July 2011 Insurance

The supreme court of canada Decides Progressive Homes ltd. v. lombard General Insurance co. of canada: What does it change for insurers?

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Insurance cap in alberta: When is an Injury “Minor”?

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class actions in alberta

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Who has control of the litigation: Insurer or Insured?

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adapting to the new rules of court

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Insurance LawyersBasran, Perminder K. (403) 260-0261 ..............................................................................................................pkb@bdplaw.comBurron, Kevin s. (403) 260-0189 .............................................................................................................. ksb@bdplaw.comchernichen, q.c., Donald J. (403) 260-0101 ............................................................................................................... djc@bdplaw.comde Groot, David (403) 260-0167 ..................................................................................................... ddegroot@bdplaw.comHyatt, sheila (403) 260-0249 .......................................................................................................... shyatt@bdplaw.comMcDonald, Trevor r. (403) 260-0378 ...............................................................................................................trm@bdplaw.comMcGillivray, q.c., Douglas a. (403) 260-0349 .............................................................................................................dam@bdplaw.comMurphy, James D. (403) 260-0152 .............................................................................................................. jdm@bdplaw.comnovinger Grant, louise (403) 260-0163 ............................................................................................................... lng@bdplaw.comOlyslager, Patricia e. (403) 260-0367 ....................................................................................................polyslager@bdplaw.comsharpe, Jeff e. (403) 260-0176 ................................................................................................................jes@bdplaw.comsmyth, steve (403) 260-0143 .........................................................................................................ssmyth@bdplaw.comsteele, richard F. (403) 260-0151 ................................................................................................................ rfs@bdplaw.comstrand, David H. (403) 260-0259 .............................................................................................................. dhs@bdplaw.comTripathy, rita r. (403) 260-0235 .................................................................................................................rrt@bdplaw.comVogeli, l. Grant (403) 260-0171 ............................................................................................................... lgv@bdplaw.comWeidman, Jeffrey B. (403) 260-5722 .............................................................................................................. jbw@bdplaw.comWray, shannon l. (403) 260-0245 ...............................................................................................................slw@bdplaw.com

Insurance and other issues of On Record are available on our web site www.bdplaw.com

Insurance, Editor-in-ChiefDavid H. stranddhs@bdplaw.com(403)260-0259

Patricia Olyslagerpolyslager@bdplaw.com(403)260-0367

Insurance, Managing Editorrhonda G. Wishartrwishart@bdplaw.com(403)260-0268

Contributing Writers and Researchers:Patricia Olyslager, sheila Hyatt, craig alcock, robert carleton and Jaspreet Gill

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On Record Contents:

BackgroundIn late 2010, the Supreme Court of Canada (“the Supreme Court”) released a decision1 (“Progressive”) that clarified the law regarding an insurer’s duty to defend on a CGL policy for damage occurring due to a subcontractor’s defective workmanship.

Progressive Homes Ltd. (“Progressive”) was the general contractor for several housing projects. The owner of the housing projects sued Progressive, claiming that negligence by one of Progressive’s sub-contractors had resulted in extensive water damage to several of the projects.

Progressive had a variety of CGL policies with Lombard General Insurance Co. of Canada (“Lombard”) which had been in place at different times during the construction between 1987 and 2005. Initially Lombard defended Progressive, but it later withdrew its defence based on Swagger Construction Ltd. v. ING Insurance Co. of Canada2, in which case the Court found that similar damage was not covered by a similar insurance policy. Accordingly, Progressive brought an application for a declaration that Lombard was required to defend the action on its behalf.

The Wording of the PoliciesThe CGL policies insured Progressive against “property damage” caused by an “occurrence” or accident” (subject to certain exclusions). The insurance policies defined “property damage” as “physical injury to tangible property” and defined an “accident” as including “continuous or repeated exposure to conditions which result in property damage neither expected nor intended from the standpoint of the Insured.” (Later versions of the policy used the word “occurrence” instead of “accident” but the definition remained basically the same.)

The Decisions of the Lower CourtsThe decisions of the lower Courts in Progressive essentially followed the Swagger decision on two points:

1) That “property damage” meant damage to a third party’s property, and not damage to the building itself; and

2) That an “accident” does not include faulty workmanship.

For these reasons, the lower Courts found that the policies did not trigger the insurer’s duty to defend.

