



COURT OF APPEAL FOR ONTARIO

CITATION: Mallory v. Werkmann Estate, 2015 ONCA 71

DATE: 20150202

DOCKET: M44420 & M44451 (C58453)

Strathy C.J.O. (In Chambers)

BETWEEN

Robert Mallory

Plaintiff (Respondent)

and

The Estate of Gabor
    Werkmann, deceased, Kriztian Nemes,
Istivan Mihali

(
Appellant/Responding Party)

and

Security National
    Insurance Company

Defendant (Respondent/Moving Party)

David L. Silverstone and Jeffery T. Booth, for the moving
    party, Security National Insurance Company

Nestor E. Kostyniuk and Daniel Fenwick, for the
    responding party, Istivan Mihali

Mark M. ODonnell, for the proposed intervener, Royal &
    Sun Alliance Insurance Company

Heard: January 21, 2015

Motion for leave to intervene as an added party brought by Royal
    & Sun Alliance and motion for directions seeking to remove counsel for the
    appellant brought by Security National Insurance Company.

ENDORSEMENT

Overview

[1]

On February 6, 2005, Robert Mallorys car was struck by an
    out-of-control motorcycle. Mallory was severely injured and both the
    motorcyclist and Mallorys passenger were killed. The appellant, Istivan Mihali
    was held partly liable on the basis of his participation in a joint venture with
    the motorcyclist who caused the collision. Mihalis appeal has not yet been
    perfected.

[2]

There are two preliminary motions before me. First, the respondent, Security
    National Insurance Company, moves to remove counsel acting for the appellant on
    the ground of conflict of interest. Second, the appellants insurer, Royal &
    Sun Alliance Insurance Company (RSA), moves to intervene as an added party to
    this appeal under rules 13.01(1) and 13.03(2) of the
Rules of Civil
    Procedure
, R.R.O. 1990, Reg. 194.

[3]

For the reasons that follow, the motion to remove counsel is granted and
    the motion to intervene is dismissed.

Background

[4]

The events giving rise to this action were shocking and tragic.

The collision

[5]

On February 6, 2005, Gabor Werkmann, Kriztian Nemes and the appellant went
    for a motorcycle ride in York Region, north of Toronto. Each on separate
    motorcycles, they drove at speeds in excess of 240 km per hour, three times the
    speed limit. These speeds were confirmed because one of the men had affixed a
    camera to his motorcycle, capturing both the speedometer and the road ahead.

[6]

Werkmann lost control of his motorcycle and struck Mallorys car,
    killing himself and a front seat passenger in the car. Mallory sustained
    serious injuries.

[7]

Mallory sued the estate of Werkmann, Nemes and the appellant, alleging
    they were all negligent. He also sued his own insurer, Security National,
    claiming coverage in the event any liable party was uninsured or underinsured.

The appellants insurance and non-waiver agreement

[8]

The appellant had a policy of insurance with RSA with limits of $1
    million. The policy was subject to statutory conditions limiting liability
    coverage to $200,000 if the driver was engaged in a race or speed test:
Insurance
    Act
, R.S.O. 1990, c. I.8, ss. 234, 251; O. Reg. 777/93, s. 4(2).

[9]

As a result of the potential breach of condition, RSA entered into a
    non-waiver agreement with the appellant on October 28, 2007. The agreement
    granted RSA authority to defend and settle the action against the appellant, while
    preserving RSAs right to continue investigating the claim and dispute coverage
    under the policy.

[10]

RSA
    appointed Kostyniuk and Greenside as defence counsel on behalf of the
    appellant. It also appointed separate counsel to advise on the coverage issues.

The settlement of damages

[11]

On
    May 31, 2013, a settlement was reached between Mallory, RSA (as the appellants
    insurer) and Security National (as the potential uninsured carrier), agreeing
    to fix the amount of damages at $444,850. The appellant, and not RSA, signed
    the agreement due to his potential uninsured exposure in the event of breach of
    a condition.

[12]

RSA
    (on behalf of the appellant) and Security National made an initial joint
    payment of $50,000 without prejudice to their rights to seek indemnity for this
    payment from each other or from the other defendants.

[13]

The
    agreement also provided that the appellant and Security National would proceed
    to trial to determine whether the appellant was liable for the plaintiffs
    damages. If he was not, then Security National would be liable. If the
    appellant was liable for the plaintiffs damages, then RSA would be liable for
    at least $200,000 and potentially for the full amount of damages in the event
    there was no breach of the statutory conditions.

[14]

I
    was advised that there has since been a further joint advance payment of
    $100,000 by RSA and Security National. However, as of this date, RSA has not
    decided whether to provide full coverage for the appellant. Its position is
    that the issue must be determined following this appeal.

[15]

This
    means that almost 10 years after this tragic accident, the plaintiff has not
    received full compensation for his injuries. Nor has the appellants liability
    insurer taken a position on coverage, in spite of its longstanding knowledge of
    the material facts and now with the benefit of the trial judges factual
    findings.

