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Apparent conflict of interest existed: ruling

|Written By Alex Robinson
Apparent conflict of interest existed: ruling
George Frank says it is not common for an insured individual to have potential recourse against more than one insurer.

The Ontario Court of Appeal has ruled that a lawyer who represented an insured had an apparent conflict of interest, as he was appointed, paid and instructed by an insurer that would have benefited from a ruling that wouldn’t be aligned with the insured’s interests.

In the original dispute, the appellant Ryan Reeb was facing a claim for $1.5 million for shooting a friend in the eye with a pellet gun when he was 14 years old, but his mother’s homeowner’s insurance with Royal & Sun Alliance had a third-party liability limit of $1 million.

In Reeb v. The Guarantee Company of North America, counsel for Reeb brought an application for a declaration that he was insured under two additional policies of insurance issued to his father and his second wife.

The application judge dismissed the application, finding that an intentional act exclusion in the insurance policies excluded the injuries suffered by the claimant.

The Court of Appeal found that if it upheld the application judge’s decision, it could also eliminate Reeb’s coverage under the Royal & Sun Alliance policy, leading to a conflict between their interests in the proceeding.

“As a result of the constellation of interests, this court raised with the parties whether appellant’s counsel was in an apparent conflict of interest,” the Court of Appeal decision said.

“One the one hand, he is being paid by Royal & Sun Alliance to defend Ryan Reeb and pursue his appeal. On the other hand, however, if the appeal fails, then Ryan Reeb will have no insurance coverage whatsoever, which would be to Royal & Sun Alliance’s financial advantage.”

Lawyer George Frank, of Devry Smith Frank LLP, who was not involved in the case, says it is fairly rare for the court to intervene in such a way.

“I suspect that the occasions on which the court will intervene on its own initiative will be rare, but prudent defence counsel will ensure that they have apprised everyone of any potential conflict and the potential ramifications of the conflict, so that if the court does intervene, it will not come as a surprise to either of defence counsel’s clients,” he says.

Frank adds that the fact situation in this case is unusual as it is not common for an insured individual to have potential recourse against more than one insurer.

Reeb’s counsel Bruce Mitchell asserted in his submissions that there is no conflict, as pursuing the additional insurance was necessary and it was in the client’s interests because the claim exceeded the policy limits.

Mitchell declined to comment for this story.

Counsel for the respondent insurance companies took the position that it would be reasonable to infer that Royal will not provide coverage to Reeb if the appeal is dismissed.

They also submitted that after the plaintiffs in the underlying action made a settlement offer under the policy limits, there was no benefit for Reeb to proceed in the underlying application. 

The court, however, found that there was a reasonable apprehension of a conflict between the interests of Reeb and those of Royal & Sun Alliance.

“While we are not saying that appellant’s counsel actually preferred the interests of Royal & Sun Alliance over those of Mr. Reeb, the apprehension of a conflict precludes this court from ruling on the merits of the appeal,” the decision said.

The court found that there is no way of knowing how things would have unfolded had Reeb been represented by independent counsel throughout the proceedings and that both the application and the appeal were impugned as a result.

Marianne Davies, a partner with Flaherty McCarthy LLP, says the courts are generally reluctant to remove counsel that an insurance company has appointed.

“Of course, the insurance company has entered into a contract with their insured, which gives them the right — at least at first instance — to do exactly that, to get the counsel that they want involved on a case,” says Davies.

She says it is something the courts will do in cases where there is a demonstrated apprehension of a conflict.

Davies, who was not involved in the case, says insurance defence counsel always has to be mindful of a potential conflict of interest that might arise in cases where they are given a qualified instruction from a client.

“Presumably, if you feel that you can still act, you probably still should be letting your client know that it’s certainly possible that somebody can raise this issue at a later time,” she says.

Without ruling on the merits of the appeal, the court set aside the application judge’s decision.

The court ordered that Reeb should have independent counsel who does not report to the insurer going forward.

The court also decided that amicus curiae should be appointed to help with the issue.

The court also requested further submissions to determine what should happen next.

John Polyzogopoulos, a partner with Blaney McMurtry LLP, who was not involved in the case, says the decision is a clear example of the dangers that insurance defence counsel have to be mindful of.

“You never know when around the corner an issue of conflict will arise between insured and insurer,” he says.

“And as defence counsel you have to be very careful and mindful of those potential conflicts and not get in the middle of them.”

Mark O’Donnell, who was coverage counsel for Royal, did not respond to a request for comment.

Jeff Garrett, the lawyer who represented the respondents in the appeal, declined to comment on the decision as the matter remains before the Court of Appeal.             LT


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