International Law

Court Orders Insurer to Pay for Defence by Counsel Chosen by Insured

Coakley v. Allstate is another case that deals with the problem of whether an insurer owes a duty to defend a claim that includes allegations of intentional conduct. What made this case a bit unusual is that (a) the motion seeking an order that the insurer (Allstate) pay for the defence took place only weeks before the commencement of the trial; and (b) the insurer’s duty to defend had already been decided on another motion, before another judge.

This motion was heard by Madam Justice Thea P. Herman. The insured was seeking a declaration that Allstate owed a duty to defend a claim against its insured, in which the insured is alleged to have pushed the plaintiff through a door. In that action, the insured had brought a third party claim against Allstate, which had refused to defend the action. The trial is scheduled to begin on May 25, 2009.

(Allstate’s denial was based on the fact that the underlying action alleged intentional conduct by the insured, although negligence had also been pleaded. Some readers will recall that a similar issue arose in the recent case of Glassford v. TD Home and Auto Insurance Company, which we discussed in a post last month. Justice Herman also referred to the Glassford case.)

Prior to the motion before Herman J., Allstate had brought its own motion, for summary judgment. It had moved, approximately one year ago, seeking dismissal of the insured’s third party claim, on the basis that there was no genuine issue for trial. That motion was heard by Madam Justice Ellen MacDonald about a year ago, in May, 2008. She dismissed the motion. Strangely, according to the reasons of Justice Herman, the parties were never able to agree as to just what Justice MacDonald had decided, so no formal order was ever taken out.

Thus, one of the issues before Herman J. was the ainsured’s submission, that the issue of duty to defend had been rendered res judicata by the ruling of MacDonald J.

Justice Herman considered the reasons of her colleague, Justice MacDonald from last year’s motion. There, Justice MacDonald had said, “I have concluded, based on all the above, that this being a motion for summary judgment, Allstate has a duty to defend Coakley and indemnify him for any loss that Coakley may incur if it is found that his acts were negligent.” Justice Herman was satisfied that even though the motion before Justice MacDonald had been brought by Allstate, the issue of duty to defend had been determined in favour of the insured. Accordingly, Justice Herman refused to revisit that issue.

However, the insured’s motion before Herman J. raised a second issue, one which had not been decided by Justice MacDonald. Counsel for the insured asked the court to order that he be permitted to continue with the defence, but at Allstate’s expense. This is too is a familiar problem, dating back to the 1988 decision in Laurencine v. Jardine and dealt with by the Court of Appeal most recently in Appin v. Economical Mutual Insurance Co., a 2008 decision. Justice Herman was satisfied that there would be an appearance of conflict if Allstate were permitted to conduct the defence through counsel appointed by it, so he ordered that the insured be permitted to continue with his own lawyer, except that all past and future defence costs are to be paid by Allstate. He said:

As in Glassford, the question of whether Mr. Oakley will be indemnified by the insurance policy depends on a determination and characterization of his conduct in the litigation. There is an ongoing dispute between Mr. Oakley and Allied as to whether he is excluded from coverage. Mr. Oakley is concerned that the insurer may steer the defence of the action in order to obtain a result in its favour, that is, a result that would exclude him from coverage. In my opinion, a reasonable person would perceive a conflict of interest.

In our commentary on the Glassford case, we have already expressed our concerns about a duty to defend being found to exist in these “self defence” cases, where it is typically the allegations made in the statement of defence that generate the duty to defend. But given the state of the jurisprudence, Allstate must have known that its position (particularly after having had the issue decided against it on its own motion a year ago) was not a promising one. Perhaps Justice Herman’s ruling will make settlement of next month’s trial more likely?

Full post as published by Cavanagh Williams on May 12, 2009 (boomark / email).