The same person cannot act as defence counsel and as counsel in a third party action against the Insurer which alleges bad faith pertaining to a failure to defend and, potentially, the conduct of a legal proceeding

Svishchov v. Corol, [2003] O.J. No. 4745, Ontario Superior Court of Justice

The Insured (“Z”) was a Defendant in an action arising from a motor vehicle accident. The Insurer denied coverage to Z but an earlier court ruling indicated that there were triable issues with respect to the coverage question. As a result of that decision, the Insurer acknowledged that it was bound to defend Z notwithstanding the denial of coverage. A Mr. Cooper acted as defence counsel on behalf of Z in the main action as well as in a third party proceeding against the Insurer alleging bad faith. The issue in this motion was whether Z or the Insurer was entitled to retain and instruct defence counsel. The Insurer asserted that Mr. Cooper was in a conflict of interest and could not be retained to defend Z in the main action as he was also counsel for Z in the bad faith claim.

The court held that if Z wished to pursue the bad faith claim, then Mr. Cooper could not act for him in the main action. The court noted that while the pleading of bad faith related only to the failure to defend, bad faith may extend to the conduct of a legal proceeding. If Z limited the bad faith claim to outstanding legal fees and a $6,000 fine paid for driving the uninsured vehicle, then there would be no ongoing conflict or the appearance of potential conflict and Mr. Cooper could also assume the defence on behalf of Z. However, if Mr. Cooper intended to proceed with the bad faith claim against the Insurer, independent counsel should be appointed to defend the main action on Z’s behalf.

The court therefore ordered Mr. Cooper to advise opposing counsel of his position within 14 days.

To stay current with the new case law and emerging legal issues in this area, subscribe here.