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Indemnity and Bad Faith Issues May be Separated for Litigation Purposes When Justice and Efficiency Align

Lloyd’s Underwriters Syndicate No. 1183 TAL et al. v. McCain Foods Limited et al. –, 2022 NBQB 93

Read Time: 5 minutes (approx.)

By: Chloe Jardine (Articling Student)

This decision stems from a complex litigation between McCain Foods Ltd. and McCain Foods USA, Inc. (“the Plaintiffs”) and insurer Lloyd’s Underwriters (“the Defendant”). This initial motion by the Defendant to sever the two allegations made by the Plaintiffs in this case saw the New Brunswick Court of Queen’s Bench adopt several principles for assessing when to allow bifurcation. These principles focus on a liberal interpretation of the Rules of Court, to better align with the goals of access to justice.

The underlying action comes from a food contamination and recall incident in the Plaintiffs’ facility in Colton, California. The Defendant denied the Plaintiffs’ claim for various losses and liabilities related to the incident.

The Plaintiffs claim that the denial by the Defendants was the result of “unreasonable interpretation” of the insurance policy between the parties. Further, the Plaintiffs allege that a poor investigation by the Defendant was a breach of the Defendant’s duty of good faith and fair dealings. The Plaintiffs are seeking over 20 million dollars for loss and damages.

The Defendant sought a motion for “bifurcation” – to separate the allegations in the action for the purposes of the litigation process – so the issue of the Plaintiffs’ entitlement to indemnity under the insurance policy would be heard separately (and prior) to the allegations of bad faith.

The Defendant claimed that the disclosure of documents needed to litigate the allegations of bad faith would requiring waiving privilege on internal documents. They argue this would cause prejudice to their case on the issue of indemnity. The Plaintiffs argued that this separation would cause inefficiency and injustice, citing that bifurcation should only be used in “the clearest of cases.” Further, they claimed that there was a substantial amount of overlapping evidence in both claims.

The Court of Queen’s Bench relied on several principles to determine if it was appropriate to sever the issues in this case: that severance is a matter of judicial discretion; that this discretion should not be applied strictly (a liberal approach); that the court must determine if severance is “just and convenient”; that there is no need for exceptional or special circumstances; that there should not be rigid application of criteria for determining if severance is appropriate; and that the Rules of Court be interpreted in a manner that favours resolution in the most efficient and least onerous manner.

Justice Petrie agreed with the Defendant that an “open-ended” allegation, such as bad faith in denial of insurance coverage, would require waiving solicitor-client and litigation-type privileges. He further explained that severing of the issues in this case would not create an injustice to the Plaintiffs and actually had the potential to reduce the time and expenses necessary to resolve this matter. If there is no entitlement to indemnity for the Plaintiffs under the insurance policy, there is no need to proceed with the allegations of bad faith.

Link: https://www.canlii.org/en/nb/nbqb/doc/2022/2022nbqb93/2022nbqb93.html

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