A liabilty insurer may not be entitled to be a party to an action commenced against an insured because the insurer’s participation could affect the insured’s entitlement to coverage under the policy

Insurer’s application to be added as a party in an action by former employees against former directors and officers of its insured company was dismissed.

Pope & Talbot Ltd. (Re), [2011] B.C.J. No. 793, April 28, 2011, British Columbia Supreme Court (In Bankruptcy and Insolvency), P.W. Walker J.

An insurance company sought to be added as a party in an action by former employees against former directors and officers of its bankrupt insured. The insurer also sought to defend itself and its insured company by the Vancouver law firm that had been acting as the insurer’s coverage counsel.

The former employees’ claims against the individual directors and officers of the bankrupt company were for wages and vacation pay owing. The insurer provided E&O coverage to directors and officers of the bankrupt company when there was a gap in coverage.

The insurer’s application was dismissed. The Court held that a liability insurer should not be permitted to participate in the defence of an underlying action as a party or through its coverage counsel because this could permit the insurer to defend the case so as to ultimately officiate coverage.

This case was digested by Cameron B. Elder and edited by David W. Pilley of Harper Grey LLP.

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