Law Note - Risks Posed by Information Depositories 

publication 

Winter 2010 - (InBrief Winter 2010)

Co-authored: Frank Palmay and R. Nairn Waterman
InBrief Winter 2010
The adoption of self-assessment compliance regimes by Canadian insurance companies creates centralized depositories of confidential company records that identify the company's problems and its responses to them.

These centralized depositories contain information and analysis on the insurance company's non-compliance with laws and regulations, and with company and industry standards, practices, policies and requirements. Regulators and those interested in pursuing claims against the insurance company will seek access to these depositories as sources of information that may be used to establish liability, identify classes of claimants and increase damages claims against the company.
 
The self-assessment records and working papers will contain both new and old confidential corporate records containing information, analysis, reviews, evaluations, strategies and reports that could be used as evidence in proceedings against the insurance company. Knowing that such records exist will encourage those seeking to attack the insurance company to press for broad disclosure not only of the final reports, but also of the underlying working papers and supporting primary records.
 
The risk posed by these centralized collections is aggravated by the modern use of electronic communications and databases, which increase the volume, retention, dispersion and accessibility of information collected during a self-assessment review. This risk is also aggravated by the modern trends in Canadian law towards increased "allegations of bad faith for failure to address known or discoverable problems in a timely fashion; use of class actions for claims arising from systemic problems; and pressure on government regulators to deal with perceived risks in the financial sector."

This combination of interest, opportunity and electronic means for collection and review is likely to lead to increased demands to compel disclosure of self-assessment records and underlying documents in both regulatory and civil proceedings against insurance companies.
 
Insurance and securities regulators have statutory authority to compel disclosure of confidential corporate records as part of regular administrative reviews and regulatory prosecutions. Civil litigants are entitled to compel such disclosure under the discovery rules that govern the conduct of law suits. Both rule makers and courts have adopted the view that full and fair disclosure of a party's relevant records is desirable for the effective and efficient resolution of adversarial proceedings and for controlling wrongdoing. As such, in either regulatory proceedings or civil actions, insurance companies can expect aggressive efforts to compel disclosure and inspection of the confidential records that have been collected or created as part of their self-assessment programmes and follow-ups. As these records become more widely known and precedent for access is set, this trend can be expected to accelerate and become more of an issue.

Under Canadian law, the principles of "privilege" provide the most common defence to and restrictions on compulsory disclosure of confidential corporate records.
 
In order to reduce the exposure created by the self-assessment process, insurance companies should institute a clear protocol for the recognition and protection of potential claims for privilege when planning and implementing their self-assessment programme. This requires not only an understanding of the potential scope and requirements for claiming privilege, but also the implementation of practical, operational protocols and systems for the collection and analysis of records and the preparation of self-assessment reports.

Ed.: This LAW NOTE is an edited portion of a lengthier article that was entitled "Compliance Databases and the Issue of Privilege" that was published in our Corporate Insurance Brief and in International Law Office, an e-subscription information service that delivers global analysis of legal developments to lawyers worldwide.

This Law Note appeared in the Lang Michener LLP InBrief Winter 2011.