Insurers with a “Direct Interest” may Join the Party

1. Introduction

The BC Supreme Court’s recent decision in MacPherson v White, 2016 BCSC 1151 establishes that an insurer can successfully apply to be added as a party to a lawsuit which it has a direct interest in, even if the insurer has no contractual right or legislative standing to be added.

Specifically, the Court in MacPherson ruled that an insurer receive party status in a civil lawsuit commenced by its own insured against a third party defendant, where there was a likelihood that the defendant’s insurance and/or assets would not be sufficient to satisfy a potential judgement in favour of the insured.

This June 2016 ruling provides a useful procedural tool for insurers who may have an interest in joining litigation proceedings which they are not currently party to.

2. Facts

In MacPherson, Mr. Justice Pearlman allowed Northbridge Insurance’s application to be added as a defendant to a tort action in which Northbridge’s own insured (the plaintiff, MacPherson) brought a personal injury claim against a third party (the defendant, White) whose insurance limits and personal assets were insufficient to satisfy MacPherson’s quantum.

MacPherson had commenced a civil action against White for severe personal injury sustained by MacPherson when his vehicle was struck head-on by a vehicle operated by White.

Northbridge was the liability insurer for MacPherson, and received notice that MacPherson intended to make a claim under the Northbridge ‘SEF Family Protection End orsement Policy’ (which provided first party underinsured liability coverage), in the event that White’s insurance limits were insufficient to satisfy judgement in the underlying action.

Northbridge anticipated that White’s third-party insurance limits would not be sufficient and applied to court seeking to be added as a defendant to the proceeding.

Northbridge applied to be added under Rules 6-2(7)(b) and 6-2(7)(c) of the Supreme Court Civil Rules, B.C. Reg. 168/2009, so that it could participate as a defendant in the action, and would not have to re-litigate the matter after MacPherson obtained his judgement.

MacPherson opposed Northbridge’s application on the basis that the insurer had no standing, and no contractual or statutory right (under the SEF policy or legislation), to be added as a party to the lawsuit. Further, MacPherson argued that it would not be just or convenient to have Northbridge added as a party and that he would be unduly prejudiced if the application were allowed, because the trial would be protracted, he would have to contend with two separate co-defense counsel and, if unsuccessful at trial, MacPherson could incur two sets of costs.

Rule 6-2(7) allows BC courts, on the application of any person, to add parties at any stage in a proceeding under select circumstances:

“(7) At any stage of a proceeding, the court, on application by any person, may … (b) order that a person be added or substituted as a party if

(i) that person ought to have been joined as a party, or

(ii) that person’s participation in the proceeding is necessary to ensure that all matters in the proceeding may be effectually adjudicated on, and

(c) order that a person be added as a party if there may exist, between the person and any party to the proceeding, a question or issue relating to or connected with

(i) any relief claimed in the proceeding, or

(ii) the subject matter of the proceeding

that, in the opinion of the court, it would be just and convenience to determine as between the person and that party.

The primary issue before the Court in MacPherson was whether it should exercise its discretion under Rules 6-2(7)(b) or (c) to add Northbridge as a defendant to the action.

3. Judgement

Justice Pearlman ruled that 6-2(7)(b) was narrow in scope, only allowing parties to be added when their inclusion was necessary for the proper adjudication of the proceeding. The Court found that Northbridge’s participation was not necessary to resolve the issues between MacPherson and White, and found that Northbridge was not a party that ought to have been added by MacPherson as plaintiff in order to make out the tort claim against White. Northbridge could not be added under 6-2(7)(b).

However, the Court held that Northbridge could be added as a defendant under Rule 6-2(7)(c), with certain conditions attached.

While MacPherson argued that there was no question or issue to be determined between himself and the insurer until after MacPherson had obtained judgement against White, the Court disagreed.

Justice Pearlman found that material issues did exist between Northbridge and MacPherson (particularly, the issue of the relief claimed by MacPherson in the underlying action) and that Northbridge had a direct interest in the outcome of the litigation and should be added as a party.

[53]        I am … satisfied that a real issue exists between Northbridge and the plaintiff…. the plaintiff has given notice of its intention to claim against the applicant under the SEF policy, although the plaintiff will not be able to bring an action to enforce that claim until it has obtained an unsatisfied judgement against the defendant. In my view, Northbridge has a direct interest in the determination of its obligations to the plaintiff under the SE[F] policy. That issue or question is connected with the relief claimed and the issue of liability and quantum raised between the plaintiff and the defendant. Northbridge has met the first branch of the test under Rule 6-2(7)(c) …

[59]        … I find it is just and convenient to add Northbridge as a defendant in order to ensure that all issues of liability and damages, as between the plaintiff and the defendant White, and as between the applicant and the plaintiff, may be determined in this action.

The Court allowed Northbridge’s application to be added as a defendant to the action under 6-2(7)(c) on the condition that Northbridge would not examine the plaintiff at discovery, and would not advance any defense of the plaintiff’s claim that could not be set up by an insurer under BC’s Insurance (Vehicle) Act.

The Court weighed the balance of convenience between the parties, and found that Northbridge should be added as a defendant in order to avoid a multiplicity of proceedings and to ensure the effective adjudication of all matters in dispute without undue delay, inconvenience and the additional expense of further litigation.

The Court did consider potential prejudice to MacPherson that could result from adding Northbridge as a defendant and in that regard ordered that any IME of MacPherson on behalf of Northbridge would be conducted by a certain date, and at a time and place convenient to the plaintiff and in consultation with the other defendant.

The Court also acknowledged that Northbridge’s participation as a defendant may extend the time required for trial. However, it ruled that the deleterious effects of adding the insurer as a party were outweighed by the overall interests of justice which favoured Northbridge’s participation.

4. Significance to the Industry

This judgement provides a useful procedural tool for insurers that have a direct interest in the outcome of a lawsuit to which their insured is a party but they are not. The ruling in MacPherson stands as good precedent for insurers who may wish to apply to be added as parties to a lawsuit, in which they have a direct interest in the outcome.

The reasoning applied by Justice Pearlman in this case not only applies to instances where a liability insurer may become obligated to pay out its insured as a result of an underinsured opposing litigant. This case can be applied to any proceeding where an insurer has a direct interest in the outcome of the litigation but is not a party to the action. For example, one insurer may have an interest in a separate proceeding involving a second insurer and mutual insureds relating to overlapping coverage.

For insurers seeking to be added as a party to litigation, it is important to bear in mind that a determination under Rule 6-2(7) is entirely in the discretion of the court and, therefore, it is essential to establish that, on a balance of convenience and in the overall interests of justice, the applicant should be added as a party to the proceeding.