There are, however, few reported decisions, and jurisprudence on the topic is limited. Counsel are left to be guided by two decisions from Master Dash, decided 10 years apart.
In the first, Ho. v. Vo (2006 CarswellON 6739), Master Dash held that lawyers cannot act against the interests of a former client (the insured) in the same matter in which they represented him.
More specifically, in Ho v. Vo, Kingsway Insurance retained counsel to defend its insured driver. Counsel filed a defence on behalf of the insured and proceeded to examinations for discovery. However, the insured failed to attend or respond to any correspondence. Given the inability to receive instructions, counsel brought a motion to remove itself as lawyer of record. At the same time, counsel moved to have Kingsway added as statutory third party and intended to act for Kingsway. In the affidavit in support of the motion, counsel stated that the insured's non-cooperation was a breach of the insurance policy.
Master Dash held that by representing Kingsway as a statutory third party, counsel was putting the insured in jeopardy for judgment in favour of the plaintiffs, and also for repayment to Kingsway of a judgment in excess of $200,000.
... lawyers could not act against the interests of their former client in the same matter in which they represented him ... |
Even if they had received no confidential information from the insured, Master Dash held that the lawyers could not act against the interests of their former client in the same matter in which they represented him, and to allow so would be a conflict under the Rules of Professional Responsibility.
The motion to add Kingsway as a statutory third party was dismissed.
Ho. v. Vo has not been appealed. Ten years later, Master Dash `revisited` the issue in Ibarra v. Ibrahim (2016 ONSC 218).
In Ibarra, Economical Mutual Insurance Co. retained counsel to defend its insured. Counsel defended the insured, but despite their efforts, were unable to locate him, obtain instructions or produce him for examinations for discovery. Counsel argued that the lawyer-client relationship had broken down and brought a motion to be removed as lawyer of record and to add Economical as statutory third party (and be counsel for Economical as statutory third party).
Economical had previously taken the position that coverage could be denied based on the lack of co-operation. There was no evidence that counsel had provided Economical with a coverage opinion or that counsel had received confidential information from the insured.
Master Dash attempted to reconcile his earlier decision in Ho by noting that in Ho counsel had provided a coverage opinion, and thus they would be acting against the interest of their former client (i.e. by putting them at risk for any judgment in excess of the $200,000 statutory minimum, and also for repaying the insurer for any judgment up to the statutory minimum).
... counsel in Ibarra would not automatically be in a conflict ... |
Master Dash stated that counsel in Ibarra would not automatically be in a conflict and, in fact, the statutory third party had the same rights as the insured (i.e. to argue liability, damages, etc.). He further commented that there is no automatic conflict of interest if (1) counsel has not given a coverage opinion contrary to the interest of the insured; or (2) counsel has not received confidential information from the insured. If conflicts arise as the action progresses, however, counsel should immediately remove themselves as lawyer of record for the statutory third party.
In addition, counsel may never act for the insurer in any subsequent action by the insurer against the insured to recover judgment or settlement paid out to the plaintiff, as counsel would then be acting against the interest of the former client.
Master Dash granted the motion and allowed counsel to represent Economical as a statutory third party.
Learning from Ho and Ibarra
Insurers frequently have themselves added as a statutory third party pursuant section 258 (14) of the Insurance Act in order to preserve and advance liability and/or damage arguments in situations where their insured has failed to co-operate in the defence of the action.
Where the Ibarra objectives satisfied, an insurer can be added as statutory third party and counsel can continue representing both parties. It may also be prudent for counsel to provide an undertaking that they will not represent the insurer in any subsequent actions against the insured nor represent the defendant in any subsequent action against the other defendant for any damages above the statutory third party limits.
In light of the jurisprudence, defence counsel should document their efforts to contact the insured, and any contact that ensues, and ultimately provide a report to their clients where the insured is uncooperative. If counsel wishes to remain as counsel of record in the action, it is important that counsel merely flag the issue for the insurers, rather than provide substantive legal advice that could be considered adverse to the insured.
