Mallory v. Werkman Estate 2015 ONCA 71, February 2,
On February 6, 2015, three motorcycle drivers were racing. One
of the drivers, Mr. Werkman, lost control and struck a car
seriously injuring the driver, Mr. Mallory. Mr. Werkman died. Mr.
Mallory sued Mr. Werkman's Estate, the other two motorcycle
drivers (Mr. Nemes and Mr. Mihali), as well as his own insurer
(Security National) for underinsured/uninsured coverage.
Mr. Mihali's insurer, Royal and Sun Alliance
("RSA"), appointed defence counsel, but reserved their
right to limit or dispute coverage. While RSA appointed separate
coverage counsel, RSA was not added as a statutory third party to
Mr. Mallory reached a settlement with Mr. Mihali, RSA, and
Security National. Under the terms of the settlement a trial was to
be conducted to determine if the Mr. Mihali was liable to Mr.
Mallory. If Mr. Mihali was not liable, then Security National was
to pay the settlement monies. If Mr. Mihali was liable, RSA would
pay at least $200,000 of the settlement amount, and perhaps the
full amount if Mr. Mihali was not in breach of the conditions of
his insurance policy.
In February 2014 the trial judge found that Mr. Mihali was,
"engaged in a joint venture" with Mr. Werkman in which
they encouraged each other to drive at excessive speeds etc. Mr.
Mihali was found to bear 25% liability. The trial judge
dismissed the action as against Security National on the basis that
Mr. Mihali was insured at the time of the accident
Following the trial decision RSA's coverage counsel wrote to
the trial judge and trial counsel and expressed concern about the
findings regarding coverage. Coverage counsel was advised to
contact the trial coordinator, but did not do so.
Mr. Mihali's counsel, who was still appointed by and paid
for by RSA, filed a Notice of Appeal which stated, among other
things, the trial judge had erred in addressing the issue of
insurance coverage in her trial reasons.
Security National brought a motion to have defence counsel for
Mr. Mihali removed as lawyers of record.
The Court of Appeal noted defence counsel owed a duty of loyalty
to Mr. Mihali. By including a ground of appeal that was not in Mr.
Mihali's best interest it gave "rise to the inescapable
conclusion that defence counsel was acting on the instruction of
the insurer." If counsel were not removed it would bring the
administration of justice into repute. The Court of Appeal then
went even further, and held that Mr. Mihali could appoint counsel
of his own choosing, with all reasonable fees and disbursements to
be paid by RSA.
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