The trial on liability

[16]

The
    issue at trial was whether negligence on the part of the appellant and Nemes
    caused or contributed to the accident and, if so, to what extent.

[17]

The
    trial judge found that although the appellant and Nemes were not directly
    involved in the collision, they were responsible for it because they were
    engaged in a joint venture with Werkmann. During the ride, they incited and
    encouraged each other to drive in excess of the speed limit and break the rules
    of the road. The trial judge found the appellant and Nemes each 25% at fault
    and jointly and severally liable for all the plaintiffs damages.

[18]

The
    trial judge dismissed the plaintiffs claim against Security National, stating,
    [s]ince Mr. Mihali was insured at the time of the collision, the claim against
    the defendant Security National Insurance Company is dismissed.

[19]

It
    is this statement that gives rise to RSAs motion to intervene.

Post-judgment involvement of RSA

[20]

The
    trial judge released her reasons for judgment on February 10, 2014. Eight days
    later, coverage counsel for RSA wrote directly to the trial judge, and to
    plaintiffs counsel, counsel for the appellant and counsel for Security
    National. In the letter, RSA expressed concern about the trial judges comment
    about coverage and stated, the availability, or lack of thereof, of insurance
    coverage for Mr. Mihali, we submit, was also not an issue before the Court. The
    letter added that the issue of whether the RSA insurance would respond given
    the factual findings had not yet been determined.

[21]

The
    letter asked the trial judge to advise whether a motion to amend the order in
    relation to the contentious paragraph was to be brought under rule 59.06(1)
    and, if so, by whom.

[22]

The
    following day, the judges secretary wrote to counsel noting that it was
    inappropriate to correspond directly with a judge about a matter before the
    court and suggesting that counsel consult the rules and deal with any
    outstanding matters through the trial co-ordinator.

[23]

RSAs
    counsel did not contact the trial co-ordinator. No further action was taken by
    RSA until this motion was brought.

Further pursuit of the coverage issue in this court

[24]

On
    March 6, 2014, the appellants counsel (who remained appointed and paid by RSA)
    filed a notice of appeal. Eight grounds of appeal were identified, six of which
    went to the appellants liability. The two last grounds went to the issue of
    the appellants insurance coverage. They were as follows:

7. The opening remarks by counsel for the Appellant dealt with
    the potential for insurance coverage issues to arise depending on the finding
    of the Court. The Honourable Justice M. Lack indicated that she would not be
    addressing this issue at Trial and it would be dealt with subsequent to
    rendering of verdict

8. The Honourable Justice M. Lack erred by addressing the issue
    of coverage in her decision, indicating this at paragraph 33 of her decision.

[25]

Ground
    8 forms the basis for the motion to remove counsel for the appellant.

[26]

Counsel
    for the appellant also pursued the coverage issue in its factum filed on
    October 23, 2014, which stated:

Justice Lack in paragraph 33 of her decision stated Mr. Mihali
    was insured at the time of the collision, although the issue of coverage was
    not before the court in these proceedings. The Notice of Appeal at paragraph 8
    highlighted this issue. ODonnell, Robertson & Sanfillipo Barristers &
    Solicitors, separate coverage legal counsel for Royal & SunAlliance, will
    be promptly filing a motion to the Court of Appeal for further direction on
    this matter although the issue of coverage was not properly before the Court in
    these proceedings and RSA was not even a party. This is not an issue dealt with
    in this factum and it is Mr. Mihalis position that his coverage was not an
    issue properly before the Court in these proceedings.

[27]

As
    alluded to in the factum, a motion was subsequently brought by RSA to intervene
    in the appeal as an added party. In its factum on the motion, RSA states it
    has an interest in the subject matter of the proceeding and may be adversely
    affected by a judgment in the proceeding if RSA is bound by Justice Lacks
    finding relative to insurance coverage.

Discussion

The motion to remove counsel

[28]

The
    test on a motion to remove counsel is whether a fair minded and reasonably
    informed member of the public would conclude that the proper administration of
    justice compels the removal:
Matfoun v. Banitaba
, 2012 ONCA 786, at
    para. 4. In my view, removing counsel for the appellant is necessary to protect
    the integrity of the administration of justice and avoid the appearance of
    impropriety.

[29]

Mr.
    Kostyniuk acknowledges that it was inappropriate to include para. 8 in the appellants
    notice of appeal. I agree. He was appointed and paid by the insurer, but he
    owed a duty of loyalty and good faith to the appellant:
Ernst & Young
    Inc. v. Chartis Insurance Co. of Canada
, 2014 ONCA 78, 118 O.R. (3d) 740,

at para. 70;
Parlee v. Pembridge Insurance Co
., 2005 NBCA 49, 253
    D.L.R. (4th) 182, at para. 17.

[30]

It
    was not in the appellants interest to include the issue of his own insurance
    coverage as a ground of appeal. The inclusion of ground 8 gives rise to a clear
    conflict between the interests of the appellant on the one hand and the
    interests of his insurer on the other. The same is true of ground 7.

