Defence + Indemnity: April 2018 - I. Insurance Issues A.

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I. INSURANCE ISSUES

A. An Insured has no obligation to include an Insurer’s subrogated claim in an action to recover losses in excess of its insurance coverage.

Tree-Techol Tree Technology and Research Co. v Via Rail Canada Inc., 2017 ONCA 876 [4266]; aff’g 2017 ONSC 755 [4265]

I. FACTS AND ISSUES
On February 26, 2012, a VIA passenger train derailed, causing considerable damage to the property and business operations of Tree-Techol Technology (“Tree-Techol”). Part of Tree-Techol’s losses were covered by a policy of insurance with Intact Insurance Company (“Intact”). Intact paid approximately $88,000 to Tree-Techol, but a disagreement arose when Tree-Techol also sought recovery for business interruption and other related losses under the policy. In February 2013, Tree-Techol commenced an action against Intact and in March 2016 the parties reached a settlement whereby Intact agreed to pay Tree-Techol $50,000.
 
Prior to that settlement, on February 21, 2014, Tree-Techol had filed a claim against VIA for its non-insured losses in the amount of $5,000,000 thus protecting Tree-Techol’s claim for its non-insured losses.  Tree-Techol did not include a claim for insured losses and Intact did not commence an action for the subrogated claim prior to the expiration of the limitation period. Tree-Techol refused Intact’s request that it amend its claim against VIA to include the Intact subrogated claim.  Intact brought a motion seeking intervenor status in Tree-Techol’s action against VIA per Ontario Rule 13, which provides as follows:
 
13.01 (1) A person who is not a party to a proceeding may move for leave to intervene as an added party if the person claims,
  1. an interest in the subject matter of the proceeding;
  2. that the person may be adversely affected by a judgment in the proceeding; or
  3. that there exists between the person and one or more of the parties to the proceeding a question of law or fact in common with one or more of the questions in issue in the proceeding.
         (2) On the motion, the court shall consider whether the intervention will unduly delay or prejudice the determination of the rights of the parties to the proceeding and the court may add the person as a party to the proceeding and may make such order as is just.
II. ONSC HELD: Motion dismissed, Intact refused intervener status 
  1. The Motions Court noted that “[i]n most cases, the insured and the insurer co-operate in bringing one action for recovery” but “that did not happen here, perhaps due to the ongoing dispute between the plaintiffs and Intact with respect to coverage”.  (para. 11)
  2. The Motions Court held that to grant Intact intervenor status, it had to have an interest in the subject matter, as the issue did not fall within the other considerations under the Ontario Rules of Court.
    1. For Intact to have an interest in the subject matter, there must have been an obligation on the insured to protect the insurer. The Court was not convinced any such obligation existed as Intact had the right to independently commence an action but failed to do so. There was therefore no obligation on Tree-Techol to protect the interests of Intact. (para. 14)
    2. The Court accepted the proposition that “[t]hat in cases where the lose [sic] of the insured exceeds the amount of the insurance moneys he has received, the insurers are not subrogated to the full rights of the assured so as to enable them or the Courts to interfere with or control the assured in the prosecution or settlement of his claim against third parties, except to require him in prosecuting or in settling his claims against such third parties to act with diligence and in good faith, having regard to the fact that the insurers are interested” as was held in Globe & Rutgers Fire Insurance Co. v. Truedell (1927), 60 O.L.R. 227 (Ont. C.A.). Therefore, although Intact was not fully subrogated, it was to have an interest in the claim nonetheless. However, the Court did not believe that interest elevated to a level that required the insured to maintain an action on behalf of the insurer in these circumstances:
      1. Here, as in Globe & Rutgers, the insured’s loss exceeds the amount of insurance proceeds received. Intact, therefore, is not fully subrogated but has, or had, an “interest”. I do not read Globe & Rutgers or Somersall as elevating that interest to a requirement that the insured must maintain an action on behalf of the insurer in these circumstances.
      2. There is no “clear and unambiguous” obligation in the policy of insurance or otherwise placing such a responsibility on the plaintiffs. See: [Somersall v. Friedman, 2002 SCC 59], at para. 48.
      3. Further, section 52, Insurance Act, and the policy clearly define the insurer’s right to bring an action. Neither imposes an obligation on the insured to do that for the insurer. See: Somersall, at para. 57.
      4. The only obligation on an insured is to co-operate with the insurer, except in a pecuniary way, in the insurer’s pursuit of its subrogation action. See: Somersall, at paras. 61 and 64.
      5. There is no evidence of bad faith by the plaintiffs as Intact was well aware of its right to pursue its subrogation claim. In pursuing only its non-insured losses, the plaintiffs cannot be said to have acted in bad faith.
  3. Intact appealed.
III. ONCA HELD: Appeal dismissed.
  1. On appeal, the Court of Appeal confirmed that the insured was under no obligation contractually or statutorily to include an insurer’s subrogated claim in its action:
    1. An insured is under no obligation contractually or statutorily to include an insurer’s subrogated claim in its action. Only if an insurer chooses to pursue such a claim is an insured then required to cooperate and not compromise the insurer’s claim. Were it otherwise, there would be no need to give an insurer a right to subrogate. Here, the insurer was well aware of all the facts. The insureds had  to commence a claim against Intact (their insurer) to recover all their losses covered by the policy, they were adverse in interest and may still be in respect of certain aspects of the claim.
  2. The fact that Intact had missed the limitation period did not give rise to grant it intervenor status.  The Court held that “Intact had the right to commence a subrogated claim, but just as the motion judge put it, forgot to do so.” (para. 2)
IV.COMMENTARY: 
 
The trial Judge based his decision largely on the wording in Ontario Rule 13.01, and whether Intact had “an interest in the subject matter of the proceeding”.
 
By contrast, the wording in Alberta’s Rule 2.10 is much broader, indicating a lower threshold for granting intervenor status:


Intervenor status

2.10   On application, a Court may grant status to a person to intervene in an action subject to any terms and conditions and with the rights and privileges specified by the Court.

Nonetheless, the Ontario Court of Appeal was clear that missing the limitations period could not be cured by granting intervenor status to an insurer that had its own right to commence a cause of action. It is therefore unlikely that an Alberta court will not follow this case, notwithstanding the broader wording of the Alberta provision.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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