In a brief decision, Master Dash addressed an issue that often arises, in one way or another, in insurance litigation. Although the expression does not appear in the reasons, the issue in this case arose out of what is often termed, “the tripartite relationship”. This phrase refers to the relationship between insurer, insured and defence counsel retained by the insurer, on behalf of the insured.
In Ho v. Vo, Kingsway Insurance had retained Beard Winter to defend its insured, Vo, in an action arising out of a motor vehicle accident. Vo had not responded to various letters sent by the law firm and had not attended to be examined for discovery. Accordingly, Beard Winter sought an order removing it as solicitors of record for Vo. Although Master Dash said that “there is no convincing evidence [Vo] has received those letters”, he was satisfied that Beard Winter was entitled to be removed as solicitors of record for Vo.
However, the law firm also sought an order, under s. 258(14) of the Insurance Act, adding Kingsway Insurance as a statutory third party. That section provides that “where an insurer denies liability under a contract evidenced by a motor vehicle liability policy, it shall, upon application to the court, be made a third party in any action to which the insured is a party and in which a claim is made against the insured by any party to the action in which it is or might be asserted that indemnity is provided by the contract, whether or not the insured enters an appearance or defence in the action”.
Master Dash was satisfied that Vo’s failure to co-operate entitled Kingsway to have itself added as a statutory third party. The problem, in the Master’s mind, was that “the solicitor for Mr. Vo, has given a coverage opinion in paragraph 10 of his affidavit where he states that he believes that Vo’s non-cooperation is a breach of the insurance policy”.
Because Beard Winter had entered a defence on behalf of Vo, even though the evidence indicated that no one at the firm had ever spoken with him, the Master felt that the law firm could not then act against the interests of Vo:
It is clear that Mr. Aucoin had 2 clients: Mr. Vo and Kingsway. By now representing Kingsway as a statutory third party they are putting their client Vo in jeopardy, not only for a judgment in favour of the plaintiffs for any judgment in excess of the $200,000 statutory minimum, but also repayment to Kingsway of the $200,000. Clearly BW have a conflict of interest. Even if they received no confidential information from Mr. Vo, and it appears that they have never spoken to him, they cannot act against the interests of their former client in the same matter in which they represented him. The court should not condone such conflict by allowing BW to bring the motion on behalf of Kingsway.
Accordingly, the Master dismissed the motion to add Kingsway as a statutory third party, without prejudice to Kingsway’s right to move again, with lawyers other than Beard Winter.
We cannot disagree with the principle underlying the Master’s decision: by acting as defence counsel, the law firm had two clients, the insured and insurer, and could not then act for one against the interests of the other. Further, we also agree that by expressing an opinion on coverage, that the insured had breached the policy, the law firm placed itself in a conflict. However, we are not so sure that a conflict would arise automatically where a law firm has defended the insured and then seeks to represent the insurer as a statutory third party.
Section 258(15) of the Insurance Act sets out the rights of an insurer, once it has been added as a statutory “third party” (an unfortunate and misleading choice of language: “intervenor” would be preferable). None of the rights thereby conferred permits the coverage dispute to be made an issue in the litigation in which the insurer is a third party:
Upon being made a third party, the insurer may,
(a) contest the liablity of the insured to any party claiming against the insured;
(b) contest the amount of any claim made against the insured;
(c) deliver any pleadings in respsect of the claim of any party claiming against the insured;
(d) have production and discovery from any party adverse in interest; and
(e) examine and cross-examine witnesses at the trial, to the same extent as if it were a defendant in the action.
Far from taking a position adverse to the insured, counsel acting for an insurer added as a statutory third party typically takes a position strongly supportive of the insured. Ordinarily, counsel for the insurer is seeking to minimize the liability of the insured and/or the plaintiff’s damages, since the insured’s liability might ultimately be visited upon the insurer, in an action against it under s. 258(1). Certainly, a law firm that had once acted for the insured could not then represent the insurer in an action against it by a plaintiff with an unsatisfied judgment against the insured. For one thing, s. 258(13) of the Act provides that the insured is liable to reimburse the insurer for the amount that the insurer has paid by virtue of the absolute liability provisions of s. 258(4); invoking that subsection to seek reimbursement would certainly be contrary to the interests of the insured.
However, apart from the coverage opinion given by the law firm in this case, it is not apparent to us that once Kingsway had been added as a third party, its law firmwould be in any position to act against the interests of the insured, even if it were in Kingsway’s interests for it to do so (which we don’t believe it would be). Other than the fact that Kingsway had denied coverage (a condition precedent to the application of subsection 258(14)), coverage would simply not be an issue in which the law firm would be involved.