Defence & Indemnity - April 2016: I. INSURANCE ISSUES

by Field Law
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General information of claims practices and company personnel obtained by an insurer’s in-house counsel is not the type of confidential information that will disqualify the lawyer from acting as Plaintiff’s counsel against the insurer in a bad faith claim.

McMyn v. Manufacturers Life Insurance Co., 2015 BCSC 2205, per E.M. Meyers J. [4180]

I. FACTS AND ISSUES

This application was brought by the defendant insurer in an attempt to disqualify the plaintiff’s lawyer from acting in the main action. In the underlying action giving rise to this decision, the plaintiff sought coverage for benefits under a disability insurance policy and damages for bad faith.

a) The Background

The plaintiff’s lawyer, Fishman worked for the insurer as in-house counsel from 2002 until 2012. During Fishman’s employment with the insurer, he defended actions brought against the insurer, including actions for long-term disability. During Fishman’s employment with the insurer, he often worked closely with a particular claims consultant, Guy Lize. The particular claim giving rise to this action was brought by Ms. McMyn approximately 18 months after Fishman had left his employment with the insurer. The claims consultant on Ms. McMyn’s case was Guy Lize. 

b) The Positions

a. The insurer’s position

Although the insurer acknowledged that Fishman had left the company before Ms. McMyn’s claim was received and that therefore he did not have confidential information relating specifically to her file, in the insurer’s opinion, Fishman was still disqualified from acting in this case because he possessed “knowledge of [the insurer’s] business practices, litigation strategies, insurance policies and certain claims personnel” (para 2). To support its position, the insurer presented evidence from Guy Lize, who testified that he and Fishman discussed the performance of case managers and appeal specialists in depth and that he shared strategic information with Fishman, such as which case managers were stronger, which would make better witnesses, and which would be uncomfortable if cross-examined. According to the insurer, this inside knowledge of the “personalities and practices of the company” should disqualify him from acting (para 16).

b. Fishman’s position

Fishman denied that he was ever given any secret strategy information regarding the insurer’s claims process and asserted that he had no special knowledge of the people dealing with the claims or the insurer’s general claims handling practice. He emphasized that all litigation lawyers were intentionally separated from the initial file handling units and case managers in order to avoid the risk that litigation lawyers would be forced to act as witnesses if the claim got to court. While he acknowledged working with Guy Lize, he minimized the type of discussions and interactions they had, arguing that he “simply provided legal advice” and helped prepare for questioning (para 9). 

c. The Galley action

Both parties brought up the fact that Fishman was acting against the insurer in an almost identical action, known as the Galley action. The insurer initially objected to Fishman’s representation of the plaintiff in the Galley action, but by the time this application came before the Court, the insurer had revised its position and was happy to let Fishman continue to act. Fishman raised this issue to suggest the insurer was being inconsistent in its approach. The insurer raised the issue to attempt to prove that it was not being unreasonable and was not adopting a blanket policy against Fishman. The insurer claimed that the difference between the Galley action and the McMyn action was that the Galley file had been primarily dealt with by staff in Toronto, most of whom Fishman had not personally dealt with (para 11-12).

Issues:

  1. Is knowledge obtained by in-house counsel of a company’s general strategies and approach sufficient to create a category of conflict?
  2. Is Fishman in possession of confidential information which would disqualify him from acting due to a conflict of interest?

II. HELD: For the Plaintiff; Fishman could continue to represent the Plaintiff.

1. There are two standard categories of lawyer conflict (para 14). This case does not fall into either of the two categories the Court usually deals with:

(a) It is not a case where the lawyer is representing two clients who are adverse in interest to one another. It is not a case where the “bright line” test is met. The bright line was defined in R. v. Neil, 2002 SCC 70 (S.C.C.) as:

i. the general rule that a lawyer may not represent one client whose interests are directly adverse to the immediate interests of another current client - even if the two mandates are unrelated - unless both clients consent after receiving full disclosure (and preferably independent legal advice), and the lawyer reasonably believes that he or she is able to represent each client without adversely affecting the other.

(b) It is not a case where a lawyer has moved to a new firm that acts against a former client of the first firm.

2. The issue in finding a conflict is whether the lawyer has acquired confidential information and whether that information will be used in carrying out the file. The approach the Court followed in analyzing this issue was from ATCO Gas & Pipelines Ltd. v. Sheard, 2003 ABCA 61 (Alta CA) (para 19):

(a) The Court will first determine if the two retainers are sufficiently related such that it would be reasonable to conclude the lawyer had obtained confidential information in the first action that would be relevant in the second.

(b) If yes, there is a presumption that the lawyer has confidential information. The lawyer must then prove that the confidential information was not relevant.

3. The Court should take a cautious approach when determining if there is a conflict in each case. The Court should only “interfere in ‘clear cases’” (para 37).

4. The fact that the position held was one of in-house lawyer is relevant to the analysis (para 23).

(a) Relying on MacDonald Estate v. Martin, [1990] 3 S.C.R. 1235 (S.C.C.), the Court noted that there are competing interests at stake that must be considered when determining whether an in-house lawyer is acting in a conflict of interest (para 23). These competing interests include:

(i) The integrity of the legal profession;

(ii) The ability of a client to choose counsel; and

(iii) The mobility of lawyers.

5. In proving that a conflict exists, it is not enough to show merely that a former employee has knowledge of the corporation, its general practices, its litigation philosophy etc.

(a) As stated by the Court in Canadian Pacific Railway v. Aikins, MacAulay & Thorvaldson (1998), 157 D.L.R. (4th) 473 (Man. C.A.), “[t]here is a distinction between possessing information that is relevant to the matter at issue and having an understanding of the corporate philosophy of  a previous employer” (para 27).

(b) Rather, according to Wallace v. Canadian Pacific Railway, 2013 SCC 39 (S.C.C.), “[t]he information must be capable of being used against the client in some tangible manner” (para 27).

6. The type of information obtained by Fishman in his role as in-house counsel with the insurer was not the type of confidential information that will disqualify him from acting.

(a) The kind of general knowledge Fishman has of claims practices and company personnel is not enough to “raise the rebuttable presumption” that he has confidential information (para 40-41).

(b) Whether Ms. McMyn’s illness/injury fits within the terms of the policy will depend on the medical evidence available and the wording of the policy. There is no possibility for any kind of secret information affecting this (para 32).

(c) Whether the allegation of bad faith is true or not will depend on how the claim was treated. Fishman can have no specific information as to how this particular claim was treated because he was not an employee at the time the claim was processed (para 33).

(d) Fishman’s knowledge of how particular employees perform under cross examination etc. gives him an advantage, but the information could be gleaned by any other plaintiff lawyer working often against the same insurer (para 34-35).

(e) The insurer cannot use the fact that Guy Lize is on this file as a barrier to Fishman acting. It had the power to appoint a different claims consultant if it chose (para 39).

COMMENTARY: With respect, the logic of this decision is questionable. While a knowledge of the opposing client’s personnel and practices is not generally grounds for a conflict of interest, insurance bad faith claims are a different breed of cat from other litigation. Where the plaintiff insured seeks to prove that the defendant insurer acted in a high-handed, malicious fashion, an intimate knowledge of the insurer’s people and protocols should be grounds for disqualification on the basis of conflict of interest.

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