Joe Thorne and Sarah Hogan

Insurance professionals likely breathed a sigh of relief as the Court of Appeal of Newfoundland and Labrador released its recent decision, Balsom v. Rideout.¹

The Court of Appeal affirmed the general principles that limitation periods are not extended, and settlement privilege is not cast aside, where insurers negotiate the resolution of potential personal injury claims before a Statement of Claim is issued.

Background

In Newfoundland and Labrador, the provincial Limitations Act² creates a two-year limitation period for personal injury claims. The Act also establishes limited exceptions that may extend such limitation periods – in this case under section 16:

Confirmation

1. 16. (1) A confirmation of a cause of action occurs where a person

                        (a)  acknowledges that cause of action, right or title of another person; or

                        (b)  makes a payment in respect of that cause of action, right or title of another.

(2)  Where a person against whom an action lies confirms that cause of action, the time before the date of that confirmation shall not count when determining the limitation period for a person having the benefit of the confirmation against the person bound by that confirmation.  

On September 1, 2017, a collision occurred between Corey Rideout and Gail Balsom. Alleging that Ms. Balsom had been negligent in the collision, Mr. Rideout filed a Statement of Claim on September 12, 2019 – two years and 11 days after the date of the accident.

In her defence, Ms. Balsom asserted, among other things, that Mr. Rideout’s claim was statute-barred as it was filed outside the two-year limitation period. Shortly thereafter, Ms. Balsom applied to dismiss the claim against her on that basis.

Prior to filing his claim, Mr. Rideout’s lawyer and Ms. Balsom’s insurer had attempted to settle the matter. This is standard operating procedure for personal injury claims – it happens countless times a year in this country.

Initial correspondence from a claims adjuster with Ms. Balsom’s insurer to Mr. Rideout’s lawyer was marked “without prejudice”. However, this practice was not continued by the subsequent adjuster who took carriage of the file.

Applications judge’s decision

In response to the dismissal application, Mr. Rideout agreed that he filed his claim over two years from the date of the accident. However, he argued that section 16 of the Act applied, and that Ms. Balsom had confirmed his cause of action such that the limitation period was extended.

The applications judge agreed with Mr. Rideout.³ In his decision, the applications judge determined that:

• the settlement discussions between Ms. Balsom’s insurer and Mr. Rideout’s lawyer were not protected by settlement privilege. Considering the three conditions articulated by Chief Justice Wells in Meyers v. Dunphy,⁴ while there was a litigious dispute, Ms. Balsom’s insurer had accepted liability for the accident on February 23, 2018, and both parties were mutually interested in settling the claim;
• the settlement communications exchanged between Ms. Balsom’s insurer and Mr. Rideout’s lawyer were filed before the applications judge to address Ms. Balsom’s argument. The communications were relevant to the issue and did not prejudice Ms. Balsom if they were admitted for the purposes of deciding whether the communications confirmed Mr. Rideout’s cause of action;
• the insurer for Ms. Balsom confirmed Mr. Rideout’s cause of action. It was implicit that Ms. Balsom’s insurer accepted some liability when it willingly engaged in settlement discussions aimed at settling Mr. Rideout’s claim; and
• the insurer’s invitations to negotiate a settlement constituted confirmation of Mr. Rideout’s cause of action prior to the expiration of the two-year limitation period, such that the two-year limitation period did not begin to run until Mr. Rideout submitted his first demand to Ms. Balsom’s insurer on June 25, 2019.

As a result, there was no basis to strike Mr. Rideout’s statement of claim as being out of time.

Court of Appeal decision

Ms. Balsom appealed the dismissal of her application.

The Court of Appeal agreed with Ms. Balsom, unanimously overturning the applications judge and striking Mr. Rideout’s claim as statute-barred.

Guided by the applicable limitation period, provincial case law, and the principles of settlement privilege established by the Supreme Court of Canada, Justice Welsh, writing for the Court, held that the applications judge erred in:

• concluding that the communications between Ms. Balsom’s insurer and Mr. Rideout’s lawyer were not protected by settlement privilege, and
• in determining that there had been a confirmation of the cause of action.

Justice Welsh reiterated the conditions that must be present for settlement privilege to be recognized in the context of a claim that a cause of action was confirmed:

1. a litigious dispute must be in existence or within contemplation;
2. the communication must be made with the express or implied intention that it would not be disclosed to the court in the event negotiations failed; and
3. the purpose of the communication must be to attempt to effect a settlement.⁵

Having considered the correspondence exchanged between Ms. Balsom’s insurer and Mr. Rideout’s lawyer, and the content of these communications, including requests for, and exchange of, information necessary to determine an appropriate settlement offer, the Court of Appeal concluded that the intended purpose of the correspondence was to attempt settlement.

While Ms. Balsom’s first claims adjuster’s correspondence was marked “without prejudice”, the failure of the subsequent claims adjuster to continue this practice did not change the character of the correspondence. The Court of Appeal reaffirmed that the use of the phrase “without prejudice” is only one of several factors to be considered in determining whether communication is privileged.

On this point, the Court of Appeal held that the applications judge erred by misconstruing the nature of the correspondence, and imposing an obligation on Ms. Balsom’s insurer to specifically deny liability.

With respect to the second and third criteria set out above, the Court of Appeal held that the insurer did not intend the correspondence exchanged with Mr. Rideout’s lawyer to be disclosed, as it would comprise settlement negotiations. It was clear from the contents of the communications that information requested by Ms. Balsom’s insurer about Mr. Rideout’s injuries and damages was for the purpose of settling Mr. Rideout’s claim. There was no indication that Ms. Balsom’s insurer intended to relinquish the protections offered by settlement privilege.

With respect to establishing an exception to settlement privilege, Justice Welsh stated:

…absent some special reason, confirmation for purposes of section 16 of the Limitations Act would not outweigh “the public policy interest, in promoting resolution of disputes by negotiated settlement, and justify admitting in evidence communications protected by settlement privilege.”⁶

Admitting the correspondence for the purposes of acknowledging Mr. Rideout’s cause of action pursuant to section 16 of the Limitations Act prejudiced Ms. Balsom’s right to reply on the limitation period articulated in the statute.

As a result, the Court of Appeal held that the applications judge had failed to identify a special reason to justify overriding the public interests meant to be protected by settlement privilege.

Impact

This appellate-level decision clarifies the law of settlement privilege in the context of limitation periods and confirmation of causes of action. It also reiterates the principle that settlement privilege is properly assessed with respect to the content of the communication, rather than the use of particular language such as “without prejudice”.

This decision will come as a relief to insurers and claims adjusters, who regularly engage in without prejudice attempts to resolve personal injury claims. The Court of Appeal’s confirmation, so to speak, that limitation periods can still be relied upon when negotiating settlements provides certainty and predictability in this high-volume litigation practice.

This client update is provided for general information only and does not constitute legal advice. If you have any questions about the above, please contact a member of our Insurance or Litigation and Alternative Dispute Resolution group.

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¹ 2022 NLCA 20 (“Balsom”).
² SNL 1995, c. L-16.1, sections 5, 16, and 17.
³ Rideout v. Balsom, 2021 NLSC 30.
⁴ 2007 NLCA 1.
⁵ Balsom, supra at note 1, at para 13.
⁶ Balsom, supra at note 1, at para 17.