Recent Class Action Settlement Provides Important Insights Into PIPEDA for Insurers

A recent motion before the Superior Court in a class action proceeding provides important insight into the interpretation of the Personal Information Protection and Electronic Documents Act (“PIPEDA”) in the context of the automobile insurance adjusting process. The guidance it provides to insurers collecting information from claimants is to:


  • Collect from claimants only the personal information that is reasonably necessary to achieve the purposes, and no more
  • Clearly identify the uses that will be made of the personal information collected, if asked
  • Tell claimants whether collection of specific personal information is mandatory or optional to the claims adjustment process.

A.    Background Facts

In the period between 2012 and 2017, the defendant, The Personal Insurance Company (“The Personal”) systematically collected credit score information from its insureds during its automobile insurance claims adjusting process. The results of the credit inquiry were used as part of the analysis to determine the level of scrutiny to which a claim was subjected and could change the “management” of claims.

In November of 2012, Mr. Kalevi Haikola (“Haikola”) filed a claim for accident benefits with the Personal after suffering personal injuries in an automobile accident. As part of the claims adjustment process, the Personal requested consent to review Mr. Haikola’s credit score. Mr. Haikola agreed to this, but later stated that he did so because he felt pressured and was concerned that refusing would impact his claim for accident benefits.

Throughout 2013, Mr. Haikola repeatedly requested information from the Personal regarding the reason for the collection of his credit score. The Personal advised Mr. Haikola that the request for access to credit score information was “one in a series of standard questions” it asked when opening an accident benefit claim. The Personal did not advise Mr. Haikola that the results of the credit inquiry were used as part of the analysis to determine the level of scrutiny to which a claim was subjected and could change the “management” of claims.

B.     Complaint to the Privacy Commissioner of Canada

Mr. Haikola filed a complaint with the Privacy Commissioner of Canada (the “PCC”) claiming that this practice of collecting credit score information was a breach of his rights under PIPEDA. The PCC issued a report concluding that Haikola’s complaint was well-founded because:

  • The Personal’s collection and use of credit scores during the auto insurance claim assessment process is not something that a reasonable person would consider to be appropriate, which was a breach of section 5(3) of PIPEDA;
  • The Personal did not obtain meaningful consent from Haikola as it did not advise Haikola that obtaining a credit score was optional; and
  • The Personal was not being open about its policies and practices with respect to the collection and use of credit score information during the auto insurance claim assessment process.

C.     Federal Court Action

Under section 14 of PIPEDA, Haikola could not bring an action in Federal Court until after he received a report from the PCC. After receiving this report, Haikola retained counsel to represent him in a class action lawsuit for this breach of PIPEDA. A class action was brought in Federal Court claiming damages for the Personal’s breaches of PIPEDA, together with breaches of the Class Members’ common law privacy rights and breach of the insurer’s utmost duty of good faith.

The Personal defended the action and took the position that (i) the Federal Court did not have jurisdiction to certify a class proceeding under Section 14 of PIPEDA and (ii) the statute only allowed for individual actions. This issue was a matter of first instance.

D.    Superior Court Action and Motion

The parties engaged in mediation and extensive settlement negotiations. In light The Personal’s arguments regarding the jurisdiction of the Federal Court to certify a class proceeding in this case, the parties agreed during the settlement process that the plaintiff would bring a claim in Superior Court, and would discontinue the Federal Court action if a settlement agreement was approved by the Superior Court.

A settlement agreement was reached, and a motion was brought before the Superior Court requesting, among other things, certification of the class of plaintiffs and approval of the settlement agreement.

1. Class Certification

In order for a class of plaintiffs to be certified, the following criteria must be satisfied:

  1. the pleadings disclose a cause of action;
  2. there is an identifiable class of two or more persons that would be represented by the representative plaintiff;
  3. the claims of the class members raise common issues;
  4. a class proceeding would be the preferable procedure for resolution of the common issues; and
  5. there is a representative plaintiff, who meets a number of specified criteria

The Superior Court found that all of the above criteria were met. The court’s consideration of (a) and (d) are of particular interest and are addressed below.

a. Cause of Action

In determining whether a pleading discloses a cause of action:

(i) no evidence is admissible to assess the cause of action;

(ii) all pleaded allegations of fact are accepted as proven, unless they are patently ridiculous or incapable of proof;

(iii) the novelty of the cause of action will not militate against sustaining the plaintiff’s claim;

(iv) matters of law which are not fully settled by the jurisprudence must be permitted to proceed; and

(v) the court’s power to refuse to certify on this ground is exercised “only in the clearest of cases”

The Personal’s standard form privacy section of the insurance policy stated that The Personal would “act as required or authorized by law” in the collection, use and disclosure of personal information. Haikola pleaded that this standard form privacy language was an implied term that The Personal would comply with PIPEDA.

