In Alofs v Blake, Cassels & Graydon, an insurer paid out a director’s liability claim and then commenced a subrogated action against the lawyers that structured the deal that lead to the director’s liability claim. The law firm, in defending the subrogated claim, took the position that the plaintiff did not mitigate his loss, and that the insurer paid a claim which it ought not to have paid (it was an “ex gratia” payment). Accordingly, they sought production of the insurer’s claim file.

The presiding Master held that since an “ex gratia” defence was plead, it was not for him to determine the merits of such a defence. If it did not exist at law, the plaintiff ought to have brought a motion to have it struck. He further held that if the plaintiffs brought such a motion in the future, they could ask that his decision be stayed, as he ordered production of certain portions of the insurer’s file. Documents that were covered by litigation privilege in the original lawsuit continued to maintain their privilege, as they were a “closely related proceeding.” Documents that were covered by litigation privilege in the subject lawsuit were also not ordered to be produced. However, documents that were passed between lawyers and insurer on the issue of why coverage was provided in the original lawsuit were ordered to be produced, as it went to the issue of shining a light on a defence that was in the pleadings.

The Master also ordered that a representative of the insurer attend for an examination, as the claims representative was likely to have knowledge of material facts raised by the defendant’s pleadings – even though the insurer was technically not a party to the claim (and in the normal course, the insured would have been examined).

Lessons to Be Learned

The pleadings continue to govern the scope of discovery. Accordingly, a prompt motion to strike out pleadings that may not be valid may be a good tactical strategy in order to set the appropriate parameters of what should be produced in the action. Second, claims representatives handling losses should be aware that any claim notes may become relevant in a subrogated action.

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