Ontario Court Of Appeal: Reasonable Apprehension Of Conflict Forces Insurer To Relinquish Control Of Defence

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By: Shaun A. Hashim, Litigation Associate


The Ontario Court of Appeal has again confirmed that an insurer’s contractual right to control a defence must yield to the interests of its insured where its coverage position creates a reasonable apprehension that defence counsel would be in a conflict of interest.

In Hoang v. Vicentini, the Ontario Court of Appeal ordered an insurer to relinquish control over the defence of its insured and pay for the insured’s independent counsel.[1] The Court confirmed that if a fact affecting your coverage is disputed in the underlying litigation, a conflict of interest arises. [show_more more=”Show More” less=”Show Less” color=”000000″ align=”center”]

The Decision

The decision in Hoang v. Vicentini was the result of a chambers motion to remove counsel due to a possible conflict of interest.

The underlying litigation was based upon tragic circumstances. Can Hoang, the insured, dropped off his son, Christopher, at the intersection of Queens Quay and Yonge Street in Toronto, Ontario. Unfortunately, Christopher’s hat blew off and he chased it into the intersection. Christopher was severely injured when he was struck by a vehicle.

Christopher (by his litigation guardian) sued his father as well as the driver and the owner of the vehicle that struck him. The action was tried before a jury which found Mr. Hoang solely responsible. The action against the driver and owner of the vehicle was dismissed.

As part of the decision, the jury specified that Mr. Hoang’s negligence included his “unsuitable choice of unloading area.” On the basis of a prior decision of the Court, Justice Laskin recognized that this finding of fact could give rise to coverage under Mr. Hoang’s liability policy.[2]

The plaintiff launched an appeal of the decision seeking to overturn the dismissal as against the driver and owner. Mr. Hoang’s counsel responded with a notice of cross-appeal on his behalf requesting the court set aside all particulars of negligence, including his “unsuitable choice of unloading area”.

Justice Laskin recognized that, for Mr. Hoang, a decision overturning the finding of “unsuitable choice of unloading area” yet leaving in place the findings of negligent parental supervision, would be a disastrous result. He would be left without any prospect of indemnification and his son would be left without any hope of recovery.

Relying on an earlier decision of the Court in Brockton (Municipality) v. Frank Cowan Co., Justice Laskin confirmed that where a conflict of interest arises, the insurer may be required to relinquish control of the defence and pay for independent counsel for its insured.[3] To that end, Justice Laskin recognized that while “not every potential conflict … requires the insurer to yield the right to control the defence”, an insurer is required to yield where there is “a reasonable apprehension of conflict”.[4]

Justice Laskin held that the conflict was “readily apparent”. He held that a reasonable bystander might think that counsel appointed by the insurer would focus on overturning the one finding for which the insurer could be liable to indemnify the insured. Justice Laskin noted that this finding was not intended to impugn counsel’s integrity, but that “appearances count”. The test is not “actual” conflict but the “reasonable apprehension” of one.[5]

Because that appearance was alive in the case before him, Justice Laskin ordered the insurer to be added as a party to the appeal, to yield control of Mr. Hoang’s defence, and to pay for his independent counsel.

Conclusion

The conclusion in Hoang v. Vicentini is short, clear, and effective. Here, the Ontario Court of Appeal has confirmed that an insurer’s right to control a defence is not sacred. Defence counsel’s primary obligation is to the insured and this takes primacy over the interests of the insurer. This decision dispels the suggestion that defence counsel must evenly balance the interests of the insured and insurer when defending a case. Where the insurer’s interest comes into conflict with the insured’s, and where that conflict is an issue in the litigation, independent counsel is necessary to safeguard the insured.

Footnotes

[1] Hoang v. Vicentini, 2015 ONCA 780.

[2] Ibid at para. 8. See also Lefor (Litigation Guardian of) v. McClure (2000), 49 O.R. (3d) 557 (C.A.).

[3] Brockton (Municipality) v. Frank Cowan Co. (2002), 57 O.R. (3d) 447 (C.A.).

[4] Hoang at para. 16.

[5] Ibid at para. 17.

Shaun Hashim is an associate at Theall Group LLP and maintains a broad commercial litigation practice. Prior to joining Theall Group LLP, Shaun summered and articled at the Toronto office of a prominent national law firm, gaining commercial litigation experience in a wide range of disputes involving fraud, breach of fiduciary duties, employment law, and the oppression remedy. Shaun graduated from the University of Windsor’s Faculty of Law in 2014 and was called to the Ontario Bar in 2015. Shaun is an editor for the Insurance chapter to be published in Bullen & Leake & Jacob’s 3rd Edition of Canadian Precedents of Pleadings in 2017.

For more information, visit http://www.theallgroup.com/

Photo Courtesy of: Kat Northern Lights Man via Visual Hunt / CC BY-NC

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