



COURT OF APPEAL FOR ONTARIO

CITATION: Reeb v. The Guarantee Company of North America,
    2017 ONCA 771 DATE: 20171005

DOCKET: C63193

Sharpe, Lauwers and Roberts JJ.A.

BETWEEN

Ryan Reeb

Applicant/Appellant

and

The Guarantee Company of North America and
    Co-Operators General Insurance Company

Respondents

Bruce R. Mitchell, for the appellant

Jeff M. K. Garrett, for the respondent

Heard: July 20, 2017

On appeal from the judgment of Justice C.M. Bondy of the
    Superior Court of Justice, dated December 6, 2016.

REASONS FOR DECISION

[1]

This is an appeal from the dismissal of an
    application for a declaration that the appellant, Ryan Reeb, is an insured
    under two policies issued by the respondent insurers.

[2]

The question for this court is whether to rule
    on the merits of the appeal, or to allow the appeal in view of the apparent
    conflict of interest between Mr. Reeb and Royal & Sun Alliance Insurance
    Company of Canada, the insurer who appointed, pays and instructs appellants
    counsel. For the reasons that follow, we allow the appeal on the basis of the apparent
    conflict of interest.

[3]

Some brief background is necessary to frame the
    conflict of interest issue.

[4]

On February 25, 2007, James Riley and Ryan Reeb,
    both 14 years of age at the time, were playing with pellet guns at Rileys
    house.  Reeb shot Riley who lost an eye. The underlying action is by
    James Riley against Ryan Reeb, his mother Laura Reeb, and his father Tim Reeb.

[5]

At the time of the incident, Ryan Reebs
    parents, Laura and Tim, were separated.

[6]

Laura Reeb had homeowners insurance with Royal
    & Sun Alliance which had a third party liability limit of $1 million. James
    Rileys claim was for $1.5 million.

[7]

Royal & Sun Alliance appointed appellants
    counsel to defend Ryan Reeb under a non-waiver and reservation of rights
    agreement. In respect of coverage, Royal & Sun Alliance is represented by another
    law firm.

[8]

On behalf of Ryan Reeb, appellants counsel brought
    the application for a declaration that Ryan is insured under two additional
    policies of insurance issued by the respondents. The first was issued to
    his father, Tim Reeb, by the respondent, The Guarantee Company of North
    America. The second was issued to Tims second wife, Theresa Curry-Reeb,
    by the respondent, Co-operators General Insurance Company. The respondent
    insurers are represented by another law firm. The respondent insurers concede
    that Ryan Reeb is insured under both policies but they assert that the
    intentional act exclusion in both policies applies to exclude the injuries
    suffered by James Riley.

[9]

The application judge dismissed the application
    based on the intentional act exclusion in both of the insurance policies issued
    by the respondent insurers, leading to this appeal.

[10]

If this court upholds the application judges
    decision, then the intentional act exclusion will apply, and Ryan Reeb will not
    be entitled to coverage under the additional policies issued by the respondent
    insurers. Moreover, it is likely that this courts decision will also
    eliminate coverage for Ryan Reeb under the Royal & Sun Alliance
    policy.

[11]

As a result of this constellation of interests,
    this court raised with the parties whether appellants counsel was in an
    apparent conflict of interest. On the one hand, he is being paid by Royal
    & Sun Alliance to defend Ryan Reeb and pursue this appeal. On the other
    hand, however, if the appeal fails, then Ryan Reeb will have no insurance
    coverage whatsoever, which would be to Royal & Sun Alliances financial advantage.

[12]

At the panels request, counsel for the parties
    and coverage counsel for Royal & Sun Alliance made written submissions to
    address the conflict of interest issue. The following summary sets out their
    responses:

(i)

Appellants counsel asserts
    that there is no conflict: pursuing the additional insurance was necessary and
    in Ryan Reebs interests because the Riley claim exceeded the policy limits of
    the Royal & Sun Alliance policy.

(ii)

Coverage counsel for Royal
    & Sun Alliance submits that the status of coverage under the policy is not
    relevant to the court. Royal & Sun Alliance will not agree prior to
    this courts disposition of the appeal to pay the costs of defence or to
    maintain coverage for the Reebs in the event that the appeal is dismissed. Royal
    & Sun Alliance relies on the non-waiver and reservation of rights agreement
    and will decide what to do when the court rules.

