Spoliation, Disclosing Adjuster Files and Canada the Great

Evidence is undoubtedly the foundation that a case is based on, and a court makes its decision based on the evidence before it. Therefore, when the evidence is not preserved, it can change the course of a case, delegates learned at the Canadian Independent Adjusters’ Association’s (CIAA) annual conference on Prince Edward Island in September.

Spoliation is the intentional destruction, mutilation, alteration or concealment of evidence, Mary-Lynn Kane, partner, Cox & Palmer, told delegates during an educational seminar at the conference.

This is becoming more of an issue in the Canadian courts as the litigation pressure from the United States is being felt north of the border. Certain courts in the U. S. have said that spoliation is considered obstruction of justice, which is “pretty serious bananas,” Kane noted.

If a piece of evidence is in the care of an adjuster, an examiner, an insurance company, etc. and it gets destroyed while in that person’s care, then “you’ve essentially denied that party the opportunity to have their day in court, to have their side of the case heard,” she noted. By destroying a piece of evidence, even unintentionally, the other side is not given the opportunity to examine the evidence and that piece of evidence is likely to be ruled inadmissible — which can make or break a case.

In a 2005 decision of the New Brunswick Court of the Queen’s Bench– Spencer v. Quadco Equipment — the plaintiff purchased equipment, which spontaneously ignited. The plaintiff retained an expert to examine the cause of the fire. The electrical engineer issued a report and attached to it a letter to the adjuster noting that the component (piece of equipment) would be destroyed in a year if the adjuster did not contact the examiner. Fast forward 18 months: litigation is commenced by way of subrogation and the defense is given a copy of the experts report. However, they want to test the component themselves. The electrical engineer had destroyed the component, as per his letter, and as a result, a motion was made to disallow testimony by the expert and the court ruled that the expert’s report was not admissible, Kane said.

The court considered the following: “the tortfeasors were prejudiced by the destruction of the evidence; the prejudice could not be cured, there was no way to bring that evidence back; the evidence had practical importance; the insurer acted recklessly and not in good faith . . . And finally there was a potential for abuse if the expert’s evidence was allowed,” she added. The claim did not go forward due to the lack of the expert’s report.

Consider the other side

The adjuster and the insurer did not consider the potential impact to the other side, Kane said, noting one must always consider what they would request if sitting on the other side. The expert was not properly instructed in this situation — an expert must be told why they are being retained, what they are required to do and to not destroy anything. “Most importantly, if their testing is going to permanently alter whatever it is that they are testing then you can’t do it,” she noted, adding that ideally it is best to wait until somebody from the other side is available to bear witness. “Written clear instructions to your expert: ‘Do not destroy this under any circumstance’ is critical.”

The court in this case found no fault on the part of the expert. “Understand that he who has it in writing, has the best chance,” she cautioned.

The question becomes whether intention is necessary in order to be sanctioned by the court in the event that evidence within one’s purview is destroyed. “Unfortunately, the answer to that question is probably not,” she said.

Reckless adjusters

This is seen in Lamont Health Care Centre v. Delnor Construction Ltd.., a 2003 case from the Court of the Alberta Queen’s Bench, which found that the actions of the insurance adjuster in that case were reckless especially for an adjuster with experience in litigation.

“While a party cannot and should not be accountable for the destruction of relevant evidence by persons having no interest in its preservation and a lack of understanding of its potential future relevance of importance.”

If you’re in that bailiwick, the courts are not going to come down hard on you, Kane said. But, the court goes on to say, “This standard should not apply where the evidence is destroyed or allowed to be destroyed by a party who knows or ought to know of its significance.”

Previously, when evidence was destroyed, the courts would assume the evidence was not favourable to the party that destroyed the evidence. Today, courts are granting a prohibition against using the evidence — which can destroy a case entirely — or having the claim dismissed outright. The rules of the court are all about disclosure, and one party is obliged to let the other side have a fair opportunity to respond to any available evidence and conduct any similar tests if required.

“Put yourself in the shoes of the other side even when you don’t know who the other side may be or how many there are,” Kane suggested. “Understand that you have a higher standard in terms of what the expectations by the court are of you, that you are seen as professionals, experienced in litigation, so you have that standard that you have to live up to and aspire to — that applies to examiners, adjusters, claims personnel across the board. Be careful and thorough in your instructions to your expert and bottom line is, if it’s important enough to test it and examine it, then it’s likely important enough to keep.”