The Superior Court concluded that the pleadings disclosed a cause of action of breach of contract.

d. Preferable Procedure

A class proceeding is the preferable procedure for the resolution of the common issues in an action when it is a fair, efficient and manageable method for advancing the class members’ claims, and is preferable to other means of resolving the class members’ claims.

The Superior Court concluded that the class action was the preferable procedure in this case for several reasons. First, damages for claims of common law privacy breaches tend to be of modest value, which acts as a barrier to individual claims.

The Superior Court noted that this barrier would be even greater if, assuming without deciding, The Personal’s argument that class actions are not available under section 14 of the PIPEDA is correct. If that were the case, then each plaintiff would need to file a privacy complaint and obtain a report from the PCC before they can file a claim in Federal Court. On this view, each individual would not have the benefit of the decision of the Privacy Commissioner arising from Haikola’s complaint, even though they were similarly affected by the Personal’s collection of credit scores.

The Superior Court concluded that the proposed common law claim for breach of contract was a preferable procedure to the procedure under PIPEDA described above.

E. Settlement Agreement

The settlement agreement in this case required The Personal to pay damages of $2,250,000 inclusive of interest, administration, expenses, and legal costs. The certified class of plaintiffs included 8,525 persons. After legal and administrative fees, and depending on the number of individuals who responded to the notice of settlement, the court estimated that each class member would receive between $150 to $180 in damages.

A settlement agreement will be approved by the court if it is “fair, reasonable and in the best interests of the class as a whole.” The court may consider a number of factors in making this determination, including:

(a)   the likelihood of recovery or success,  

(b)   the proposed settlement terms and conditions,

(c)   the amount and nature of discovery, evidence or investigation,

(d)   the future expense and likely duration of litigation,

(e)   the recommendation of neutral parties, if any,

(f)   the number of objectors and nature of objections,

(g)   the presence of good faith, arm’s-length bargaining and the absence of collusion,

(h)   the degree and nature of communications by counsel and the representative plaintiff with class members during the litigation and information conveying to the court the dynamics of, and the position taken by the parties during, their negotiation, and

(i)     the recommendation and experience of counsel

The Superior Court’s consideration of (a) and (b) are of particular interest and are addressed below.

 a. Likelihood of Recovery, Likelihood of Success

The Superior Court identified a number of significant risks of litigation. The court found that the settlement terms and conditions fairly reflected that fact the risks that this claim might not have been certified, or that even if certified, there may have been no liability or damages awarded.

One risk identified by the court was that, as mentioned above, there was uncertainty regarding whether a class action could be brought in Federal Court with respect to section 14 of PIPEDA. Had the action not settled, The Personal would have argued this jurisdictional issue. The Superior Court noted that as this was a matter of first instance and of national importance, this could have led to appeals to the highest court, with the attendant additional risks, costs, and delay. Moreover, the risk of losing the jurisdiction argument was particularly significant as it could have resulted in any common law Superior Court claims being statute barred.

Another risk of litigation was that the findings of the PCC would not bind the Federal Court, since the Federal Court hearing is a full de novo review. The Federal Court could have accepted The Personal’s arguments that credit score collection was a reasonable business requirement, or that the Class’ consent was informed and voluntary.

Finally, the Federal Court could have accepted that the plaintiffs were not entitled to damages, notwithstanding the privacy breach, because a reasonable person would not suffer humiliation from credit score disclosure or because there is no expectation of privacy for such information.

b. Proposed Settlement Terms and Conditions  

The court concluded that the settlement agreement proposed in this case was consistent within the range of other privacy class action settlements. One example of a similar case provided by the court was Condon v. Canada, 2018 FC 522 (CanLII), 2018 CF 522. In this case, a class of 583,000 individuals settled a Federal Court privacy class action for approximately $60 per person when financial and other information from student loan applications contained on an external hard drive was lost.

F. Key Takeaway Points

The PCC’s findings regarding The Personal’s collection of credit scores provide some important lessons on the interpretation of PIPEDA for accident benefits insurers:

  • Insurers should scrutinize whether the personal information collected from claimants is reasonably necessary to achieve their purposes.
  • Insurers should also try to clearly identify the uses that will be made of this personal information, especially in response to a specific request from an individual to access this information.
  • Finally, insurers should clearly identify to claimants whether collection of specific personal information is mandatory or optional to the claims adjustment process.

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