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The Supreme Court of Canada Decides Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada:

What does it change for insurers?

By Sheila Hyatt

2 Insurance

The Supreme Court of Canada’s DecisionBasic principles of the duty to defendThe Supreme Court began by outlining four basic principles of an insurer’s duty to defend.

First, an insurer will be required to defend a claim where the facts alleged in the pleadings, if proven to be true, would require the insurer to indemnify the insured for the claim. Second, whether the allegations can be proven in evidence does not matter at that stage. Rather, what matters is that the pleadings allege facts which are within the scope of the policy. Third, no duty to defend will arise if it is clear that the claim falls outside the scope of the insurance policy. Finally, in examining the pleadings to determine whether a claim falls within the scope of coverage, the parties to the insurance contract are not bound by the labels chosen by the plaintiff but instead are bound by the true nature and substance of the claim.

Whether the policies covered the event at issueThe Supreme Court then went on to discuss the terminology of the specific CGL policies in question. In so doing the Court stated that “the focus of insurance policy interpretation should first and foremost be on the language of the policy at issue.”3

With respect to the meaning of “property damage” the Supreme Court looked at the plain language meaning of the definition in the policy. That definition stated that property damage meant “physical injury to tangible property.” As such, the allegations that a subcontractor’s negligence had caused water damage fell within the plain meaning of the policies’ definition of property damage.

In accepting this interpretation, the Supreme Court rejected the insurer’s argument that property damage required damage to the property of third parties, stating as follows:

I would construe the definition of “property damage”, according to the plain language of the definition, to include damage to any tangible property. I do not agree with Lombard that the damage must be to third party property. There is no such restriction in the definition.4

The Supreme Court rejected the notion that tort law principles of “pure economic loss” as opposed to “property damage” had any application in this context.

The Supreme Court also noted in passing that defects might also be “property damage,” although this comment was not critical to the matter at issue.

With respect to the meaning of “accident”, Progressive again relied on the plain meaning of the definition of accident i.e. as including the negligent act that caused damage that was neither expected nor intended by Progressive. Lombard argued that when a building is constructed in a defective manner, the result is a defective building, not an accident. The Supreme Court concluded that whether defective workmanship is an accident is fact specific. The Supreme Court further stated that an “accident” could include faulty workmanship as described in the pleadings, since such an event could be “unlooked for, unexpected or not intended by the insured” as required under the policies.

Whether the policy exclusions limited coverageFinally, the Supreme Court discussed the interpretation of the various policies’ “Work Performed” exclusion. Each of these exclusions contained slightly different wording.

The original version of the work exclusion clause purported to exclude coverage for property damage to work performed by or on behalf of the named insured.

However, the parties had subsequently modified this exclusion clause numerous times, and the first revised version stated that it did not apply “with respect to the completed operations hazard to property damage to work performed by the Named Insured arising out of the work or any portion thereof, or out of materials, parts or equipment furnished in connection therewith.” The Supreme Court found this version of the exclusion was significantly narrower: 1) it did not exclude property damage that was caused by the work of an additional insured, such as a subcontractor; and 2) it did not exclude damage to the subcontractor’s work regardless of whether the damage was caused by the subcontractor itself, another subcontractor, or the insured.

The third version of the exclusion was described by the Supreme Court as being a hybrid of the first and second versions. It excluded coverage for defective property itself but not any resulting damage, and did not apply if the damaged work or the work out of which the damage arises was performed by a subcontractor.

The Supreme Court emphasized that the insurer bore the burden of showing the exclusions did not apply to any of the claims in the pleadings and did not meet the onus of that proof. It stated as follows:

The “work performed” exclusions in each version of the policies did not clearly and unambiguously exclude the claims alleged in the pleadings.5

ConclusionThe Supreme Court concluded that there was a possibility of coverage under the CGL policies in at least one of their forms. For that reason, Lombard was under a duty to defend Progressive.

What Does This Mean for Insurers?The Supreme Court’s decision in Progressive signals to insurers that CGL policies may be interpreted as providing coverage for damage arising from defective work by subcontractors. It also indicates that “property damage” covered by a CGL policy may not be limited to damage caused to a third party’s property. The determination of whether defective workmanship can be considered an “accident” being left to a case by case analysis will undoubtedly cause some concern to insurers given the uncertainty.

