Publication
title
Ontario Court of Appeal Denies a Liability Insurer the Right to Appoint Defence Counsel
AUTHOR(S)
DATE
April 25, 2008
EXPERTISE
The past few years have seen a number of rulings by the courts relating to liability insurers' duty to defend their insureds. One of the questions that has been examined is whether an insured sometimes has the right to choose defence counsel. The Ontario Court of Appeal, in a recent decision in Appin Realty Corporation, Limited v. Economical Mutual Insurance Company,1 has answered the question in the affirmative.
THE APPIN CASE
The dispute in this case arose in connection with a policy that contained an exclusion for any injury or loss caused, in whole or in part, by mould. The insurer, relying on the exclusion clause, had refused to take up the insured's defence against a claim for bodily injury arising from exposure to mould and/or bacteria. Noting that the exclusion would not apply if the plaintiff's injuries were found to be due to bacteria alone, the Ontario Court of Appeal began by finding that the insurer had a duty to defend its insured against the claim. In this regard, it reiterated the general principle formulated by the Supreme Court of Canada in Nichols v. American Home Assurance Co.2 to the effect that the duty to defend is broader than the duty to indemnify.
Given the insurer's initial position of denying coverage, the insured submitted that any counsel appointed by the insurer to represent the insured would be in a conflict of interest since such counsel might tend to steer the defence in a direction that would favour the insurer over the insured. In view of the insurer's initial refusal to defend the action, and in view of the parties' ongoing dispute over the scope of the insurance coverage, the Appeal Court concluded that there was no reason not to uphold the trial judge's finding that the insured was entitled to choose its own defence counsel.
The insured's right to choice of counsel was maintained in this case in spite of the insurer's offer to erect a "Chinese wall" to keep its counsel separate from its coverage claims representative. The Court's decision appears to have been motivated by a desire to avoid even an appearance of conflict of interest which might exist despite the proposed safeguards. An analogy is drawn with the reasoning in Brockton (Municipality) v. Frank Cowan Co. Ltd.,3 where the same Court found that the insurer's right to control its insured's defence was not absolute.
IMPACT IN QUEBEC
The landmark case in the Province of Quebec on this issue is Zurich du Canada, Compagnie d'indemnité c. Renaud & Jacob.4 In that decision, which is cited in Brockton, the Quebec Court of Appeal affirmed that a reservation of rights by the insurer with respect to the obligation to indemnify was not in itself sufficient to deprive the insurer of the right to control the insured's defence.
The case law on the tripartite relationship between insurer, insured and counsel continues to evolve in Quebec. The circumstances that may result in an insured being entitled to choice of counsel and to control the defence of the claim against him are yet to be defined. As the Quebec courts do not hesitate to refer to authorities from common law provinces, it can be anticipated that lawyers representing insureds in such delicate situations may draw inspiration from the Appin decision.
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1. 2008 ONCA 95 (CanLII).
2. [1990] 1 S.C.R. 801, par. 17.
3. (2002), 57 O.R. (3d) 447; 2002 CanLII 7392 (ON C.A.).
4. [1996] R.J.Q. 2160; 1996 CanLII 5801 (QC C.A.) (available in French only).
The purpose of this document is to provide information as to developments in the law. It does not contain a full analysis of the law nor does it constitute an opinion of Ogilvy Renault LLP or any member of the firm on the points of law discussed.
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