British Columbia Insurance Blog : Canada Insurance Lawyer & Attorney : Michael Thomas of Harper Grey Law Firm : British Columbia, Vancouver

This appeal raised the question of whether the subrogation right of an insurer under the Standard Mortgage Clause in a home insurance policy may be exercised simply on the insurer paying the loss award to the mortgagee without the insurer establishing that it has no liability to the insured.

The Respondent Insurer had insured the home of the Appellant Insureds. The Insureds had a mortgage with the Bank of Montreal. The Insureds submitted a claim to the Insurer seeking indemnity for repairs to the house, damage to its contents, and additional living expenses following a fire. The Insurer denied their claim on two grounds:

1)         the Insureds had voided the policy by failing to notify the Insurer of a material change in the risk, namely, a change in the heating system of the premises; and

2)         the Insureds had made wilfully false statements with respect to their contents claim and their claim for alternative living expenses, thus vitiating their right to recover.

The Bank of Montreal submitted a Proof of Loss seeking payment of the mortgage under the Standard Mortgage Clause and the Insurer paid that claim. The Insurer then, relying on its right of subrogation under the Standard Mortgage Clause, claimed the sum it had paid to the Bank of Montreal from the Insureds. The motions judge granted summary judgment against the Insureds in the amount paid by the Insurer to the Bank of Montreal. The Insureds appealed seeking an Order dismissing the Insurer's Motion for Summary Judgment directing that the two Actions be tried together (the Insureds had commenced a separate proceeding against the Insurer seeking a Declaration that the policy was valid and enforceable).

The Court of Appeal held that there are two preconditions to the Insurers' entitlement to subrogation under the Standard Mortgage Clause. First, the Insurer must make payment of the loss award, or part of it, to the mortgagee. Second, the Insurer must establish a claim that it has no liability to the mortgagor insured. The Court found that this conclusion flows from the construction of the Standard Mortgage Clause and is not dependent on the specific facts of the case.

This case was originally summarized by Cameron B. Elder and originally edited by David W. Pilley.

Kerr and his wife applied jointly for Royal Bank Visa cards. The cards were issued to them under a single cardholder agreement. The arrangement with the Royal Bank entitled the couple to medical and travel insurance. Kerr's wife was injured in a motor vehicle accident in Florida. She was a passenger in a car that was driven by Kerr. Her medical expenses amounted to $120,372 and were covered under the travel insurance policy issued by RBC Travel under the arrangement relating to the Royal Bank Visa cards obtained by Kerr and his wife. A subrogated Action was brought in the name of Kerr's wife by RBC Travel against Kerr to recover the medical expenses. Kerr applied to the Court to dispute RBC Travel's right to bring the subrogated claim.

The Court allowed Kerr's Application holding that RBC Travel was not subrogated to the wife's claim against Kerr and did not have a right to prosecute this Action. The Court held that an insurer's right of subrogation was an equitable right that derived form the suretyship that was created by the policy. The policy applied the law of Ontario, which negated the right of subrogation. In the alternative, the Court held that Kerr was also insured under the same policy and there could be no equitable subrogation as against an insured under the same policy.

This case was originally summarized by Jonathan D. Meadows and originally edited by David W. Pilley.

Five individuals were injured when the vehicle driven by one of them was in collision with a vehicleowned by the City of Edmonton (“the City”), and operated by one of its employees. The employee was negligent. The costs of the health services provided to the five injured persons were paid by the Province of Alberta pursuant to the Alberta Health Care Insurance Plan.

Section 62(1) of the Hospitals Act, R.S.A. 2000, c. H-12, gives the Crown a right to recover health care costs from a wrongdoer whose wrong caused the injuries for which the health care was required. Section 62(3) of the Hospitals Act creates an exception that the Crown cannot recover where the wrongdoer caused the personal injury in the use or operation of an automobile, and if the wrongdoer was insured under a motor vehicle liability policy.

Pursuant to the recovery scheme set out in ss. 82-93 of the Hospitals Act, the Minister is to estimate the total cost of health services provided to persons in motor vehicle accidents in a year. It requires motor vehicle insurers to contribute proportionately to that cost according to the premiums that they received for third party liability insurance in a given year. This estimate is referred to as the “aggregate assessment”. The aggregate assessment represents the total cost of treating persons injured in motor vehicle accidents, including the cost of treating those injured by insured drivers. Motor vehicle insurers are obliged to report the amount of premiums they collect in a given year for third party liability insurance to the Minister of Finance.