Certainly, Progressive will continue to be discussed by academics and to be interpreted in a lower court decisions which will contribute to its ultimate impact on the industry. We will report back in future issues of On Record as this interpretation further develops the law on the duty to defend.

Footnotes

1 Progressive Homes v. Lombard General Insurance Co. of Canada, 2010 SCC 332 Swagger Construction Ltd. v. ING Insurance Co. of Canada, 2005 BCSC 1269.3 Supra, Note 1 at para.354 Supra. Note 1 at para.365 Supra, Note 1 para. 70

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A little over a year ago the Supreme Court of Canada denied leave to appeal from the Alberta Court of Appeal’s1 ruling that the minor injury regulation (MIR) in Alberta was constitutional. As such, the damages for minor injuries are limited to the legislative amount, plus an annual allowance for inflation. Currently, the adjusted cap amount for general damages for minor injuries in Alberta caused in motor vehicle accidents is $4,559.00.

The MIR defines a minor injury as a “sprain, a strain or a Whiplash Associated Disorder (WAD I or II) injury caused by an accident that does not result in a serious impairment”2. The MIR attempts to clarify the distinction between a minor injury and serious impairment by stating that a serious impairment means an impairment of physical or cognitive functions which results in a substantial inability to perform essential tasks necessary for employment, education or daily living.3 In addition, more serious injuries must be ongoing since the accident and should not be expected to improve substantially.4

As of yet, there has been no case law in Alberta which interprets the definition of a ‘minor injury’ as found in the MIR or which provides guidelines as to the indicators of serious impairment.

While there is a lack of judicial commentary regarding what constitutes a minor injury there are still some important considerations to keep in mind. If an injury falls within the definition of minor injury, the individual will be entitled to claim a maximum of $4,559.00 for general damages), however they would still be able to claim compensation for such losses such as loss of income, treatment expenses and costs for future care. Furthermore, a minor injury which results in a serious impairment will not be capped and the individual can rely on existing caselaw in one’s own jurisdiction as a guideline for appropriate damages. It is also possible that the injured party has suffered multiple injuries. In such a case, each injury would be treated separately.5 For example: any injury falling under the cap would have a value of $4,559.00 and injuries outside of the cap would be subject to a larger award. In Park v Jordan6 the Court capped the minor injuries at $4,000 but allowed $75,000 in damages for the non minor injuries relying heavily on established case law.

Similar legislation found in Nova Scotia has led courts there to establish a distinction between minor injuries and serious impairment. The Nova Scotia legislation states that prior to determining a “serious impairment” there is a requirement for substantial interference with a person’s usual

activities or employment.7 Such impairment has been interpreted by the Nova Scotia Supreme Court (“NSSC”) to be a factual determination made on a case by case basis.8 Although a particular injury may lead to substantial interference with activities for some individuals, the NSSC was only concerned with whether there was substantial interference for that particular plaintiff.9 While provincial judgements in other Canadian jurisdictions are not binding on Alberta courts they do provide some guidance in the absence of judicial consideration in Alberta.

Undoubtedly, there is a lack of judicial guidance in Alberta which can make it difficult for those involved in MIR litigation to be able to predict with some accuracy what constitutes a “minor injury”.

Footnotes

1 Morrow v. Zhang, 2009 ABCA 2152 Insurance Act, R.S.A. 2000, c. I-3 Minor Injury Regulation, Alta. Reg. 123/2004. s. 1

3 Ibid.4 Ibid.5 Insurance Act, R.S.A. 2000, c. I-3 Minor Injury Regulation, Alta. Reg. 123/2004, s.7

6 Park v Jordan 2009, 2009 CarswellAlta 22337 Beaulieu v. Gyuraszi 2008, 2008 NSSC 1878 Farrell v. Casavant 2009, 2009 NSSC 2339 Ibid

Insurance Cap in Alberta:

When is an Injury “Minor”?

By Jessie Gill. Summer Research Student

IntroductionHistorically in Canada, class action proceedings were only available in a very limited scope of circumstances. The popularity of such actions in the United States raised the profile of class action proceedings and led to increasing pressure to widen the availability of such relief in Canada. Alberta enacted the Class Proceedings Act1 (“CPA”) in 2003; however, Alberta legislation has lagged behind other provinces when it comes to the evolution of class action litigation. Until now the focus of Alberta’s legislation had been very narrow, making it difficult to launch national class proceedings.

