Insurers working with law firms in settling claims disputes should be wary of whom their legal partners are hiring.
The Ontario Court of Appeal in February disqualified a law firm from representing one of its established insurer clients in an insurance dispute, citing a possible conflict of interest.
The law firm, Lloyd Burns McInnis LLP, was barred from representing defendant AIG in a dispute with the provincial government after it was found that one of its lawyers had previously worked for the plaintiff in the case Ontario v Chartis Insurance Company of Canada.
Lawyer Michael Foulds previously worked for Theall Group LLP and was originally representing Ontario in the dispute. He later moved to Lloyd Burns McInnis and had supposedly worked closely with Douglas McInnis, who was representing the defendant insurer in the dispute. Purportedly, Foulds spent “50% to 60%” of his time working with counsel to the defendant insurer, with the rest of his work for the defendant on other unrelated issues.
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Not long after Foulds’ induction into Lloyd Burns McInnis, the law firm had put up an ethical screen with several safeguards in place to prove that Foulds was not involved in the coverage action. The insurer the firm represented also filed a motion asking for a declaration that the screen was enough to prevent disclosure.
Although the law firm had followed all Law Society of Upper Canada’s guidelines concerning conflicts of interest, the Court of Appeal ultimately ruled that confidential information could be disclosed through the arrangement.
“…while the ethical screen was compliant with the Law Society of Upper Canada guidelines, it did not address the spirit of those guidelines,” a new report by the International Law Office (ILO) looking back at the previous case said.
“In most cases where a lawyer moves firms, the relationship between a former plaintiff's firm's lawyer and the defendant's firm's lawyer is nowhere near that significant,” the ILO said.
“In this respect, the decision of the Ontario Court of Appeal, while chilling at first blush, is not apt to have an extensive impact on lawyers transferring between law firms and the clients involved. However, the decision does give law firms — particularly those with longstanding relationships with clients — reason to pause before recruiting lawyers who have previously acted on the other side of a case.”
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