Case Summary: Pederson v Allstate Insurance

The Alberta Queen's Bench analyzed the application of solicitor-client and litigation privilege in separate, but related tort and insurance actions and confirmed that both the insureds and the insurer are clients of insurer-appointed counsel in the tort action.

Pederson v Allstate Insurance, 2019 ABQB 531, per Henderson, J.

Facts + Issues

The plaintiff, Pederson, was injured in a motor vehicle collision on February 23, 2003. Her vehicle was rear ended by a Dodge Shadow which then fled the scene of the collision.

Ms. Danyluk was the registered owner of the Dodge Shadow and she had an insurance policy with the Defendant, Allstate Insurance Company of Canada (“Allstate”), which covered the Dodge Shadow. Danyluk claimed that the Dodge Shadow had been stolen from her before the collision and that it had never been recovered.

Two months after the collision Danyluk applied to remove the Dodge Shadow from the policy, although she had not reported the collision. Her insurer Allstate later learned of the collision for the first time in May 2003 when Pederson inquired as to whether or not the vehicle was stolen. Allstate was thus prompted to open its investigation into the claim pursuant to a Non-Waiver Agreement entered into with Danyluk. In August 2003 Danyluk submitted a claim for the vehicular damage to Allstate supported by a Proof of Loss.

In July 2004, Pederson commenced a personal injury action for damages she suffered in the collision (the “personal injury action”). She initially advanced the claim against the Administrator of the Motor Vehicle Claims Act on the basis that the vehicle had been stolen at the time of the collision. In January 2005, Pederson amended her claim to name Danyluk as a Defendant and in December 2005 Allstate filed a Defence on her behalf, alleging that the vehicle had been stolen.

In September 2006, the Motor Vehicle Accident Claims fund paid Pederson the statutory maximum of $200,000.

In March 2008, Pederson further amended her claim in the personal injury action to name Danyluk's son Norton as a Defendant. In July 2008 Allstate appointed Sermet as counsel to defend Norton pursuant to a Non-Waiver Agreement entered into by him.

In April 2010, Norton's partner testified in an examination on affidavit that at the time of the accident Norton was driving the vehicle and that she, Norton and their child lived in Danyluk's home.

In July 2010, after Allstate denied coverage to her, Danyluk signed a second Non-Waiver Agreement with Allstate which “specified that the Dodge Shadow was owned and 'utilized' by Mr. Norton and that Ms. Danyluk did not have an insurable interest in the vehicle”. Allstate went on to broaden Sermet's retainer and continue to defend Danyluk and Norton. The Defence continued to maintain that the Dodge Shadow had been stolen.

At the liability trial of the personal injury action in 2012, the trial judge found that the Dodge Shadow had not been stolen, but instead had been operated by Norton at the time of the collision. The trial judge found that Danyluk and Norton were liable for Pederson's injuries and, in November 2016, the Court awarded Pederson damages of $1.5 million.

In July 2017, Pederson commenced action against Allstate in July 2017 to recover from Allstate pursuant to s. 579(1) of the Insurance Act (the “s. 579(1) Action”) damages over and above the minimum statutory limits of $200,000 (which amount the Fund had already paid). Allstate defended on the basis of breach of policy on the part of Danyluk, denying that it had waived its right to rely on her policy breaches and fraud and denying that it was estopped from relying on said breaches.

In the s. 579(1) Action, Allstate refused to produce certain records in its possession relating to the personal injury action against Danyluk and Norton on the basis that the records were protected by solicitor-client or litigation privilege. Allstate also refused to answer undertakings given at Questioning because it claimed some were covered by litigation privilege and others were irrelevant.

Pederson applied for the disclosure of some of the records which Allstate claimed were privileged and sought answers to the refused undertakings.

The Court was therefore faced with the following main issue: to what extent did claims for privilege that arise in relation to the personal injury action survive and protect the disclosure of documents in the related s. 579(1) action?

HELD: For the plaintiff in part; Allstate did not have to disclose records or portions of records from the personal injury action were covered by solicitor-client privilege, but had to disclose records and answer undertakings over which it claimed litigation privilege, and answer some of the undertakings refused on the basis of irrelevancy.

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