COURT OF APPEAL FOR ONTARIO

CITATION: Hoang v. Vicentini, 2015 ONCA 780

DATE: 20151116

DOCKET: M45481 and M45484 (C55389)

Laskin J.A. (In Chambers)

BETWEEN

Christopher Hoang and Danielle Hoang, both minors by their Litigation Guardian, San Trieu and San Trieu, personally

Plaintiffs (Appellants/Respondents by way of cross-appeal)

(Moving Parties in M45484)

and

Adriano Vicentini, Ford Credit Canada Leasing Company and Can Hoang

Defendants (Respondents/Appellant by way of cross-appeal)

(Moving Party in M45481 in his personal capacity, Responding Party in M45481 and M45484/Responding Parties)

Kerri Kamra, for the moving party Can Hoang, in his personal capacity

Geoffrey D.E. Adair, for the moving parties Christopher Hoang and Danielle Hoang, both minors by their Litigation Guardian San Trieu, and San Trieu

David Zuber, for the responding party Adriano Vicentini

Bruce Mitchell, for the responding party Ford Credit Canada Leasing Company

Michael O’Brien, for the responding party Can Hoang

Teri Liu, for the responding party The Personal Insurance Company

Heard: October 6, 2015

Laskin J.A.:

A. Introduction

[1] Christopher Hoang and the other plaintiffs appeal a jury verdict, which found Christopher’s father Can Hoang solely responsible for the injuries Christopher suffered in a car accident and awarded him damages of approximately $835,000. Flaherty Dow Elliot & McCarthy[^1], counsel appointed by Can Hoang’s insurer, delivered a notice of cross-appeal asking this court to set aside the finding of liability against Can Hoang. The Flaherty firm has now been replaced by Sullivan Festeryga LLP.

[2] The two motions before me – one brought by the appellants and the other by the respondent Can Hoang in his personal capacity – seek to disqualify Sullivan Festeryga LLP from continuing to represent Can Hoang on the appeal and cross-appeal. Its predecessor, Flaherty Dow Elliot & McCarthy, was appointed as counsel for Can Hoang by his car insurer, The Personal Insurance Company, and represented Can Hoang at trial. The moving parties say, however, that in the light of the cross-appeal, Sullivan Festeryga LLP’s continued representation of Can Hoang gives rise to a reasonable apprehension of a conflict of interest between the insurer, The Personal, and its insured, Can Hoang.

[3] The moving parties thus ask for three orders:

(1) An order removing Sullivan Festeryga LLP as counsel of record for Can Hoang on the appeal and cross-appeal;

(2) An order appointing Laxton Glass as counsel of record for Can Hoang on the appeal and cross-appeal; and

(3) An order requiring The Personal to pay Laxton Glass’ reasonable fees and disbursements.

[4] For the reasons that follow, I grant these three orders.

B. Background

(a) The Accident

[5] In August 2004, six-year-old Christopher Hoang was severely injured in a car accident. His father, Can Hoang, had dropped Christopher and others off at the intersection of Queens Quay and Yonge Street in downtown Toronto. Christopher’s hat blew off and he chased it into the intersection where he was struck by a car driven by the defendant Adriano Vicentini and owned by Ford Credit Canada Leasing Company.

(b) Insurance Coverage

[6] Can Hoang was insured by The Personal, who first had him sign a non-waiver agreement and then appointed Flaherty Dow Elliott & McCarthy to act for him. The non-waiver agreement gave Can Hoang notice that The Personal might dispute whether he was covered under his car insurance policy for any liability for the accident.

(c) The Litigation

[7] Christopher Hoang (by his litigation guardian) and the other plaintiffs sued Can Hoang, Vicentini, and Ford Credit for damages for negligence.

[8] The action was tried before Darla A. Wilson J. and a jury. The jury found Can Hoang solely responsible for the accident. It awarded Christopher Hoang $150,000 for general damages and $684,228.22 for future case costs. The jury particularized Can Hoang’s negligence. All but one of these particulars concerned Can Hoang’s negligent parental supervision of Christopher. All parties accept that these particulars of negligence do not give rise to coverage under Can Hoang’s car insurance policy with The Personal. But the jury also specified that Can Hoang’s negligence included his “unsuitable choice of unloading area.” That particular could give rise to coverage under the policy: see Lefor (Litigation Guardian of) v. McClure(2000), 2000 CanLII 5735 (ON CA), 49 O.R. (3d) 557 (C.A.).

[9] The Personal could have added itself as a third party in the action to protect its interests and seek an early determination of “no coverage”. But it did not do so. Now it is the defendant in two separate actions, one brought by Can Hoang for indemnification and the other by Christopher Hoang for direct payment of the judgment under s. 258(1) of the Insurance Act, R.S.O. 1990, c. I8. Both claims rely on the jury’s finding of “unsuitable choice of unloading area”; neither claim has been resolved.

(d) The Appeal and Cross-Appeal

[10] The plaintiffs have appealed the trial decision. Their appeal has two main branches: they ask that the judgment dismissing the action against Vicentini and Ford Credit be set aside and that liability be apportioned equally between those two defendants and Can Hoang; and they ask that the amount of damages be increased.

[11] In response to the notice of appeal, Flaherty Dow Elliott & McCarthy filed a notice of cross-appeal on behalf of Can Hoang. In the cross-appeal, the Flaherty firm asks this court to set aside all particulars of negligence against Can Hoang and to dismiss the action against him. Thus, one of the particulars sought to be set aside is “unsuitable choice of unloading area”, the one particular for which Can Hoang could claim coverage under his insurance policy. The appeal of this particular of negligence in the notice of cross-appeal filed by Flaherty McCarthy has precipitated the two motions before me.

