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Insurance - Subrogation - Counsel

Hoang v. Vincentini (Ont CA, 2015)

In this case the Court of Appeal endorses the following principles applicable to counsel, paid for by an insurer to advance a subrogated claim:
[14] In his oral argument, Mr. Adair, counsel for the appellants, set out three principles which he says, and I accept, are relevant on these motions. They are:
(1) Where a lawyer is appointed by an insurer to defend its insured, the lawyer’s primary duty is to the insured. That is so even though the lawyer is paid by the insurer and the insurer may eventually have to pay the claim against its insured. Deschênes J.A. discussed this principle in Pembridge Insurance Company v. Parlee, 2005 NBCA 49 (CanLII), 253 D.L.R. (4th) 182, at para. 17:
It is now beyond dispute that a lawyer appointed and paid for by an insurer to defend its insured in compliance with the insurer’s contractual duty to defend owes a duty to fully represent and protect the interest of the insured. By doing so, the lawyer, of course, is also acting in the insurer’s interest in the sense that the plaintiff’s claim (a claim that the insurer may eventually have to pay) is being challenged. But, first and foremost, once appointed, the lawyer must represent and act on behalf of the defendant insured with the utmost loyalty and only in the latter’s best interest. No one seriously contends that the lawyer is or should be allowed to take a position contrary to the interests of the insured defendant which he has been appointed to represent. [Citations omitted].
See also Mallory v. Werkmann Estate, 2015 ONCA 71 (CanLII), 330 O.A.C. 337, at para. 29.

(2) An insurer may be required to relinquish control of the defence and pay for independent counsel retained by its insured only if there is “in the circumstances of the particular case, a reasonable apprehension of conflict of interest on the part of counsel appointed by the insurer”: Brockton (Municipality) v. Frank Cowan Co. (2002), 2002 CanLII 7392 (ON CA), 57 O.R. (3d) 447 (C.A.), at para. 43.

(3) Where the insurer has insisted on a reservation of rights or its insured has signed a non-waiver agreement, then a conflict of interest may arise if coverage under the policy turns on the insured’s conduct in the accident giving rise to the litigation. Goudge J.A. discussed this principle in Brockton, at para. 42:
If the reservation of rights arises because of coverage questions which depend upon an aspect of the insured's own conduct that is in issue in the underlying litigation, a conflict exists. On the other hand, where the reservation of rights is based on coverage disputes which have nothing to do with the issues being litigated in the underlying action, there is no conflict of interest requiring independent counsel paid for by the insurer.

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