The insured municipality suffered a catastrophic bacterial infection of its water supply, leading to investigations and a class action lawsuit.
The municipality's insurer appointed counsel to defend the civil actions under a reservation of rights.
Dissatisfied with the appointed counsel's advice and the reservation of rights, the municipality retained independent counsel and sought reimbursement from the insurer.
The Court of Appeal held that an insurer is only required to surrender control of the defence and pay for independent counsel if there is a reasonable apprehension of conflict of interest.
As the reservation of rights was based on policy limits and exclusions rather than the insured's conduct, no conflict existed.
The insurer was not obliged to pay for the independent counsel.