The City argued that they fell within the exception in s. 62(3). It is partly self-insured and had excess liability insurance pursuant to a comprehensive liability policy issued by the Commonwealth Insurance Company. Commonwealth paid a majority of the amount contributed on behalf of the City of Edmonton to resolve the claims made by persons injured in the accident.

The City and Commonwealth Insurance admitted that they did not report any third party liability automobile insurance premiums to Alberta Finance in the year that the accident occurred, nor did they contribute to the aggregate assessment. The City submitted that they did not have to contribute to the aggregate assessment calculated in the Hospitals Act in order to rely on the exception in s. 62(3).

The Province cited Rizzo & Rizzo Shoes Ltd., [1998] 1 S.C.R. 27, and argued that the Hospitals Act should be given a "large and liberal" interpretation. They submitted that the provisions be construed as creating an exemption from claim-by-claim recovery only where the wrongdoer's insurer has contributed to the aggregate assessment.

 The Court determined that the Commonwealth policy was a "motor vehicle liability policy”. It fit the definition of the term in both the Hospitals Act and the Insurance Act. The Court held that the Crown did not have the right to recover the costs for health care services from the City. The principles of statutory interpretation do not require or justify reading s. 62(3) as creating an exemption only where the wrongdoer's insurer has contributed to the aggregate assessment.

This case was originally summarized by Kim Yee and originally edited by David Pilley.

Following a loss the Plaintiff brought an action against its insurers who had denied coverage. Subsequently, one of the Defendant insurers, Global, indemnified the Plaintiff. Global then sought contribution from the remaining defendant insurers. The Plaintiff sought to amend the Statement of Claim to assert that Global was advancing the Plaintiff’s claim on a subrogated basis. The Defendants sought a summary dismissal and took the position that because the Plaintiff had been fully indemnified, the action was spent.  In their view, to permit the amendments would be to allow the Plaintiffs to reinvent the Statement of Claim.  The Defendants were also of the view that the dispute was now solely between the insurers and could not be continued on a subrogated basis. It was argued that a previous application brought by the Plaintiff to amend the pleadings foreclosed them from pursuing a subrogated claim because of the doctrine of issue estoppel.

The application to amend the Statement of Claim was granted and the application for summary dismissal was denied. The Court held that the previous application to amend the pleadings centred around whether such amendments were appropriate because of a limitations issue. The Court’s discussion about the subrogated nature of the claim in that application was collateral to its decision. The circumstances of this application did not meet the elements of res judicata enunciated by the Supreme Court of Canada in R. v. Mahalingan, 2008 SCC 63.

The Court also held that the common law does not necessarily preclude a subrogated claim when the insured has been fully indemnified. The amendments requested are necessary to determine the issues in dispute and can be permitted without injustice to the other side. In obiter the Court held that a Plaintiff cannot be over-compensated; anything that is realized over and above what the Plaintiff is entitled to must be held in trust for global.

This case was originally summarized by kyee@harpergrey.com and originally edited by dpilley@harpergrey.com

The plaintiff sustained injuries in a helicopter crash.  He sued the helicopter company and another person and negotiated a settlement to his claim for damages.  The plaintiff requested Manitoba Health’s consent to the settlement and offered Manitoba Health approximately $55,000.00 to satisfy its subrogated claim for accident-related hospital and medical expenses which had been paid on behalf of the plaintiff.  Manitoba Health refused the settlement and opted instead to pursue the helicopter company in a separate action, which was ultimately settled for $70,000.00.  As a result, the plaintiff sued Manitoba Health for breach of duty.  The primary issue was whether Manitoba Health owed the plaintiff a duty of care and if so, the precise nature of the duty.

The court reviewed whether Manitoba Health owed the plaintiff a contractual or fiduciary duty of care under the Health Insurance Services Act, C.C.S.M. c. H 35, and concluded that it did not.  The court further determined that while Manitoba Health owed the plaintiff a private law duty of care to comply with statutory obligations and to deal with the plaintiff’s claim fairly, expeditiously and in accordance with established guidelines and policies, Manitoba Health had discharged that duty.  Finally, the court considered whether the plaintiff had suffered undue hardship as a result of Manitoba Health’s conduct, and concluded that he had not.  As a result, the plaintiff’s claim was dismissed.

