Defence of Third-Party Injury Claims Are Outside Federal Privacy Law

Since the advent of the Personal Information Protection and Electronic Documents Act, there has been uncertainty among lawyers, private investigators and insurers about what impact this law has on the litigation of private tort claims. There has been some guidance from the Ontario courts in the Ferenczy decision, but the law was still unsettled. The only case to address this, Ferenczy v MCI Medical Clinics, was all about whether information collected (allegedly) in violation of PIPEDA would nevertheless be admissible. The court concluded that PIPEDA does not apply to the collection of surveillance information by a PI to defend a court claim, but arguably that conclusion is obiter.

The Office of the Privacy Commissioner of Canada has taken the position that PIPEDA applies to insurers undertaking the defense of their insureds. This position has led to the conclusion that plaintiffs have a right of access, under PIPEDA, to the insurer’s files and perhaps some of those maintained by defence counsel. While PIPEDA does allow some collection of information, such as surveillance, without the consent of the individual in limited circumstances, the Commissioner has maintained (in a finding and in guidance to the industry) that this is only permissible where all other avenues of investigation have been exhausted.

The rules appear to be settled as a result of a recent decision of the Federal Court in State Farm v Privacy Commissioner of Canada, 2010 FC 736. A number of insurers have been dealing with requests for access to privileged information and complaints about video surveillance. The insurer in this case argued that the defence of an insured under a policy of insurance is not “commercial activity”. Fundamentally, is is a private claim between private individuals. One party to the private lawsuit has the advantage of being defended by an insurance company, which has an obligation to collect information to defend the claim. Because PIPEDA regulates the collection, use and disclosure of personal information in the course of commercial activity, a finding that defending a tort claim is not commercial activity would mean that the law does not apply. The courts already addressing the underlying tort claim would be the proper place to address document disclosure and possible privacy claims.

This insurer challenged the jurisdiction of the Privacy Commissioner to investigate a complaint made by a personal injury plaintiff. The Commissioner decided that because the insurance company is carrying on commercial activities generally, the law applies. State Farm challenged this decision by bringing an application for judicial review in the Federal Court of Canada. Four other virtually identical cases were stayed pending the resolution of this case. After a two day hearing, the Federal Court decided on July 9, 2010 that PIPEDA does not apply to the defense of a third-party tort action, even if carried out by an insurance company.

The Court concluded that it would not be a commercial activity for a defendant, herself, to collect evidence for the defence of a tort claim. There is no “commercial character” associated with that particular activity. The Court then concluded that, because the primary characterization of the activity is not commercial, using a third party (such as an insurer, a law firm or a private investigator) to carry it out does not render it commercial:

[106] I conclude that, on a proper construction of PIPEDA, if the primary activity or conduct at hand, in this case the collection of evidence on a plaintiff by an individual defendant in order to mount a defence to a civil tort action, is not a commercial activity contemplated by PIPEDA, then that activity or conduct remains exempt from PIPEDA even if third parties are retained by an individual to carry out that activity or conduct on his or her behalf. The primary characterization of the activity or conduct in issue is thus the dominant factor in assessing the commercial character of that activity or conduct under PIPEDA, not the incidental relationship between the one who seeks to carry out the activity or conduct and third parties. In this case, the insurer-insured and attorney-client relationships are simply incidental to the primary non-commercial activity or conduct at issue, namely the collection of evidence by the defendant Ms. Vetter in order to defend herself in the civil tort action brought against her by Mr. Gaudet.

In the end, the investigation reports and the surveillance video at issue were determined to not be subject to PIPEDA.

The Court also considered the OPC’s jurisdiction to investigate complaints such as the one at issue. Under PIPEDA, the Commissioner must investigate all complaints, so the OPC does have authority under PIPEDA to investigate to “test the bona fides of the exemption or non-application claim.” The Court does not provide specific guidance on the extent to which the OPC is able to investigate to determine whether PIPEDA applies at all. It would be arguable that once an insurer, in any future cases, has established that it is defending a third-party claim on behalf of an insured, the Commissioner would have to cease its investigation.

It must be underscored that this case only applies to the defense of third-party claims. Where there is a coverage dispute or other controversy with the insurer’s own policy-holder, the relationship between the parties is commercial because of the underlying policy so that PIPEDA would likely apply. It must also be emphasized that the findings of the Federal Court in State Farm v Privacy Commissioner do not apply in British Columbia, Alberta and Quebec where provincial privacy laws do not rely on “commercial activity” as the basis for jurisdiction. It will remain “business as usual” in those provinces.

Unless this decision is appealed, it stands for the proposition that the use of a commercial agent does not mean that the underlying activities are automatically subject to PIPEDA.

(Check out Dan Michaluk’s great summary as well.)