While the provincial legislation governing class proceedings is similar throughout Canada, there are differences that can have a significant impact on the proceedings. In Alberta, class proceedings are rarely brought under the so-called “national classes”.2 Instead, Alberta proceedings usually focus on local issues affecting only Alberta residents.

On March 1, 2011, the provisions of the Class Proceedings Amendment Act, 20103 came into force, affirming earlier indications of Alberta’s intention to catch up to other Canadian jurisdictions when it comes to class action litigation. The amendments primarily address issues of multi-jurisdictional class actions, opting in and opting out of class proceedings, and new settlement provisions.

Multi-Jurisdictional ProvisionsPrior to the amendments, the CPA did not make specific reference to multi-jurisdictional class proceedings; it only referred to instances where non-Alberta residents had the opportunity to “opt-in” to class proceedings. This is unlike the Ontario Act; there the courts have articulated the method for analyzing multi-jurisdictional class proceedings, although their legislation does not deal with such actions specifically. Now, judges have been provided with a codified set of criteria for analyzing the jurisdictional concerns raised by national and global classes. As well, there are now guidelines to assist in determining whether a claim is better suited for another jurisdictions proceeding.

Opt-Out ProvisionsThe greatest change that has occurred by the enactment of these new provisions is the result of transforming Alberta from an “opt-in” to an “opt-out” class actions scheme. The amendments significantly alter class actions in Alberta by permitting Alberta courts to certify national and global opt-out classes. What this means is that it is no longer residence that determines membership in a class. In future claims, the issues and causes of action will play a more important role in determining class membership. The original design of the Alberta CPA specified Alberta resident-only classes such that class members not resident in Alberta would have to opt-in to a class in

4 Insurance

class actions in albertaBy Robert J. Carleton, Student-at-Law

order to be bound by the outcome. Opt-out schemes are much better suited to larger national or global cases, as one who falls into a class is automatically included as a plaintiff and must actively opt to be removed.

New Settlement ProvisionsUnder the new Act, provisions for settlement, discontinuance, abandonment and dismissal apply to not only certified class proceedings, but to proceedings that are the subject of an application for certification.4 The revised section applies to all proceedings regardless of whether the proceeding was commenced before or after the amendments.5 This means that class proceedings that have been certified, as well as those awaiting confirmation of certification, require Court approval for settlement.

Further CommentaryOther than those differences mentioned above, the Alberta CPA has other features that distinguish it slightly from its counterparts in other provinces. For instance, costs under the CPA are awarded in accordance with the Rules of Court, and as such the CPA has a “loser-pay” costs provision.6 The possible severity of such an outcome could scare away plaintiffs seeking certification of a class proceeding, but in practice courts have issued no costs awards as long as certain conditions are met.7

Another change that may have a significant impact on class proceedings moving forward is the addition of a definition for “class” to mean two or more persons with common issues related to a cause of action or a potential cause of action.8 This could have a significant impact in future certifications because all a plaintiff need show is the existence of a potential cause of action and commonality with one other plaintiff.

ConclusionPotential defendants might initially view these changes with apprehension. But before jumping to hasty conclusions it is important to first consider that an opt-out system will provide defendants with a higher level of certainty as to the extent of their exposure, as well as a greater sense of finality once a verdict is handed down or a settlement struck. The Ontario Court of Appeal has commented on how opt-in regimes often have the effect of reducing access to justice by limiting the class to those who bring a claim and cited strong policy reasons for favouring multi-jurisdictional proceedings.9 With the opt-out system Alberta’s corporate defendants will benefit from reduced costs and legal fees, fewer dislocation issues, and hopefully greater access to courts with expertise in issues faced by local industries.

The new system should also benefit Alberta plaintiffs by increasing opportunities to bring national or global actions in Alberta and substantially reducing the costs of travelling to a different forum. The larger actions will also be more desirable to plaintiffs’ counsel because of larger settlements and thus larger contingency fees.

To date there have been no reported decisions that discuss the new provisions. However, in February 2010, the Canadian Bar Association established a National Task Force on Class Actions to address the procedural challenges posed by multijurisdictional class actions.10

Footnotes

1 Class Proceedings Act, S.A. 2003, c. C-16.5 [CPA or the “Act”].2 American Association for Justice, Class Actions in the U.S. and Abroad: An Outline of the Canadian Experience for the Purpose of Comparative Analysis, AAJ Annual Convention Reference Materials (July 2008, v. 2).