This case was originally summarized by jhavelaar@harpergrey.com and originally edited by dpilley@harpergrey.com

The respondent tenant admitted to negligence in the handling and storage of flammable chemicals which caused a fire and resulting damage to the appellant landlord's premises.  The landlord's property insurer paid the landlord for its insured losses and commenced a subrogated action in the name of the landlord (and two other insured tenants) against the tenant to recover the insured losses. 

The lease required the tenant to pay a proportionate share of "all premiums with respect to insurance (including expenses relating to replacement value appraisal or evaluation and estimated deductibles) to be placed by the landlord for fire . . . and a replacement cost endorsement to the full insurable value of the building and improvements and equipment thereon . . . ".  The landlord obtained such insurance and the tenant paid his proportionate share of the premium. 

At trial the court held that the landlord's subrogated claim could not proceed on the basis that the agreement that the tenant would pay its proportionate share of the property insurance premiums implied that the landlord had assumed the risk of loss.  The tenant, the court held, was entitled to the benefit of payments it was obliged to make under the lease pertaining to fire insurance. 

On appeal the court held that the relevant inquiry was into who bore the risk of loss by fire.  The court held that the lease allocates risk as between the landlord and the tenant.  The Supreme Court of Canada has held that where the tenant pays a portion of the premium of the landlord's insurance, the landlord bears the risk of loss of fire from the tenant's negligence and the landlord has to look to its insurer for recovery of the loss by fire. 

The issue in this case was that the lease also required the tenant to obtain a general liability policy which, the tenant argued, protected the landlord from any third party claims for damage for bodily injury or property damage sustained by such third parties but nothing more.  In reviewing the lease, the court found that it clearly obligated the landlord to purchase fire insurance.  The court found that the tenant's obligation to acquire liability insurance was compatible with the landlord's express and implied covenant to acquire property insurance and did not shift liability for damage by fire from the landlord to the tenant.  In the result the trial judge's conclusion that the subrogated claim could not proceed against the landlord was upheld. 

This case was originally summarized by celder@harpergrey.com  and originally edited by dpilley@harpergrey.com

The Defendants were involved in building an addition to the church building owned by the Plaintiff society. The Defendants were alleged to have caused a fire during the course of the building project which burned the church down. The Plaintiff society settled with its insurer for indemnity for the damage caused by the fire, and the insurer commenced a subrogated action in the name of the Plaintiff society against the Defendants. The Defendants then applied for a declaration that they were insureds under the contract of insurance between the Plaintiff society and its insurers, pursuant to the Commercial Policy and Builders Rider, and thus entitled to indemnification against subrogation.

The Court held that there were three stages to the Defendants' application: the first was the determination of whether the insurers bore a duty to defend the Defendant; the second and third were the indemnification and subrogation issues, the determination of which the Court held would require a trial. The duty to defend, however, could be determined on the application. The Court found that the duty to defend and to indemnify against the costs of an action does not depend upon the judgment obtained in the action. Accordingly, the duty to defend is much broader than the duty to indemnify against a judgment. The Court held that there was a reasonable probability that the Defendants would be found to be insureds under the Plaintiff society's insurance policy, and therefore the insurer was compelled to provide the Defendants with a defence.

This was an appeal by a Third Party from a motion judge's decision. The Plaintiff operated a Pharmacy in premises leased from the Defendants. The lease agreement provided that all of the lessee's policies of insurance were to contain a waiver of subrogation for the benefit of the lessor. The Plaintiff sustained water damage to its inventory and office equipment when water escaped from one of the pipes in the leased premises' sprinkler system.

The Plaintiff filed with its insurer, which paid out in full settlement of the claims. The insurer then commenced a subrogated action in the name of the Plaintiff against the Defendants. The Defendants raised the lease provision as a complete defence to the claim and issued a third party notice to the law firm that had prepared the lease agreement, claiming indemnity in the event that the lease failed to protect the Defendants from the claims advanced in the underlying action. The Defendants then applied, under Rule 23 of the New Brunswick Rules of Court for a judicial determination as to whether, by virtue of the lease agreement, the Plaintiff could pursue its claims. The motion judge held that the lease agreement did not preclude the subrogated action. The Third Party law firm appealed.