(iii)

Counsel for the respondent
    insurance companies takes the position that, it is reasonable to infer Royal
    & Sun Alliance will not provide coverage to Ryan Reeb if the appeal is
    dismissed, and will rely on the non-waiver and reservation of rights agreement.
    He notes that the issue of coverage for Ryan Reeb and Laura Reeb by Royal &
    Sun Alliance was not addressed before the application judge but was raised for
    the first time by appellants counsel at the hearing of this appeal. Most
    important, counsel submits that after the plaintiffs made a settlement offer under
    the policy limits, there was no benefit to Mr. Reeb in proceeding with the underlying
    application; he was already being defended by Royal & Sun Alliance which
    had not denied coverage. Respondents counsel submits nevertheless that this
    court should determine the issues before it on the record and applicable case
    law without any consideration of Royal & Sun Alliances duty to provide
    coverage. He asserts the coverage issue can be addressed in another proceeding
    if coverage is denied by Royal & Sun Alliance.

[13]

When a lawyer is retained by an insurance
    company to represent its insured, a conflict of interest may arise where the
    interests of the insurance company and the insured are not in alignment. In her
    text,
Understanding Lawyers Ethics in Canada
, 2d ed. (Markham: LexisNexis
    Canada Inc., 2016), at para. 6.87, p. 272, Alice Woolley concisely frames the
    conflict of interest question in the context of the tension between the
    insurance companys contractual rights and the insureds interests to full and
    fair representation, as follows:

While courts have generally been deferential to the contractual
    rights of insurance companies in this respect, courts have also held that a
    lawyer owes a duty to fully represent and protect the interest of the insured
    and have required that the insured has obtained independent counsel where there
    is a reasonable apprehension of conflict of interest on the part of counsel
    appointed by the insurer.

[14]

In
Hoang v. Vicentini
, 2015 ONCA 780,
    at para. 74, this court recently reiterated the criteria to be considered when
    determining whether there is a conflict of interest between an insured and his
    insurer with respect to the insureds legal representation:

In
Brockton
, this court described the degree of
    divergence that must exist before a court can require an insurer to surrender
    control of the defence. Rejecting the concept of "appearance of
    impropriety" as a basis for depriving an insurer of its contractual right
    to control the defence, this court instead adopted, at para. 43, the concept of
    conflict of interest:

The balance is between the insured's right to a full and fair
    defence of the civil action against it and the insurer's right to control that
    defence because of its potential ultimate obligation to indemnify. In my view,
    that balance is appropriately struck by requiring that there be, in the
    circumstances of the particular case, a reasonable apprehension of conflict of
    interest on the part of counsel appointed by the insurer before the insured is
    entitled to independent counsel at the insurer's expense. The question is
    whether counsel's mandate from the insurer can reasonably be said to conflict
    with his mandate to defend the insured in the civil action. Until that point is
    reached, the insured's right to a defence and the insurer's right to control
    that defence can satisfactorily co-exist.

[15]

In our view, there is a reasonable apprehension
    of a conflict between the interests of Mr. Reeb and Royal & Sun Alliance.
    While we are not saying that appellants counsel actually preferred the
    interests of Royal & Sun Alliance over those of Mr. Reeb, the apprehension
    of a conflict precludes this court from ruling on the merits of the appeal. In
    order to protect his interests in these proceedings in light of the conflict,
    Mr. Reeb ought to have had independent counsel who did not report to or take
    instructions from Royal & Sun Alliance to advise him on the advisability of
    bringing the underlying application in the face of a settlement offer, and representing
    him on this appeal. There is no way of knowing how things would have unfolded
    had Mr. Reeb been represented by independent counsel throughout, which impugns
    both the application and this appeal.

[16]

As a result, we allow the appeal and set aside
    the application judges decision.

[17]

What should happen next? To determine this question,
    we invite written submissions from the parties and Royal & Sun Alliance.
    However, independent counsel for Ryan Reeb or
amicus curiae
should be
    appointed and remunerated for the purpose of assisting this court in assessing
    what future steps should be taken in these proceedings.

[18]

Before we schedule the delivery of those
    submissions, in order to ensure that Ryan Reebs interests are protected at
    this stage with respect to our request for additional submissions regarding his
    future representation and the disposition of the costs of this appeal, we intend
    to appoint
amicus curiae
to assist the court.  Counsel for the parties
    and Royal & Sun Alliance may make brief written submissions of no more than
    two pages within ten days of the release of these reasons concerning the issue
    of
amicus
 remuneration before this court. Counsel may also include
    names of possible
amicus
for this courts consideration on the
    understanding that this court may appoint
amicus
who is not among
    counsels suggested counsel.

Robert J. Sharpe
    J.A.

P. Lauwers J.A.

L.B. Roberts J.A.


