Rise in civil litigation sparks social inflation concerns

While Canada still sees fewer civil litigation actions against companies than the U.S., case filings are up sharply since 2020, says a new report from Dentons Canada that was commissioned by Insurance Bureau of Canada (IBC).

The 2022-23 fiscal year saw 768,615 active cases in Canadian courts, compared with 765,967 in fiscal 2021-22. That’s up sharply from 697,320 active cases in 2020 – a number Dentons says may have been influenced by a dampening of litigation actions during the COVID-19 pandemic.

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Dentons references one research survey showing 70% of Canadian small businesses reporting “they were engaged in at least one civil claim in the past three years.” That’s 200% above results from a similar survey conducted in 2015.

Meanwhile, a survey of companies’ in-house counsels shows half of respondents anticipating increased regulatory investigations over the coming year. And a survey of Canadian arbitrators found nearly half (48%) of respondents reporting more arbitrations between 2020 and 2023, with 11% reporting a decrease.

Risk areas

Privacy breaches, and regulatory investigations and proceedings, particularly around violations of climate and environmental disclosures, are primary drivers of litigation and arbitration actions in Canada.

Dentons’ report cites a survey showing almost 50% of in-house counsels expect a rise in litigation risk from cybersecurity and data privacy claims. “Cybersecurity and data privacy is an area of Canadian law that is likely to become more contentious in the near future given recent caselaw developments,” the law firm says.

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“The Federal Court of Appeal upheld a requirement that individuals who have had their data collected must be given the opportunity to provide meaningful consent before a company can share their personal data with third parties. And there has been developing provincial class action jurisprudence in which courts have entertained the possibility of imposing liability on data custodians for inadequately protecting personal information.”

Insurance exposures

Emerging liability pressures on the commercial insurance market in Canada are similar to those impacting the U.S. What’s different is the size of awards and Dentons’ study notes large judgements seen in U.S. courts aren’t likely to be seen in Canada within the next five years.

Canada also doesn’t see the types of mass litigation events that U.S. companies face, due largely to Canada’s lower bar for certifying class actions. The report notes changes to laws that make class certification harder in Canada could change that situation.

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The report adds so-called ‘nuclear verdicts’ aren’t expected to become widespread here and says there’s no reason to anticipate bad faith legislation (which would be needed to spur increases in bad faith claims) will be enacted in Canada. But trouble could emerge for Canada’s insurers if lawyers here amp up their advertising to match the aggressive approach seen in the U.S. and extend such advertising to areas beyond personal injury claims.

Dentons also says class action activities bear monitoring, particularly in British Columbia, because “there are indicators that the province may use class actions as a means to remedy large-scale environmental and health issues.”