In interpreting the lease clause purportedly barring the subrogated action, the Court was mindful of the fact that the clause was taken verbatim from a New Brunswick statute, which is enacted in both English and French. As a result, the Court had to take a nuanced approach in interpreting the contract, as some of the traditional principles of contractual interpretation, such as the contra preferentum rule, could not apply. The Court found that the motion judge had erred in finding that the lease agreement did not preclude the subrogated action. Rather, the Court held that the lease operated to “effectuate a loss-bearing scheme that bars the underlying subrogated action in nuisance and negligence.”

The Plaintiff, a Brampton, Ontario resident, was an owner/operator for an American trucking company located in Texas. As is common with trucks that travel through various jurisdictions, his tractor was insured by double policies of insurance. Clarendon National Insurance provided the physical damage coverage and American Home Assurance provided the liability coverage.

The Plaintiff was involved in a collision on Highway 401 in Toronto. His tractor suffered physical damage and Clarendon, subject to the policy’s deductible, paid for that damage. The Plaintiff and Clarendon commenced an action in Ontario, alleging that the collision was caused by the Defendant’s negligence and sought reimbursement of the amounts paid to repair the tractor, together with interest and costs. The Defendants filed a Statement of Defence claiming that the Plaintiff’s action was barred by s. 263 of the Insurance Act, which replaced the tort system that resolved automobile damage claims prior to its enactment. In the new statutory scheme, insureds can no longer sue the driver whose negligence has caused damage to their vehicles. Rather, their own liability Insurers pay for the damage to the extent that they were not at fault under the third-party liability section of their motor vehicle liability policies. Insureds can recover the at-fault portion of their damage by purchasing collision coverage. Insurers have no right of subrogation for payments to their own insureds but do not have to pay the subrogated claims previously brought by other insurers in the tort system. The net result is that the statutory regime eliminates the transaction costs that were inherent in the tort system.

Two questions arose in this appeal. First, is the Plaintiff entitled to maintain a tort action in negligence against the individual tortfeasor? Second, does the Insurer have a subrogated claim against the individual tortfeasor? In this case, the Plaintiff’s liability Insurer was statutorily required to provide coverage for his property damage. The three criteria of s. 263(1) were met: the Plaintiff’s vehicle suffered damage from an accident in Ontario, his vehicle was insured by an Insurer that had filed an undertaking with the Superintendent, and another vehicle involved in the accident was insured by a domestic Insurer licensed to undertake automobile insurance in Ontario. Consequently, the Plaintiff was entitled to recover for the physical damage to his tractor from his liability Insurer. Because the statutory regime applied, the Plaintiff’s ability to sue in tort was restricted by the provisions of s. 263. The Plaintiff could not maintain a tort action in negligence against the Defendant. The only exception to this general rule permits a right of action where an action is brought “under an agreement, other than a contract of automobile insurance”. It permits an action in contract and does not permit an action in tort. This exception will apply, for example, where a provision of a lease agreement requires that the lessee return the vehicle to the lessor in an undamaged state. Where the lessee failed to do so, the lessor can bring an action against the lessee in contract.

An Insurer’s right to bring a subrogated action is dependent on the existence of a cause of action by the Insured. This is so both under the common law and pursuant to statute. The Court found that s. 263 does not disturb this common law and statutory principle.

The insured, a young boy on his bicycle was injured when a vehicle driven and owned by non-Manitoba residents struck him. The Manitoba Public Insurance Corp (“MPIC”) paid the insured compensation pursuant to the amounts prescribed in the Manitoba Public Insurance Act. MPIC wanted to recover the amounts paid and the future amounts payable from the non-resident defendants without the restraints of tort principles like remoteness, foreseeablity and causation. The non-resident defendants argued that MPIC could not recover more than it could in a tort action, since the recovery was to be based on the principle of subrogation.

The Appellate Court accepted the argument of the non-resident defendants and found that since the governing provision used the term “subrogated”, the Legislature must have intended that the Insurer could acquire the rights of the injured party, but no more. The Appellate Court held that the right of MPIC to recover from the non-resident defendants was subject to the usual common law principles of remoteness, foreseeability, and causation.