Law Times

Law Times • February 23, 2015 Page 5 www.lawtimesnews.com Mallory v. Werkmann Estate Appeal court weighs in on duties of counsel appointed by insurers By Julius melniTzer For Law Times hief Justice George Strathy of the Ontario Court of Appeal has ordered a veteran liti- gator removed as counsel for a defendant in a personal injury case on the grounds of conf lict of interest between the interests of the insured and those of the insurer. In the normal course, defen- dants' insurers appoint and pay for their counsel. But it's trite law that counsel's client is the in- sured to whom the lawyer owes a duty of loyalty and good faith. Generally speaking, the bi- furcated nature of the retainer doesn't create a problem. "It doesn't come up very fre- quently because lawyers tend to be pretty good about un- derstanding their position," says Nina Bombier of Lenczner Slaght Royce Smith Griffin LLP in Toronto. But things can get compli- cated, especially where coverage is an issue, as they did in Mallory v. Werkmann Estate. The case arose after Robert Mallory was severely injured and a passenger died when his car was hit by a motorcyclist, Gabor Werkmann, who himself died in the crash. Mallory sued Werkmann's estate and two other motorcy- clists not directly involved in the collision. He also sued his own insurer, Security National Insur- ance Co., for coverage in case any of the defendants didn't have suf- ficient insurance. As it turned out, one of the defendants not involved in the collision, Istivan Mihali, had a policy with Royal & Sun Alli- ance Insurance Co. The policy limits were $1 million with li- ability restricted to $200,000 if the insured had engaged in a "race" or "speed test." Because coverage issues had arisen dur- ing Royal & Sun Alliance's investigation, Mihali signed a non-waiver agreement that gave the company the authority to defend and settle the action while preserving the insurer's right to continue investigating the claim and dispute coverage. Royal & Sun Alliance re- tained Nestor Kostyniuk, a veteran litigator at Kostyniuk & Greenside in Toronto and a former president of the To- ronto Lawyers Association, to defend Mihali. The company also retained Mark O'Donnell of O'Donnell Robertson & San- filippo in Toronto to advise on coverage issues. But while Secu- rity National, as a named defen- dant, had independent counsel at trial, Royal & Sun Alliance didn't. The trial judge found Mi- hali was partly responsible for the accident because he and the third rider had participated in a joint venture with Werkmann in which they "incited and en- couraged each other to drive in excess of the speed limit and break the rules of the road." Additionally, the trial judge dismissed the claims against Security National "since Mr. Mihali was insured at the time of the collision." But O'Donnell says the judge erred in so ruling. "How can you find coverage where the insurer was not in- volved at the trial on the merits and had no right to appear un- til the trial and the appeal were concluded?" he asks. However that may be, Kostyniuk filed an appeal on Mihali's behalf. The appeal cited eight grounds for reversal, in- cluding two that related to cov- erage issues. The latter alleged that the trial judge had erred by addressing the coverage issue in her decision. Kostyniuk's factum also pur- sued the coverage issue in the following terms: "Justice Lack in paragraph 33 of her decision stated 'Mr. Mihali was insured at the time of the collision,' al- though the issue of coverage was not before the court in these proceedings. "The notice of appeal at para- graph 8 highlighted this issue. O'Donnell Robertson & San- fillipo Barristers & Solicitors, separate coverage legal counsel for Royal & Sun Alliance, will be promptly filing a motion to the Court of Appeal for further direction on this matter al- though the issue of coverage was not properly before the court in these proceedings and RSA was not even a party. This is not an issue dealt with in this factum and it is Mr. Mihali's position that his coverage was not an is- sue properly before the court in these proceedings." Before the hearing of the ap- peal on the merits, Security Na- tional brought a motion before Strathy to remove Kostyniuk as counsel. Royal & Sun Alliance also moved to intervene at the appeal on the merits. In argument before Strathy, Kostyniuk acknowledged it was inappropriate to raise a ground of appeal that dealt with cover- age. Strathy agreed. "It was not in the appellant's interest to include the issue of his own insurance coverage as a ground of appeal," he wrote in his endorsement. "The inclusion of [the grounds of appeal relating to coverage] gives rise to a clear conf lict between the interests of the appellant on the one hand and the interests of his insurer on the other." As Strathy saw it, the inclu- sion of these grounds gave rise to an "inescapable conclusion that defence counsel was acting on the instruction of the insur- er to advance a ground of ap- peal contrary to the interests of the insured." The fact that Mihali want- ed Kostyniuk to continue as his lawyer was, in these circumstances, not determina- tive of the motion. "Where there is an appear- ance of impropriety, the remov- al of counsel may still be neces- sary to protect the repute of the administration of justice," wrote Strathy. Here, allowing Kostyniuk to continue to act would do just that, he found. Mihali was free to retain counsel of his own choice with Royal & Sun Alli- ance responsible for legal fees and disbursements. Kostyniuk says he was in a difficult position, although he acknowledged again that, in retrospect, he ought not to have included the grounds relating to coverage in the notice of appeal or the factum. "It came up at trial several times that there might be issues between the two insurers, but the trial judge seemed to have forgotten about that when writ- ing her decision," he says. "I was stuck between the two insurers but I made it clear that any cov- erage issue would be dealt with by O'Donnell on behalf of RSA." Still, Kostyniuk notes, the message from the court is abso- lutely clear. "What we in the defence bar all have to consider and remem- ber is that the insured is No. 1 and that we can't raise anything, particularly coverage issues, that might create a semblance of conf lict," he says. LT NEWS Untitled-3 1 2015-02-17 10:36 AM announcement C Royal & Sun Alliance retained Mark O'Donnell to advise on coverage issues.

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