The question of whether a liability insurer that had paid out an indemnity owing to the negligence of its insured could seek reimbursement of a portion of that indemnity from another insurer covering the same risk had in recent years been the subject of debate in Quebec law. The question has just recently been settled by the Quebec Court of Appeal, in a decision handed down on August 17, 2009 in Promutuel Portneuf-Champlain, Société Mutuelle d’Assurance Générale c. Promutuel Lévisienne- Orléans, Société Mutuelle d’Assurance Générale.1
Promutuel Portneuf-Champlain’s insured, a twelve-year-old boy, had, through his negligence, caused an accident involving a woman walking on a sidewalk. At the time of the accident, the boy was living with his mother at the home of his maternal grandfather, his parents having separated. During the school year, the boy spent one weekend out of two at his father’s home. Custody was also shared between the parents in the summer months and on certain statutory holidays.
The woman who fell sued the boy and his mother for $354,014.22. She later amended her proceedings to add as a codefendant the liability insurer of the mother and child under a policy issued to the maternal grandfather, which insurer took up the defence of the mother and child, without reservation. The insurer then took a third party action against the father’s home insurer on the grounds that the child’s civil liability was also covered by that policy.
A few weeks before the trial, the insurer that had taken up the defence of the mother and child settled the victim’s action for a total amount of $150,000. Both the victim and the mother and child signed an agreement subrogating the insurer that had paid out the money to their respective rights against the father’s insurer. In view of the settlement, the trial dealt solely with the third party action taken against the father’s insurer by the insurer that had settled the victim’s claim.
The Trial Judgment
The third party action heard by the trial judge raised two questions: i) was the child’s civil liability also covered by his father’s home insurance policy and ii) if so, was the insurer that had settled the victim’s action entitled to be reimbursed by the second insurer for half the indemnity paid out?
Both policies contained identical “Other Insurance” clauses as well as identical coverage limits. An admission was filed to the effect that if the Court were to allow the third party action, the loss would be apportioned equally between the two insurers.
Relying on the decision of the Court of Appeal in Éclipse Bescom Ltd c. Soudures d’Auteuil inc.,2 the trial judge found the third party action of the first insurer against the second to be inadmissible on the basis there was no legal relationship between the two insurers. In other words, because the father’s insurer had no liability toward the insurer of the grandfather in whose home the mother and child were living, the third party action could not be successful. Having ruled accordingly, the trial judge did not have to decide whether the child’s civil liability was also covered by the father’s policy.
The Appeal Court Reverses the Lower Court Ruling
Given the frequency of the child’s visits to his father’s home, the Court of Appeal found that the father’s policy also covered his son’s civil liability.
As to the admissibility of the first insurer’s third party action against the second, the Court noted that article 2501 of the Quebec Civil Code, which provides that an injured third party may bring an action directly against an insured or against his insurer or against both of them, had allowed the victim to claim her damages in their entirety from the maternal grandfather’s insurer irrespective of the “Other Insurance” clause contained in the policies of both insurers. Having found that the child’s civil liability was covered by both the grandfather’s policy and the father’s policy, the Court of Appeal was of the view that this was a case where each of the two insurers was indebted toward the victim for the full amount of the damages. However, since their respective indebtedness arose from separate contracts of insurance, the Court of Appeal found that there existed between them a situation of imperfect solidary liability, known as obligation in solidum.
In the opinion of the Court of Appeal, it was precisely that imperfect solidary liability that authorized the first insurer to claim from the second, by way of third party proceedings based on subrogation, reimbursement for half the indemnity paid to the victim.
It is noteworthy that in the course of its analysis, the Court of Appeal cited with approval an article written in 2003 by a partner of Ogilvy Renault, Jean-François Michaud, in which he proposed that the notion of imperfect solidary liability, or obligation in solidum, could serve as the basis for a recourse of this kind.
The Court also made reference to its recent decision in Kingsway General Insurance Co. c. Duvernay Plomberie et chauffage inc.,3 which had relaxed the conditions giving rise to third party actions.
This recent ruling by the Court of Appeal, handed down on August 17, 2009, puts an end to the controversy surrounding the nature of the right of one liability insurer to obtain from another reimbursement for a share of the indemnity paid to a third party victim, and the procedural vehicle that should be used to assert that right. It is now clear that such right is founded on the concept of imperfect solidary liability, or obligation in solidum, and that an action in warranty (third party action) based on subrogation is the appropriate procedural vehicle for exercising it.
However, the ruling by the Court of Appeal does not deal with the question of when the limitation period of the first insurer’s subrogatory action against the second insurer begins to run. The answer to that question may well vary depending on what is being claimed. In this regard, it should be borne in mind that in such situations, an insurer that sues another exercises the rights of its insured against the second insurer via subrogation. In order to determine when the limitation period of the subrogatory action begins to run, it is therefore necessary to determine the point in time as of which the insured was in a position to take proceedings against the second insurer to compel it to discharge its duty to defend or indemnify. If the insured was sued by the victim more than three years before proceedings are taken against the second insurer, the subrogatory action of the first insurer against the second to recover the cost of defending the insured could already be prescribed. This question was not addressed by the Court of Appeal in its recent decision because the maternal grandfather’s insurer had limited its claim to reimbursement for half the indemnity paid to the victim. In addition, an insurer that had initially denied coverage to an insured under a liability policy and then, more than three years after the insured had paid damages to the victim, decided to cover and indemnify its insured accordingly, could find its subrogatory proceedings against a second insurer challenged on the basis of prescription (limitation period).
Although a number of questions regarding prescription still remain, a liability insurer who may want to take subrogatory proceedings against one or more other insurers should be mindful that prescription of such a recourse may already have begun to run without its knowledge. It is therefore imperative that the insurer identify any other insurers covering the same risk and analyse the issues influencing prescription as soon as possible.