3 Class Proceedings Amendment Act, 2010, S.A., c.15 [CPAA].4 Supra note 1 at s.355 Ibid.6 Supra note 1 at s.37 which allows courts to award costs as provided for under the Rules of Court.

7 Ayrton v. PRL Financial (Alta.) Ltd., [2006] A.J. No. 296, 384 A.R. 1, (C.A.) at para. 30-39.8 Supra note 1 at s.1(b.1).9 Currie v. McDonald’s Restaurants of Canada Ltd., [2005] O.J. No. 506, 74 O.R. (3d) 321 (C.A.) at para. 41-42.

10 http://www.cba.org/CBA/ClassActionsTaskForce/Main/judicial_protocol_consultation.aspx

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class actions in albertaBy Robert J. Carleton, Student-at-Law

6 Insurance

Who has Control of the Litigation:

Insurer or Insured?By Patricia E. Olyslager Introduction

In the recent Ontario case of Zurich Insurance Co. v. Ison T.H. Auto Sales Inc.1 (“Zurich”),the Court was faced with the issue of whether the insurer’s entitlement to subrogation, which included the right to bring an action in the name of the insured, carried with it the right to control the litigation.

BackgroundOften in matters of large commercial losses the insured will have suffered multiple losses such as property loss and business interruption. Depending on the policy there may also be large uninsured losses, either because the coverage was not in place or limits were exceeded. When those losses are as a result of the fault of a third party, litigation often ensues. In cases where some of the loss is insured and some not, the question can arise as to who has control of the lawsuit. If the policy expressly and clearly sets out which party has control of the litigation, the policy will dictate the relationship. However, there are situations where the provisions are unclear or the parties disagree on the interpretation of the policy provisions.

Facts in ZurichIn Zurich, the insured, Toronto Honda, was a car dealership that had stored a number of new cars in rented space in the parking garage of an apartment building. The cars were heavily damaged as a result of an explosion and ensuing fire to the building. The insurer paid the manufacturer’s price for the vehicles to the insured. The insurer’s subrogated claim was for the amount paid to Toronto Honda (approximately $1 million) for the loss of vehicles less the salvage. Toronto Honda’s losses (approximately $700,000) were for the loss of profit in the sale of the vehicles, the expected revenue from servicing the vehicles, the loss of opportunity to resell trade-ins and some goodwill.

The insured commenced an action to recover both the insured and uninsured losses as well as the deductible. The insurer was slow to become involved but eventually retained its own counsel and sought to be added as counsel of record and to take part in discoveries. Toronto Honda denied the request, taking the position that they would keep the insurer apprised of developments and would consult with them but would otherwise

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control the litigation. The insurer then brought an application seeking to control the entire action or failing that, full control of the subrogated claim advanced in the action.

The Policy ProvisionsThe policy was described as a manuscript versus standard form and included two relevant provisions, (“the Subrogated Clause”):

The Insurer, upon making any payment or assuming liability therefore under the Policy, shall be subrogated to all rights of recovery of the Insured against any person, and may bring action in the name of the insured to enforce such rights. …

Where the net amount recovered after deducting the costs of recovery is not sufficient to provide a complete indemnity for the loss or damage suffered, that amount shall be divided between the Insurer and the Insured in the proportion in which the loss or damage has been borne by them respectively.

Positions of the PartiesThe insured’s position was that it was well settled law that until the insured has been fully indemnified for all its losses, both insured and uninsured, it was entitled to control any litigation against the tort-feasor. The insured relied upon a long line of cases, in particular Farrell Estates Ltd. V. Canadian Indemnity Co.2 (“Farrell”).

The insurer took the position that the Subrogation Clause, properly interpreted, changed the common law and gave the insurer control of the litigation. The insurer relied upon the Supreme Court of Canada decision of Sommersal v. Friedman 3(“Sommersal”).

Court AnalysisThe Court examined the issue in the context of the four pillars of insurance law — insurable interest, utmost good faith, indemnity, and subrogation, with particular emphasis on the latter. The Court acknowledged the well settled common law that until the insured was fully indemnified for all losses; the insurer has no rights of subrogation. The Court also indicated that the rigours of common law can be “softened” by contract, by statute or both.

