Jun 29, 2015

NS Court of Appeal Confirms Dominant Purpose Test for Litigation Privilege – And Highlights the Risk of Multi-tasking Experts

Hatch Ltd. v. Factory Mutual Insurance Company, 2015 NSCA 60 (CanLII)

On June 24, 2015 the NS Court of Appeal confirmed that the dominant purpose test is still the test to determine whether a litigant is entitled to claim litigation privilege over documents.  In Hatch Ltd. v. Factory Mutual, the Court confirmed a fact-specific analysis is required when applying the test, a task made more difficult – and thus more risky for an insurer – respecting the work product of experts that insurers regularly retain early in the claims process for both investigation and potential subrogation purposes. The key for insurers to maintain litigation privilege: it’s unlikely that materials created for a dual purpose will meet the dominant purpose test, so separate your investigation and subrogation files from the beginning.

 

A multi-million dollar wharf collapsed three years after it was constructed. The wharf owner made a claim to its insurer for the replacement cost. The insurer assigned an adjuster to handle the claim, who hired an engineering firm to investigate the collapse the day after it happened. The adjuster and the engineering firm visited the site the following day. Shortly afterward, the insurer retained legal counsel to pursue a claim against those responsible for the collapse and instructed the engineering firm to report to counsel. Ultimately, the insurer covered the loss and brought subrogated claims against the parties involved in the wharf’s construction. One of those defendants asked the insurer to disclose the materials and reports the engineering firm had created; the insurer refused, claiming the documents were subject to litigation privilege. That defendant made a motion to the NS Supreme Court for an order for disclosure, but the motions judge decided the engineer’s materials and reports were subject to litigation privilege. The majority of the NS Court of Appeal agreed:

 

Dominant Purpose. The dominant purpose test still applies: litigation privilege applies to materials (in the broad sense, including documents, reports, correspondence, videos, etc.) generated for the “dominant purpose” of litigation (actual or contemplated) – and only those materials.

 

Fact-Specific. This means the party (or the court) must determine the dominant purpose for which the materials were created – and that will depend on the specific facts in each case.

 

Multi-Tasking Experts. Litigation privilege only applies to the work product of parties hired by insurers if they were retained for the dominant purpose of litigation. Insurers often hire adjusters and experts for multiple purposes, which makes the determination of the dominant purpose – and the extension of litigation privilege over their work product – problematic for the courts. This issue is where the majority of the NS Court of Appeal and the sole dissenting judge parted ways. The dissenting judge, in a lengthy decision, determined the engineer’s documents were prepared as part of the investigation - and not for the dominant purpose of litigation. The majority relied primarily on evidence showing the purpose for which the documents were created, and decided the facts supported the motions judge’s decision that the insurer immediately contemplated a subrogated claim after the collapse due to the circumstances, and this was sufficient to meet the dominant purpose test - and litigation privilege applied:  

 

  • the date of retention of legal counsel was relevant, but not conclusive;  
  • the wharf was relatively new when it collapsed;
  • loss memos prepared by the insurer within days of the collapsed referenced the retainer of engineers under the heading, “subrogation”; and
  • the adjuster’s evidence was that the engineering experts were retained to determine how to proceed with litigation against those found at fault. 

 

The decision highlights a risk of an insurance business reality: insurers often hire experts, and often for multiple purposes. But whether litigation privilege protects an expert’s work product depends on the determination that the dominant purpose for retaining that expert was in contemplation of litigation. And as the NS Court of Appeal’s 2-1 decision in this case illustrates, materials generated for a “dual purpose” might not meet that test.

 

The key practical point: clearly separate your file into “investigation” and “subrogation” components and take any steps that should be privileged in aid of “subrogation” only - without mixing the two.

 

Read the NS Court of Appeal’s decision in Hatch Ltd. v. Factory Mutual Insurance Company, 2015 NSCA 60 here. 


 

Please contact your McInnes Cooper lawyer or any member of our McInnes Cooper Insurance Defence Team to discuss this topic or any other legal issue.


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