- P were insurers seeking to recover money from D, latter took out multiple insurance policies on lumber stored by railway tracks, D claimed that lumber was set on fire by the sparks of the railway company and recovered $50k total from insurers
- D also sued railway company and recovered $100k for negligence, in court D reported that the actual value of his destroyed lumber was $100k
Issues
- Whether the insurers can claim money from the D
Rules
- Doctrine of subrogation is a creature of equity
It is regulated by the broad underlying principle of securing full indemnity to the insured, and holding him accountable as a trustee for any surplus he may obtain over and above compensation for his loss
Primary consideration is to see that insured gets full compensation for property destroyed and expenses incurred in making good his loss
Next consideration is to see that the insured holds surplus for the benefit of the insurance company – insurer may sue in equity to recover surplus
- When the insured is fully compensated, as if the damage insured against had not happened, then insurer is entitled to be subrogated w.r.t. a right to receive any surplus of money or other advantage recovered above and beyond what insured needed to receive
- There is no right to subrogation w.r.t. an insured whose claim is not wholly satisfied/fully indemnified
Fully indemnified means not only indemnification for all losses covered by the policy, but also uninsured losses such as insured’s deductible, losses in excess of policy limits, and loss (like business losses) not covered by the policy
Analysis
- D had partial insurance, but he claimed that his loss was actually larger than the amount that was insured
- Because there was no allegations of fraud on the part of D, insurers did not have a clear right to subrogation, since it was not verified that D had received the sum that would put him in a position as if the damage had not occurred
The award provided by the jury was not conclusive evidence of the amount of loss
- Insurers only had the right to have an account of D’s damages to determine whether latter had been more than fully compensated for his total loss by fire
Conclusion
- Insurer did not have a right to subrogation
Imperial Oil Ltd v Commonwealth Construction Co [1978] SCC
Facts
- P constructed a fertilizer plant and entrusted the work to W, who in turn subcontracted the work to D
- During installation D caused a fire that caused $100k damage to P and $300 damage to D
- The amount of this damage was covered by a multi-peril subscription policy, where name of insured was “Imperial Oil Limited and its Subsidiary Companies and any Subsidiaries thereof and any of their contractors and subcontractors”, P had D make the repairs
- This action brought by insurers alleging subrogated rights obtained from P
Issues
- Whether the insurers were entitled to take advantage of their basic right to subrogation considering
The wording of the subrogation clause and of the policy as a whole
- Whether in the context of the construction contracts, the various trades had a relationship with the entire work such that their potential liability constituted an insurable interest in the whole
Rules
- When there is an underlying contract where the owner has given possession to other parties who claim a full insurable interest based on a special relationship, all those parties share possession of the interest as a whole
- Insurer has no right of subrogation to recover from some third party who also received a benefit from that insurance
i.e. no right to subrogation against joint insureds
Analysis
- P argued that it was one of the “insured” and that all the members of that group were on same footing w.r.t. receiving benefit of insurance should the property insured be lost or damaged due to an insured risk
SCC agreed, to have all parties on equal footing w.r.t. insurance policy made sense, and would spare infighting should an accident occur
Interests of principal contractor and subcontractors so inseparably interconnected that they were all considered one for the purposes of insurance – and all had an equal insurable interest in the property
This interpretation supported by general condition 5, “Trustee Clause” which stipulated the policy was obtained by the owner on behalf and as a trustee for the benefit of all contractors who entered into contract with the owner thereafter
- Since P and subcontractors were considered joint insureds, not possible for insurer to have a right to subrogation against itself
Conclusion
- Insurers had no right to subrogation
Takeaway: in construction project, there are many parties involved, in most instances, will be very difficult to obtain subrogation rights against any of the main parties involved since they will be an insured or an unnamed insured with an insurable interest
Therefore one insured cannot sue another insured
Two types of cases where there are restrictions on subrogation rights