Looking at the policy wording, the Court stated that the language of the policy modified the common law in contemplating an insurer bringing a subrogated claim before the loss had been fully paid as long as part of the loss was paid or the insurer had assumed an obligation to do so. However, the Court pointed out that the policy contained no express provision about the right of either party to control the litigation. The Court considered the principle that when interpreting insurance policies, any ambiguity should be construed to the benefit of the insured. However, in this case the Court did not find there was any ambiguity in the wording of the policy. Hence, the rule did not come into play. The policy simply did not address the issue of which party was to have control of the litigation.

The Court then turned to the authorities presented by the parties. The insured relied on Farrell in which the issue was whether the British Columbia Insurance Act provisions (similar to the Ontario legislation and the Subrogation Clause in Zurich) altered the common law position. The Court in Farrell found no alteration of the common law by the legislation i.e. the insured maintains control of its litigation until it has been paid in full for its losses, including the deductible.

The Court then examined Sommersal relied upon by the insurer. The issues in Sommersal were in relation to damages arising from a motor vehicle accident, wherein the tortfeasor was underinsured and the insured had a “Family Protection Endorsement”. The insurer refused to pay the insured. Notwithstanding the refusal to pay under the policy the insurer wanted to maintain its right to bring a subrogated action. The Court in Zurich distinguished Sommersal by stating that Sommersal was not about whether the insurer’s right usurped the insured’s right to control the litigation, rather it was about the insurer’s right to maintain an action in the first instance in the absence of paying under the policy. Further, the Court stated:

Had it been the intention of the Supreme Court to overrule the principle that the Insured is dominus litis [the person to whom a suit belongs]until fully indemnified, or to effectively overrule the decision of the Court of Appeal of British Columbia in Farrell Estates, I would expect the court would have said so.4

Decision and Practical AdviceThe Court concluded, on the authority of Farrell, that an insured remains in control of its litigation until it is fully indemnified. “Fully indemnified” means the insured is paid for both its insured and uninsured losses arising from the incident in question.

There have been no recent decisions on this issue in Alberta. For reference, the Alberta Insurance Act (sections 553 (Fire Insurance), 651(Automobile Insurance) and 775 (Remedial Provisions) has very similar provisions to the Ontario and British Columbia legislation.

The issue arose in Zurich as to whether the Court had residual discretion in appropriate circumstances to give the insurer control of the litigation in the absence of an express contractual provision. The insurers argued if there was such discretion, they had the larger claim. The Court stated that there was no evidence in this case to show that Toronto Honda’s claim was any less recoverable than the insurers. The Court did suggest however that there might be some cases where the insurer’s interest was so vastly disproportionate to the insured’s interest that it would be unreasonable to allow the latter to have control of the litigation.

In terms of practical advice, the Court suggested that particularly in case of large losses, it is prudent and common for insurers and the insured to discuss subrogation at the time the insurance claim is paid, and to agree on such matters as counsel and the sharing of costs and procedures for the resolution of any disagreements.

Lastly, the Court suggested it would be quite simple for insurers to amend their Subrogation Causes to alter the common law to give carriage to the insurers should they wish to do so. In the specific words of the Court:

…the choice belongs to the underwriters and if their pens are not prepared to write such a clause into the policy, they should not ask the court to do so.5

Footnotes

1 [2011] O.J. No. 14872 [1990] B.C. J. No. 7203 [2002] 3 S.C.R. 109 4 Supra, Note 1 at para. 675 Ibid, at para. 80

In terms of practical advice, the court suggested that particularly in case of large losses, it is prudent and common for insurers and the insured to discuss subrogation at the time the insurance claim is paid...

