The liability insurer retains control over the legal defence, even if it had initially denied coverage before being forced by the Court to defend the insured. That's the conclusion Quebec’s Superior Court came to in a recent ruling.
In the case at hand, the parties had appeared before the Court of Appeal over the insurer's duty to defend. The insurer had alleged that the insured, a contractor who had done some welding and cutting on the rooftop of a school, had breached a condition of the insurance policy relating to such work. The Court held that the insurer (Northbridge) had a duty to defend its insured (CII).
After the ruling, CII took the position that it should select the attorney in charge of the defence of the claim, arguing that because of the previous dispute with Northbridge, the insurer was in conflict. It must be emphasized that the lawsuit targeted both parties and so their joint liability was at stake. As a result, the parties went to court once again to adjudicate the issue. Specifically, CII argued that Northbridge was not fit to choose CII's attorney because it was alleging in its own written defence that CII breached a condition of the policy; that being the case, the argument went, Northbridge could not be held liable towards the plaintiffs.
The Superior Court held that there is no conflict of interests. Northbridge was careful to name a different attorney for CII’s defence than the one handling the insurance coverage dispute. Moreover, the Court found that the re-assessment of coverage by Northbridge does not amount to wrongful conduct. The breach allegation made in Northbridge's defence only puts the insurance policy at issue and not CII's liability. In other words, the determination of coverage is not necessarily conclusive to determining the insured's liability towards the plaintiffs. As a result, the Court says Northbridge's position is not contrary to the insured's' interests.
What’s more, in a case like this, it is in the insurer's interest that the attorney that it mandated properly defend the insured: "if the insurer is wrong on the coverage issue, its best defence to prevent an award against it is to properly represent the interests of its insured." 
The takeaway here is that it will take a lot for an insured to make the case that it should have the right to select the lawyer in charge of its defence. Indeed, it is not enough to apprehend a conflict of interests: the insurer must show that "circumstances are such that it may not put its trust in the grounds of defence to be raised by its insurer."