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Litigation Opinions
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Insurance - Subrogation

. Tuffnail v. Meekes

In Tuffnail v. Meekes (Ont CA, 2020) the Court of Appeal commented on the common law insurance principle of subrogation and how this is modified by the Insurance Act:
[32] Under the common law, an insurer has a right, upon fully indemnifying the insured for both the insured and uninsured losses caused by a third party, to bring an action against the third party in the insured’s name. When an insurer is entitled to bring such an action, it is said to be subrogated to the insured’s rights and is entitled to exercise those rights in the name of the insured: Zurich Insurance Co. v. Ison T.H. Auto Sales Inc., 2011 ONSC 1870, 106 O.R. (3d) 201, aff’d 2011 ONCA 663, 342 D.L.R. (4th) 501; Douglas v. Stan Fergusson Fuels Ltd. 2018 ONCA 192, 139 O.R. (3d) 721, at para. 48, leave to appeal refused, [2018] S.C.C.A. No. 141.


[37] Notably, the right of subrogation is derivative in nature and in exercising the right of subrogation, the insurer is advancing only the cause of action that the insured would otherwise have against the party responsible for causing the loss to the insured. In other words, the insurer assumes the insured’s right of recovery against the tortfeasor: Barbara Billingsley, General Principles of Canadian Insurance Law, 2nd ed. (Markham: LexisNexis Canada Inc., 2014), at pp. 343, 350. This means that the insured must have a legally enforceable cause of action against the tortfeasor: Denis Boivin, Insurance Law, 2nd ed., (Toronto: Irwin Law Inc., 2015), at p. 491; Craig Brown and Thomas Donnelly, Insurance Law in Canada, loose-leaf, vol. 2 (Toronto: Thomson Reuters Canada Ltd., 2019), at p. 13-2.

[38] Because the right of subrogation is derivative, the insurer can be in no better position as against the third party than the insured would be: Douglas, at para. 55, Matt (Litigation Guardian of) v. Barber (2002), 2002 CanLII 45023 (ON CA), 216 D.L.R. (4th) 574 (Ont. C.A.), at para. 25; Freudmann-Cohen v. Tran (2004), 2004 CanLII 34765 (ON CA), 70 O.R. (3d) 667 (C.A.), at para. 40. If Tuffnail did not have a claim against Coulthard, State Farm did not have a right to subrogate. In substance, then, in bringing its third party claim against Coulthard, State Farm stepped into Tuffnail’s shoes to claim against Coulthard.


[52] In the absence of statutory or contractual terms to the contrary, the insurer’s right of subrogation does not arise until the insured has been fully indemnified for both insured and uninsured losses: Douglas, at para. 50. Thus, at common law, the insurer generally stands behind its insured, in terms of recovery.[6]

[53] In Ontario, the common law of subrogation has been modified by the provisions of the Insurance Act, including ss. 278(1) and (2). Subsection 278(1) permits an insurer to subrogate before the insured is fully indemnified and s. 278(2) stipulates that where the net amount recovered is insufficient to provide complete indemnity, the insurer and the insured shall recover pro rata:

278(1) An insurer who makes payment or assumes liability therefore under a contract is subrogated to all rights of recovery of the insured against any person and may bring action in the name of the insured to enforce those rights.

Pro-rating recovery

(2) Where the net amount recovered whether by action or on settlement is, after deduction of the costs of the recovery, not sufficient to provide complete indemnity for the loss or damage suffered, the amount remaining shall be divided between the insurer and the insured in the proportion in which the loss or damage has been borne by them.
. Hoang v. Vincentini

In Hoang v. Vincentini (Ont CA, 2015) the Court of Appeal endorses the following principles applicable to counsel, when paid for by an insurer, when advancing a subrogated claim:
[14] In his oral argument, Mr. Adair, counsel for the appellants, set out three principles which he says, and I accept, are relevant on these motions. They are:
(1) Where a lawyer is appointed by an insurer to defend its insured, the lawyer’s primary duty is to the insured. That is so even though the lawyer is paid by the insurer and the insurer may eventually have to pay the claim against its insured. Deschênes J.A. discussed this principle in Pembridge Insurance Company v. Parlee, 2005 NBCA 49 (CanLII), 253 D.L.R. (4th) 182, at para. 17:
It is now beyond dispute that a lawyer appointed and paid for by an insurer to defend its insured in compliance with the insurer’s contractual duty to defend owes a duty to fully represent and protect the interest of the insured. By doing so, the lawyer, of course, is also acting in the insurer’s interest in the sense that the plaintiff’s claim (a claim that the insurer may eventually have to pay) is being challenged. But, first and foremost, once appointed, the lawyer must represent and act on behalf of the defendant insured with the utmost loyalty and only in the latter’s best interest. No one seriously contends that the lawyer is or should be allowed to take a position contrary to the interests of the insured defendant which he has been appointed to represent. [Citations omitted].
See also Mallory v. Werkmann Estate, 2015 ONCA 71 (CanLII), 330 O.A.C. 337, at para. 29.

(2) An insurer may be required to relinquish control of the defence and pay for independent counsel retained by its insured only if there is “in the circumstances of the particular case, a reasonable apprehension of conflict of interest on the part of counsel appointed by the insurer”: Brockton (Municipality) v. Frank Cowan Co. (2002), 2002 CanLII 7392 (ON CA), 57 O.R. (3d) 447 (C.A.), at para. 43.

(3) Where the insurer has insisted on a reservation of rights or its insured has signed a non-waiver agreement, then a conflict of interest may arise if coverage under the policy turns on the insured’s conduct in the accident giving rise to the litigation. Goudge J.A. discussed this principle in Brockton, at para. 42:
If the reservation of rights arises because of coverage questions which depend upon an aspect of the insured's own conduct that is in issue in the underlying litigation, a conflict exists. On the other hand, where the reservation of rights is based on coverage disputes which have nothing to do with the issues being litigated in the underlying action, there is no conflict of interest requiring independent counsel paid for by the insurer.
. Rochon v. Rochon

In Rochon v. Rochon (Ont CA, 2015) the Court of Appeal upheld the dismissal of a subrogation action by one insurer against another under the policy that an insurer cannot subrogate against it's own insured:
[70] Grenville contends that the rule against an insurer suing its own insured under the same policy, no matter how negligent they were in causing the loss, should not apply to a dispute between two insurers. There is nothing improper, unfair, or contrary to public policy when a home insurer subrogates against an automobile insurer for damages arising from the use or operation of a motor vehicle.

[71] I would not give effect to Grenville’s policy argument.

(a) Policy Reasons for not Allowing Subrogation

[72] There are powerful policy reasons working against Grenville’s position.

[73] I start with the fundamental notion that insurers should not be permitted to subrogate against their own insured: Commonwealth Construction Co. Ltd. v. Imperial Oil Ltd. et al., 1976 CanLII 138 (SCC), [1978] 1 S.C.R. 317. The fact that an insured may have other insurance is, in my view, irrelevant. A suit by an insurer against its own insured does not fulfil the aims of subrogation, which is to avoid overpayment of the insured: Statesman, at paras. 26-28.

[74] Further, subrogation against an insured should be barred because the insurer has contracted to take onto itself the very risk at issue, thereby taking it away from the insured: Statesman, at para. 49.


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Last modified: 17-01-23
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