August 18, 2014

SABS Update- All in all it’s just another brick in the firewall

Dervisholli v. State Farm Mutual Automobile Insurance Company, FSCO A10-003442, June 27, 2014, Arbitrator Susan Sapin

MVC October 29, 2007. Ms. Dervisholli claimed she was injured in a motor vehicle collision involving another driver, Mr. Cervenak. State Farm is the first party insurer for both Ms. Dervisholli and Mr. Cervenak. As a result State Farm ended up being in the position of opposing an arbitration for accident benefits and defending the tort action. For both of these proceedings State Farm appointed the law firm of Reisler Franklin to represent them.

In the tort action Ms. Derivisholli successfully brought a motion to have Reisler Franklin removed as solicitors of record on the basis that Reisler Franklin was using information and documents obtained by State Farm in the claim for accident benefits to defend the tort claim. State Farm appealed the decision to the Divisional Court. A decision by the Divisional Court was pending.

Ms. Deivisholli brought this motion seeking to have State Farm removed as solicitors of record for the arbitration proceeding.


The issue on this motion was whether counsel for State Farm was in a position of conflict and should be removed as solicitors.

Under the no-fault accident benefits scheme insurers are required to enter into contracts with their insureds to provide statutory accident benefits. Under these contracts the insurer has a duty of utmost good faith to their insureds to attempt to resolve claims made by their insureds. In addition, insurers are required to indemnify their insureds when a claim is brought against them. To avoid a conflict of interest insurance companies segregate their accident benefits and tort claims by putting in place a “paper wall” or “firewall” between the two types of files so that information obtained in the context of one claim is not made available to the adjuster of the opposite claim.

In the context of Ms. Derivisholli’s tort case, State Farm produced an affidavit of documents in the tort case listing “every document relevant to any matter in issue in an action that is or has been in the possession, control or power of a party to the action…” as required by Rule 30 of the Rules of Civil Procedure. This included documents that State Farm obtained from adjusting the accident benefits claim of Ms. Derivisholli. In essence, the firewall had been broken, allowing information to cross from the accident benefits side and the tort side.

State Farm argued that it simply complied with the rules of the court, and that as a party to the tort action, it cannot be required to maintain a firewall between the accident benefits file and tort file. Ms. Derivisholli argued that State Farm breeched its duty of good faith to her and obtained an unfair advantage in the arbitration proceeding by not segregating its files and by retaining the same law firm.

In the tort proceeding, Hambly J. of the Superior Court of Justice found that Reisler Franklin was in a position of conflict of interest. Relying on the Supreme Court of Canada decision of MacDonald Estate v. Martin the judge concluded:

Reisler Franklin in ensuring that State Farm acts in good faith towards [Ms. Dervisholli] in her claim for accident benefits under her policy of insurance with State Farm conflicts with its duty to Cervenak in defending [Ms. Dervisholli’s] claim against him. State Farm and hence its solicitors owes no duty to [Ms. Dervisholli] in the tort action brought by her against its insured. By acting for State Farm in both matters Reisler Franklin is acting in contravention of the principles cited in MacDonald Estate. It is in a clear position of conflict of interest.

Even though an appeal of that decision was pending, and even though the Arbitrator recognized that a stay would avoid a multiplicity of proceedings and possible inconsistent findings, the Arbitrator refused to grant a stay and considered whether there was conflict of interest in the arbitration proceeding.

The Arbitrator found that Reisler Franklin was not in a position of a conflict of interest. The Arbitrator held that the principles in MacDonald Estates did not apply in Ms. Dervisholli’s case (even through the Superior Court had applied that case) as there had never been a solicitor-client relationship between Ms. Dervisholli and any lawyer at Reisler Franklin. Rather, the reasoning of Worthington Trucking Inc. v. Klingbeil was followed which held that where an applicant relies on the statutory accident benefits scheme to claim no-fault benefits, the insurer ought not, as a matter of course in a subsequent tort action by the applicant, be required to retain separate solicitors for the no-fault claim and the defence of the tort action. The Arbitrator quoted at length from Worthington Trucking as follows:

The confidentiality of documents or other information received by a solicitor from a non-client in connection with pending legal proceedings or claims, depends on whether they are privileged or otherwise protected from disclosure by statute or common law. If relevant to the issues in this tort action, medical reports, records and information relating to the plaintiff are not confidential and are not protected from disclosure, whether or not obtained as the result of a statutory no-fault claim. If relevant and not privileged or otherwise protected from disclosure, non-medical information stands on the same footing as medical information.

There is no rule or obligation of confidentiality that prevents a person who receives information in confidence, from using that information to defend himself against a claim made against him by the same person who gave the confidential information to him. Privilege is waived by the person who gave the confidential information by the very act of suing the recipient of the information on a cause of action to which the confidential information is relevant.

The decision of the Arbitrator that there is no conflict of interest is in direct conflict with the decision of Hambly J. and creates the bizarre circumstance of their being a conflict of interest in the tort proceeding but not in the arbitration proceeding.


Where the same insurance company acts as both accident benefits insurer and also as the insurer of a defendant in a tort claim arising from the same incident, it is best to assume that information will be shared between the accident benefits side and the tort side, and that the “bricks” of the firewall have come tumbling down.

If you have questions or comments about this post, contact