Delay In Coverage Decision Attracts Criticism From Ontario Court Of Appeal

Mallory v. Werkman Estate 2015 ONCA 71, February 2, 2015

On February 6, 2005, three motorcycle drivers were racing. One of the drivers, Mr. Werkman, lost control and struck a car seriously injuring the driver, Mr. Mallory. Mr. Werkman died. Mr. Mallory, sued Mr. Werkman's Estate, the other two motorcycle drivers (Mr. Nemes and Mr. Mihali), as well as his own insurer (Security National) for underinsured/uninsured coverage.

Mr. Mihali's insurer, Royal and Sun Alliance ("RSA"), appointed defence counsel, but reserved their right to limit or dispute coverage. While RSA appointed separate coverage counsel, RSA was not added as a statutory third party to the proceeding.

Mr. Mallory reached a settlement with Mr. Mihali, RSA, and Security National. Under the terms of the settlement a trial was to be conducted to determine if the Mr. Mihali was liable to Mr. Mallory. If Mr. Mihali was not liable, then Security National was to pay the settlement monies. If Mr. Mihali was liable, RSA would pay at least $200,000 of the settlement amount, and perhaps the full amount if Mr. Mihali was not in breach of the conditions of his insurance policy.

In February 2014 the trial judge found that Mr. Mihali was, "engaged in a joint venture" with Mr. Werkman in which they encouraged each other to drive at excessive speeds etc. Mr. Mihali was found to bear 25% liability. The trial judge dismissed the action as against Security National on the basis that Mr. Mihali was insured at the time of the accident.

Following the trial decision RSA's coverage counsel wrote to the trial judge and counsel and expressed concern about the trial judge's findings regarding coverage. Coverage counsel was advised to...