C. Discussion

[12] The moving parties contend that by challenging the jury’s finding of “unsuitable choice of unloading area” the insurer has put itself in a conflict of interest with its insured Can Hoang or, at least, has created a reasonable apprehension of a conflict. If that challenge is successful and the other particulars of negligence found by the jury are not set aside, Can Hoang will lose any chance of being indemnified by his insurer for the judgment against him.

[13] Counsel appointed by the insurer to act for Can Hoang contends that the notice of cross-appeal filed on Can Hoang’s behalf does not create a reasonable apprehension of a conflict of interest. Instead, counsel says that he is acting only in the best interest of the insured, Can Hoang. At trial, counsel for Hoang’s mandate was to defend the action, to attempt to avoid liability, and to minimize damages. Those objectives have governed the conduct of the defence and will govern the conduct of the appeal.

[14] In his oral argument, Mr. Adair, counsel for the appellants, set out three principles which he says, and I accept, are relevant on these motions. They are:

(1) Where a lawyer is appointed by an insurer to defend its insured, the lawyer’s primary duty is to the insured. That is so even though the lawyer is paid by the insurer and the insurer may eventually have to pay the claim against its insured. Deschênes J.A. discussed this principle in Pembridge Insurance Company v. Parlee, 2005 NBCA 49, 253 D.L.R. (4th) 182, at para. 17:

It is now beyond dispute that a lawyer appointed and paid for by an insurer to defend its insured in compliance with the insurer’s contractual duty to defend owes a duty to fully represent and protect the interest of the insured. By doing so, the lawyer, of course, is also acting in the insurer’s interest in the sense that the plaintiff’s claim (a claim that the insurer may eventually have to pay) is being challenged. But, first and foremost, once appointed, the lawyer must represent and act on behalf of the defendant insured with the utmost loyalty and only in the latter’s best interest. No one seriously contends that the lawyer is or should be allowed to take a position contrary to the interests of the insured defendant which he has been appointed to represent. [Citations omitted].

See also Mallory v. Werkmann Estate, 2015 ONCA 71, 330 O.A.C. 337, at para. 29.

(2) An insurer may be required to relinquish control of the defence and pay for independent counsel retained by its insured only if there is “in the circumstances of the particular case, a reasonable apprehension of conflict of interest on the part of counsel appointed by the insurer”: Brockton (Municipality) v. Frank Cowan Co.(2002), 2002 CanLII 7392 (ON CA), 57 O.R. (3d) 447 (C.A.), at para. 43.

(3) Where the insurer has insisted on a reservation of rights or its insured has signed a non-waiver agreement, then a conflict of interest may arise if coverage under the policy turns on the insured’s conduct in the accident giving rise to the litigation. Goudge J.A. discussed this principle in Brockton, at para. 42:

If the reservation of rights arises because of coverage questions which depend upon an aspect of the insured's own conduct that is in issue in the underlying litigation, a conflict exists. On the other hand, where the reservation of rights is based on coverage disputes which have nothing to do with the issues being litigated in the underlying action, there is no conflict of interest requiring independent counsel paid for by the insurer.

[15] I now apply these principles to the two motions. The potential for conflict between the interests of an insurer and its insured invariably exists because of the insurer’s separate obligations to defend and to indemnify. That potential for conflict is exacerbated when the insurer insists on a reservation of rights or when its insured signs a non-waiver agreement, putting in question coverage under the policy. The potential for conflict is especially acute in this case because Can Hoang signed a non-waiver agreement, because coverage under his insurance policy may depend on this court’s view of his conduct at the time of the accident, and because he is the father of the appellant, Christopher Hoang. Indeed, Can Hoang does not want to appeal the jury’s finding of “unsuitable choice of unloading area.”

[16] Not every potential conflict between the interests of the insurer and its insured requires the insurer to yield the right to control the defence, a right it contracted for in the policy of insurance. To require the insurer to yield control, the insured must meet the reasonable apprehension of conflict of interest test.

[17] Here, that reasonable apprehension is readily apparent. The apprehension arises because a reasonable bystander might think counsel appointed by the insurer would focus on overturning the one finding for which the insurer could be liable to indemnify the insured and downplay or focus less on the jury’s findings of negligent parental supervision for which the insurer has no obligation to indemnify. In saying this, I do not impugn the integrity of counsel chosen by the insurer. But appearances count. The test is not actual conflict of interest, but a reasonable apprehension of a conflict of interest.

[18] For Can Hoang personally, an appellate decision overturning the finding of “unsuitable choice of unloading area”, yet leaving in place the findings of negligent parental supervision, would be disastrous. Can Hoang would be left without any prospect of indemnification and his son Christopher Hoang would be left without any hope of recovery. I thus conclude that the test of reasonable apprehension of conflict of interest has been made out. The moving parties are entitled to the three orders I itemized at the beginning of these reasons.

[19] The parties have agreed on three other orders, which shall go on consent:

(1) The Personal shall be added as a party to the appeal to respond to the appellants’ claim for costs against it;

(2) The appellants may file a replacement appeal book and compendium, and the appellants and each of the respondents may file amended factums, not to exceed 35 pages; and

(3) In accordance with the order of Lauwers J.A. the appeal and cross-appeal shall be scheduled for hearing on January 11, 2016.

[20] If the parties cannot agree on the costs of these motions, they may make brief submissions in writing.

Released: November 16, 2015 (“J.L.”)

“John Laskin J.A.”

[^1]: Now Flaherty McCarthy.