Careful What You Write

Anything that is written in an adjuster’s file can end up being disclosed in litigation, Tracey Clements, lawyer, Stewart, McKelvey, Stirling Scales, told delegates during the seminar. While a good file is definitely of benefit, “assume whatever you are writing down could be disclosed to the other side,” she cautioned.

The rules of disclosure are becoming more and more encroached upon. The courts are moving to a system that is based on fairness and fairness includes the obligation to make a full and complete disclosure to the other side, Clements noted. The only exception to that is to establish privilege.

Llewellyn v. Carter

A recent case in the Prince Edward Island appeal court, Llewellyn v. Carter, made it very clear that the premise is full disclosure. Full disclosure includes adjuster file materials and the obligation will be on the defense council to establish the basis on which privilege can attach to those documents, Clements noted.

For this reason, adjusters must be very cautious about what they write when creating a file. “Be careful in particular with editorial type comments, personal comments, they are really not helpful and in fact when you get to litigation they can really cause difficulty particularly if you’re making personal comments about the opposing party, personal comments about the opposing lawyer,” Clements warned.

While many lawyers will block out editorial comments and the such from an adjuster file when submitting it, there always exists the possibility that the original will be required. This means that things such as reserves and personal comments and the like might end up in litigation.

“There is some magic point in time when the file crosses over from investigation to litigation and like everything in life there’s no black and white answer as to where that actually is.” Clements said, adding that the courts make it very clear that the test for privilege is ‘was that document created for the dominant purpose of litigation?’ “So that doesn’t mean one of 15 reasons it was created, it means the dominant purpose of litigation. That’s a pretty high test.”

Best Country In the World

Canadians should be proud of the country they’ve built for themselves, Frank McKenna, T
D Bank Financial Group deputy chairman, told delegates.

“We’ve built one hell of a country for ourselves and Canadians have got to realize we need a little bit of the swagger of the United States of America,” McKenna, former ambassador to the United States, said. “Because in many ways we’ve got more going for us now than any country in the world.” He noted that Canada is the only country in the world that has balanced its budget for 11 straight years.

“[For] 11 years we’ve had balanced budget, surpluses, we’ve paid down a debt,” he said. “Our debt as a percentage of GDP is headed from 75 per cent about 12 years ago down to 25 per cent. We’ve got all kinds of fiscal capacity, our taxes have dropped both at the personal level and at the corporate level to the tune of over a hundred billion dollars. Our corporate tax rates are amongst the most competitive in the world.”

At a time when the United States, for example, has unfunded social assistance plans and pension plans, in Canada there is a Canada Pension Plan that’s actuarially funded for the next 75 years.

“We’ve got this remarkably successful fiscal situation and fiscal environment, our job growth is at record levels, our unemployment is at the lowest levels ever –the poorest parts of Canada, traditionally the regions, all have almost full employment economies,” he said.

Providing energy across North America

As an energy provider, Canada has, in the oil sands alone, the second largest reserves in the entire world after Saudi Arabia. Natural gas, which will soon flow through the Mackenzie Valley pipeline, in addition to Alaskan gas flowing through the country, will require $50 billion in infrastructure to carry the gas to the United States.

“Not only do we have the best access to energy in the world, we are the number one supplier to the United States of oil, crude, gas, uranium, electricity,” McKenna said, adding that Canada has 51 electrical transmission lines, 35 pipelines and 22 gas lines. “We are now, not only the world’s richest resource in terms of energy, but we are hooked up to the biggest customer of the world in terms of energy and it’s not by way of tanker and all kinds of LNG terminals, it’s by way of pipe lines and electrical transmission lines . . . Twenty per cent of every export we put into the United States goes in as a molecule or an electrode. So, at a time when we have scarceness in the world in terms of energy, and prices are high, we have lots of it, and a result of that, we are a rich country, getting richer by the minute.”

Private vs. public

Further to this, is the balance between private enterprise and the role of the private sector and the legitimate role of the government, which is to ensure that the neediest of people are not forgotten. This may be to ensure that everybody has access to public heath or access to services.

For McKenna, Canada has attained the right balance between the two.

“I believe we’ve been able to marry some of the respect for government that you see in Scandinavian and European countries and the civility the sharing and caring that you tend to see in other countries in the world, with some of the best instincts of the private sector that you see in the United States of America,” McKenna said. “If we can continue to get that balance right between heart and head, I think that we are going to not only remain at the top in terms of one of the top economies in the world, I think that we have a chance to become a major influencer of world opinion as a country.”