Change course on coverage? Be clear that’s it’s not a settlement.

If an insurer changes course midway through a claim — offering coverage, for example, when that coverage was previously denied — it will need to clarify that its change of position does not constitute an offer to settle before taking further steps to resolve the claim.

In a recent Ontario case, Graves v. Intact Insurance Company, Intact wished to place evidence before a jury that would clarify the insurer’s position about the status of Guaranteed Replacement Coverage (GRC). It also wished to show the jury that it had attempted to expedite carriage of the file by moving forward with the appraisal process.

But the claimants, Robert and Shirley Graves, went to an Ontario court to block the move. They said, and the Ontario court agreed, that the evidence the insurer wished to put before the jury would constitute a breach of settlement privilege.

As noted by Tory’s LLP, “to promote the public policy favoring settlements, Canadian courts, including in Quebec, have established a ‘settlement privilege,’ which prohibits the disclosure or admission into evidence of settlement communications and completed agreements, including the amount of settlement.”

Graves and Intact disagreed about whether they were involved in settlement negotiations.

The disagreement turned on an exchange of emails between counsel for the two parties that happened between Oct. 20, 2013 and Nov. 29, 2013.

The e-mail exchange started on Oct. 20, 2013 at 6:16 p.m., when “counsel for Intact, Jaye Hooper, inquire[d] if [the Graves’] counsel, Joseph Obagi, received her message on the Graves and Intact matter, being the subject claim,” the Ontario Superior Court wrote in its endorsement.

The claim arose when the Graves’s house burned down on Oct. 18, 2012, and there was no dispute that the fire was accidental. In its defence pleadings, the insurer pleaded that its insurance policy did not include Guaranteed Replacement Cost (i.e. full replacement value of reconstructing the home).

“There are then a series of e-mail exchanges where Mr. Obagi inquired if it is a proposal to settle the claim on a cash-out basis, or if they will go back to adjust the claim on the basis of full replacement value,” the court observes. “Ms. Hooper answers by confirming that the GRC does not affect the basic limit amount and that the litigation would likely continue with respect to content.”

When Obagi again inquired about the possibility of a cash-out, Hooper responded with an email at 11:29 a.m. on Oct. 21, 2013: “My only instructions are that the policy will now have GRC Coverage,” adding that she did not have any instructions about a cash-out.

About 15 minutes later, Obagi responded simply, “Understood,” and went on to confirm that the litigation will likely go on with respect to contents.

At the end of November, Obagi then wrote to Hooper advising of some discussions he had with the independent adjuster and said: “I informed him that we did not have a deal on Guaranteed Replacement as there remains outstanding issues on the limits applicable to the contents coverage…” Intact did not reply to this message, the court noted.

Intact said its counsel’s exchange of emails with the Graves’s counsel, which happened between October and November in 2013, was an unequivocal admission of GRC coverage and did not constitute an offer to settle. When the insurer then offered to use s. 128 of the Insurance Act to conduct an appraisal of the value of the replacement cost to rebuild [Graves’s] home, it was simply expediting the carriage of the file, the insurer told the court, and was not part of a settlement offer.

But the court disagreed, saying “the issue of when GRC coverage [applies] is a very important issue in this trial, because from that date Intact states that the payment of Additional Living Expenses (ALEs) is impacted and also that the [Graves] had an obligation to rebuild within a reasonable time.

“As with any issue that has a significant impact on the insured’s coverage, Intact had an obligation to state its position clearly and allow the plaintiffs to understand that this position would now be relied upon later in the proceedings.  Ms. Hooper’s exchanges of October 20 and 21, 2013 do not accomplish this.”

The court went onto note that a 2014 letter from a subsequent counsel did make the insurer’s position clear, raising the question of why the 2014 correspondence would be required to clarify the issue if Hooper’s email had indeed established the insurer’s “unequivocal” position in 2013.