In a recent judgment the Ontario Court of Appeal held that an insured is not statutorily or contractually obligated to include an insurer's subrogated claim in its action.
In Tree-Techol Tree Technology v. VIA Rail Canada Inc. the court declared that an insured must cooperate with an insurer's subrogated claim only if the latter chooses to pursue such a claim.
The dispute concerned the derailment of a VIA Rail passenger train on February 26, 2012, following which the train engine and several coaches slid down an embankment and caused considerable damage to the property and business operations of the insured, Tree-Techol Tree Technology. Some of its losses were covered by a policy with Intact Insurance Company who paid for property and equipment damage and other losses.
The insured also sought recovery for business interruption and other related losses under the policy. The insurer refused and the insured sued it in February 2013. The parties reached a settlement in March 2016 whereby the insurer agreed to pay out additional proceeds. The insured continued to pursue its non-covered losses and took legal action against VIA Rail on February 21, 2014 seeking $5,000,000.
The insurer made no inquiry during the relevant period of time with regards to a subrogated claim and the limitation period for an action expired. The insured then refused the insurer's request that it amend its statement of claim against VIA Rail by deleting the restriction to non-insured losses – the purpose here being to protect the subrogated claim.
At trial, the insurer sought leave to be added as an intervenor and for the insured to amend its statement of claim. The Ontario Superior Court of Justice acknowledged that insureds and insurers usually co-operate in bringing one action for recovery but held that the ongoing dispute between the insured and the insurer in the matter at hand had dissipated such co-operation. Though the insurer had a subrogated claim once it paid for covered losses, the court took the view that the insurer had forgotten to commence an action under the subrogation provision in s. 152 of the Insurance Act and the policy itself.
To be granted intervener status, the court declared the insurer had to meet one of the criteria stipulated by rule 13.01(1). It found that the insurer did not have an interest in the subject matter of the case as the claim was only for non-insured losses, and that the limitation period had expired as to the subrogation claim. It also held that the insurer would not be adversely affected by any judgment and that there was no common question of law or fact between the parties because the timing for the subrogated claim had expired.
What’s more, the insurer failed to persuade the court that the insured had an obligation to protect its subrogated claim; the insurer had the right to independently commence an action but failed to do so. It could not now correct its neglect by compelling the insured to prosecute the subrogated claim. The court held that there is no "clear and unambiguous" obligation in the policy of insurance or otherwise placing such a responsibility on insureds. Section 52 of the Insurance Act also imposes no obligation on insureds to bring a subrogation action on behalf of insurers. The court concluded that an insured's only obligation is to co-operate with the insurer, except in a pecuniary way, in the latter’s pursuit of its subrogation action.
On the facts, the insurer had been well aware of its right to pursue a subrogation claim and the insured could not be said to have acted in bad faith in pursuing only its non-insured losses. No obligation rests on the insured to enforce the insurer's rights. The court quoted Zurich Insurance: "if the insurers have failed to take the […] simple and basic steps [for subrogation], they can hardly complain if the insured insists on its common law rights." The insurer's motion for intervenor status was accordingly dismissed.
The Ontario Court of Appeal affirmed the trial judgment and held that the insurer, having missed the limitation period, could not be aided by an application for intervenor status. The insurer had the right to make a subrogated claim but forgot to do so. The appeal court concluded that an insured is under no contractual or statutory obligation to include an insurer's subrogated claim in its action. Were it otherwise, there would be no need to give an insurer the right to subrogate.
It’s important for insurers to be aware of any relevant limitation periods when paying out proceeds under an insurance policy. In failing to do so, they risk being barred from making a subrogated claim against third parties for the amounts paid out. The insured’s only obligation is to co-operate in a non-pecuniary way with the insurer's pursuit of a subrogated claim. That does not extend to including in its action the subrogated claim of an insurer who has neglected to make its own claim in time.