In March, the Alberta Court of King’s Bench issued a significant decision on conflict‑of‑interest risks in subrogation matters. The Court reversed the application judge’s decision and removed the insurer’s chosen counsel from all subrogated actions after finding that counsel’s dual role—pursuing subrogated claims in the insured’s name while defending the insurer against the insured—created a real and substantial risk of prejudice. This ruling underscores the need for insurers to structure subrogation and defence retainers carefully to avoid compromising recovery efforts.
Issue: Whether counsel acting for an insurer on subrogated claims should be removed as counsel due to defending the insurer against the insured in related coverage and negligence actions
Case Summary
Northbridge retained the same lawyer (Haluschak) to:
- Pursue subrogated claims in Sniper’s name for two roof collapses; and
- Defend Northbridge against Sniper’s coverage and negligence claims arising from the same losses.
Sniper sought an order disqualifying the lawyer from acting on either the subrogated claim or the defence claim.
The Applications Judge held that there was no retainer or solicitor-client relationship between Sniper and Haluschak. He noted that while it might be awkward for Sniper to work with Haluschak, there was no evidence of confidential information being compromised. He emphasized that the subrogated claim is brought by Northbridge in the name of Sniper, making Sniper a “nominal” plaintiff and concluded there was no basis to remove Haluschak as counsel for Northbridge in the defense against Sniper’s claim. The Court disagreed with the Application Judge’s decision and ordered the disqualification of the lawyer.
Although the Court found no formal solicitor‑client relationship between subrogation counsel and the insured, it held that the functional relationship created legal and ethical responsibilities toward the insured. As a result, counsel’s dual role created:
- A substantial risk of misuse of confidential information because counsel would have “unrestricted access to Sniper’s records” and unique insight into its explanations and vulnerabilities.
- A substantial risk of impaired representation, since counsel would be both preparing Sniper as a witness in subrogation and cross‑examining Sniper in the coverage action.
- A readily apparent risk of unfairness and oppression toward Sniper that would undermine public confidence in the justice system.
The Court stressed that Sniper’s compulsory involvement as a nominal plaintiff cannot justify exposing it to prejudice in related litigation. The Court concluded that counsel cannot fulfill obligations to both parties simultaneously and ordered disqualification.
Key-takeaways
Subrogation and coverage roles should be kept separate, and the same counsel should not be assigned to both pursue subrogation in the insured’s name and defend the insurer against the insured on related coverage issues.
Lastly, insurers must avoid asking subrogation counsel to perform tasks that could align them against the insured’s independent interests, including:
- advising on the interpretation or enforceability of a subrogation clause
- assessing the merits of the insured’s uninsured losses
- evaluating the insured’s coverage position
- participating in document production or witness preparation that exposes the insured’s confidential information
The information and comments herein are for the general information of the reader and are not intended as advice or opinion to be relied upon in relation to any particular circumstances. For particular application of the law to specific situations, the reader should seek professional advice.