8 Insurance

IntroductionOn November 1, 2010, the new Alberta Rules of Court (“the Rules”) came into force. The Rules brought with them some substantive changes to Alberta’s rules of civil procedure as well as the enactment of Rule 1.2 — a foundational rule that has since been described by the Court as the lens through which all the other Rules must be viewed.1 Although the concept behind the Rule is not a new one, there was no comparable provision in the former Rules.2

The Purpose of the RulesIn general terms, Rule 1.2 provides that the overall purpose of the Rules is “to provide a means by which claims can be fairly and justly resolved in or by a Court process in a timely and cost-effective way”. The Rules are intended to be used to identify the real issues in dispute, facilitate the quickest means of resolving a claim with the least expense, encourage parties to resolve the dispute themselves at an early stage, and to oblige the parties to communicate openly, honestly and in a timely way.3

InterpretationThe practical effect of Rule 1.2 is that the substantive Rules must be interpreted in a way that is consistent with the overall purpose of the Rules. This is not to say that it is now permissible to take shortcuts on the path toward a timely and cost effective result, as this may come at the expense of fairness and justice.4 Instead, the Court is required to delicately balance the need for timeliness and cost effectiveness with fairness and justice. In the words of the Court,

Rule 1.2 recognizes that a result, to be fair and just, must also be timely and cost effective… (and the effect of the Rules is) intended to force a shift to greater willingness on the part of the Courts to grant remedies that will lead to more timely and cost effective results.5

Two examples of the application of Rule 1.2 stand out. In Nowicki v. Price6 the Plaintiff brought an application to sever liability from damages in the trial of three related actions arising out of the same motor vehicle accident. The substantive rule relied on by the Plaintiff was Rule 7.1, which allows applications to be made for an order directing that an issue be heard or tried before, after or at the trial of an action.

The Court reasoned that although the normal course of litigation would see liability and damages tried together, Rule 1.2

… invites all of us, the Court and counsel, to find ways of reducing time and expense to get to resolution of disputes. Therefore, we must look seriously at whether severance of issues is likely to dispose of a dispute entirely, thereby saving time and expense, or shorten a dispute or lead to resolution of some or all of the issues.7

The Court stated that the parties would not need to proceed to trial on damages once liability was determined, as they might reach a settlement or proceed to Judicial Dispute Resolution instead. The Court also stated that the issues could be resolved more quickly and it would be less expensive than proceeding to trial on both liability and damages. The Court granted the application on the grounds that severing liability from the damages portion of the three actions would lead to a quick resolution of the claims and encourage settlement of the damages portion.

A second noteworthy case is L.C. v. Alberta.8 The case is authority for the proposition that a stand-alone application may be made to the Court to move litigation forward if it becomes bogged down.

Plaintiff’s counsel had written a letter to Defendant’s counsel seeking clarification of certain procedural issues, and received a non-responsive reply — Defendant’s counsel did not address the points raised by the Plaintiff. The Plaintiff applied to the Court for relief under Rule 1.2 and for the Court’s direction to “identify the real issues in dispute so that the case can proceed efficiently”. The Court took the position that if counsel did not agree on the real issues in dispute, then an application may be made for the Court’s direction. It was decided that the wording of Rule 1.2 contemplated that a party may bring an application under the Rule for both substantive and procedural matters. As the Plaintiff’s letter had specifically referenced Rule 1.2, there was no procedural bar to the application. In the result, the parties were ordered to exchange information.

Adapting to the New Rules of Court By Craig Alcock

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Concluding ThoughtsThe unstated intent of the Rules is to streamline procedure and reduce the amount of time it takes for an action to wind its way through the court system. It remains to be seen whether this intent can be met. In keeping with the purpose and intent of the Rules, all matters must proceed to mediation before a trial date can be set. While the mandatory requirement for mediation is a good thing, there is a high degree of pressure on court resources resulting in long queues at the mediation table.

Time will tell if Rule 1.2 is an effective tool for dispute resolution. In light of the intended shift toward court-ordered remedies that will lead to more timely and cost effective results, and the ability to bring stand alone applications under Rule 1.2, we are off to a good start. These and other issues arising out of these Rules will be visited in future issues of On Record.

Footnotes

1 The Honourable Mr. Justice R.A. Graesser: L.C. v. Alberta (Metis Settlements Child and Family Services Region 10), 2011 ABQB 12 at para 75; and Donaldson v. Farrell, 2011 ABQB 11, at para 10.

2 ALRI Rules of Court Project, Final report No. 95.3 Henderson (Estate) v. Arnett, 2011 ABQB 198.4 Supra, note 1, L.C. v. Alberta.5 Envision Edmonton Opportunities Society v. Edmonton (City), 2011 ABQB 29.6 2011 ABQB 133.7 Ibid, at para 44.8 Supra, note 1.

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