that any defence costs paid by AEGIS would reduce the policy limits available to the insured so there was potential prejudice to Toronto Hydro. 

U.S. District Court rules no 93A violation where damages were not clear

Lynne Ingalls hired a lawyer, Michael Goldstein, to file a bankruptcy petition.  Ingalls told him and signed an affidavit affirming that she had filed a homestead declaration on real estate she owned with her sister.  (A homestead declaration protects certain equity in a home from creditors; until recently the exemption was not effective unless a document was filed with the Registry of Deeds.)  She testified on the issue in bankruptcy court.  Goldstein did not independently confirm the homestead declaration.  Eventually it was discovered that there was no homestead declaration of record.  As a result, the real estate was exposed to the claims of creditors.

Ingalls sued Goldstein for malpractice.  He asserted a defense of comparative negligence.  If successful, that defense would reduce or negate his liability.

Ingalls sent a 93A demand letter to Goldstein's Insurer, Minnesota Lawyers Mutual Company, demanding $100,000.  Minnesota offered $10,000, which Ingalls rejected.  Ingalls won at trial against Goldstein and, after post-trial motions, Minnesota paid the judgment of $98,018.95 including interest. 

In the 93A suit, Minnesota argued on summary judgment that liability was never reasonably clear prior to the jury verdict. 

In Ingalls v. Minn. Lawyers Mut. Ins. Co., 2013 WL 3943537 (D. Mass.), the United States District Court for the District of Massachusetts noted under Mass. Gen. Laws ch. 176D liability encompasses both fault and damages.  If damages are contested in good faith, then liability is not reasonably clear.  "This is especially true in cases involving comparative negligence.  In such circumstances, even if fault has been determined, if the percentage of potential damages attributable to the defendant is the subject of a good faith disagreement, then liability is not clear." 

The court held that although Goldstein's negligence was clear, the damages in the malpractice action were never reasonably clear prior to trial.  Ingalls' 93A demand letter did not lay out damages of $100,000, and her discussions of damages during discovery in the malpractice action continually evolved and involved future damages.  There was no evidence of actual out of pocket damages.  Moreover, there was always the possibility that her damages would be reduced by a comparative negligence finding. 

The court granted summary judgment to Minnesota, holding that it was impossible to conclude from the record that no reasonable insurer would have failed to settle the case.  

Expert Evidence at Trial

The Divisional Court has released an important decision with respect to expert evidence.  In Westerhof v. Gee (Estate), 2013 ONSC 2093 (Div. Ct.), a jury awarded the plaintiff $22,000 in general damages and $13,000 for loss of income.  The trial judge, however, dismissed the claim on the basis that it did not meet threshold.  The plaintiff appealed, arguing that the trial judge erred by restricting the plaintiff's expert witnesses.  A number of treating practitioners were not permitted to give evidence about diagnosis or prognosis, two accident benefits assessors were not permitted to give opinion evidence, a neurologist was not permitted to give evidence regarding psychiatric or psychological issues, and opinions contained in MRI reports were redacted.

The appeal was dismissed.  The Court discussed a number of cases dealing with r. 53.03 and r. 4.1.01, which provide a framework for the duties of experts.  The key distinction is whether the evidence is factual or opinion evidence; if it is opinion evidence, compliance with r. 53.03 is required.  As a result, it was correct for the trial judge to exclude the evidence.  A treating physician could offer evidence with respect to observations of the plaintiff or the treatment provided, but once such a witness seeks to offer opinions on the cause of the injury, its pathology or prognosis, the evidence enters into the realm of opinion evidence requiring compliance with r. 53.03.

Westerhof provides much-needed guidance regarding expert witnesses.  It will be interesting to see whether the number of treating practitioners testifying decreases as a result of the ruling.  The plaintiff's treating practitioners will now be held to a higher standard, and there may be an opening to argue that a practitioner is an advocate rather than impartial witness.

Interesting article on captive insurers

Forbes has an interesting article on captive insurers.  The main point is that captive insurers should actually insure actual risk, or else they are simply a fraudulent tax shelter.