[31]

The
    inclusion of these grounds gives rise to the inescapable conclusion that
    defence counsel was acting on the instruction of the insurer to advance a
    ground of appeal contrary to the interests of the insured.

[32]

Although
    there is no evidence on this issue, I am prepared to accept Mr. Kostyniuks
    representation that the appellant would like him to continue to act. That,
    however, is not determinative. Where there is an appearance of impropriety the
    removal of counsel may still be necessary to protect the repute of the
    administration of justice:
MacDonald Estate v. Martin
, [1990] 3 S.C.R.
    1235; 781332
Ontario Inc. v. Mortgage Insurance Co. of Canada
(1991), 5
    O.R. (3d) 248 (Gen. Div.), at p. 254.

[33]

In
    the circumstances, it would bring the administration of justice into disrepute
    to permit Kostyniuk and Greenside to continue to act as counsel for the
    appellant. The motion to remove that firm is granted. The appellant shall be
    entitled to retain independent counsel of his own choice, with all reasonable
    legal fees and disbursements to be paid by RSA. To facilitate an expeditious
    change in representation, Mr. Kostyniuk is directed to assist the appellant in forthwith
    obtaining independent counsel. If the appellant is unable to retain independent
    counsel, he may bring a motion before this court for directions.

The motion to intervene

[34]

I
    dismiss the motion to intervene for two reasons.

[35]

First,
    RSA has provided no authority for an intervention in these circumstances. RSA
    does not seek to intervene as a friend of the court under rule 13.02 and it
    proposes to make no contribution on the liability issues engaged in the appeal
    proper. Rather, RSA seeks to intervene as an added party under rule 13.01(1)(b),
    on the basis that it may be adversely affected by a judgment in the proceeding.

[36]

RSAs
    real complaint is that it will be affected by the trial judges finding that the
    appellant had insurance coverage. However, RSA has not established how it will
    be adversely affected by a finding of fact in a proceeding to which it was not
    a party.  Although the judgment had still not been taken out when the parties
    appeared before me, I am not satisfied that RSA will be adversely affected by
    the judgment in the proceeding. Therefore, it has not met the test for
    intervention.

[37]

Second,
    even if the finding could adversely affect RSAs interests, RSA is partly to
    blame for the situation it finds itself in.

[38]

At
    the opening of trial, the trial judge attempted to clarify the scope of issues
    that would be addressed. At that time, there were no written minutes of
    settlement prepared and there was no written agreement about how the trial on
    liability would proceed. Nor was there any clear definition of the boundaries
    of the trial, having regard to the fact that there were coverage issues in the
    background and the appellant was being defended under a non-waiver agreement.

[39]

I
    have read the transcript of the ensuing discussion that occurred with counsel. The
    trial judge specifically raised the issue of coverage. When defence counsel,
    who was appointed and paid by RSA, responded that RSA had not made a decision
    on coverage, the trial judge raised the prospect of a conflict of interest. Counsel
    then made statements suggesting if the trial judge made no finding of racing or
    a speed test, the appellant would have coverage and the claim against Security
    National could be dismissed.

[40]

In
    her reasons for judgment, the trial judge made no finding of racing or a speed
    test and it is therefore understandable why she concluded the appellant had
    coverage from RSA.

[41]

Long
    before trial, RSA was aware of the factual circumstances giving rise to the
    claim and it had the 45 minute video of the three motorcycles on their
    high-speed ride. It appointed and paid for defence counsel and decided to delay
    a determination of coverage until after trial. Although RSA may not be bound by
    defence counsels statements regarding its coverage position, an issue I need not
    address, it would have been well aware of the importance of ensuring its
    coverage position was properly communicated and the scope of the trial was clearly
    defined.

[42]

It
    took no steps prior to the judgment being released to clarify these points and
    bears some responsibility for the resulting confusion. It could have added
    itself as a statutory third party pursuant to s. 258(14) of the
Insurance
    Act
, but chose not to.

[43]

Moreover,
    after the trial, RSA failed to pursue the invitation to contact the trial co-ordinator
    to arrange an appointment before the trial judge. Counsel submits this was not
    done because RSA had no standing and would not have been permitted to make
    submissions on the point. This was not a foregone conclusion. The judgment had
    not been taken out at that time, the judge was not
functus
, and if
    there was any issue concerning the courts order or any alleged error in the
    reasons, it should have been brought directly to the attention of the trial
    judge.

[44]

The
    letter from the judges secretary did not evidence a refusal to deal with the
    issue. It simply said the issue should be dealt with through the proper
    procedure.

[45]

RSA
    is not in a position to now complain on appeal about the confusion surrounding
    coverage.

Disposition

[46]

For
    these reasons, the motion to intervene is dismissed and the motion to remove
    counsel for the appellant is granted. Costs, if not resolved, may be addressed
    by brief written submissions.


