In the recent Ontario Court of Appeal decision of Tree-Techol Tree Technology v. VIA Rail Canada Inc., 2017 ONCA 876 , the court considered whether an insured is under an obligation to Include its insurer’s subrogated claim in its action. The court held there is no obligation on an insured to include an insurer’s subrogated claim in an action to recover losses in excess of its insurance coverage.

On February 26, 2012, a VIA passenger train derailed and caused considerable damage to Tree-Techol Technology’s property and business operations. Tree-Techol had an insurance policy with Intact Insurance and they made a claim.  Intact paid out approximately $88,000.00 to Tree-Techol, but a disagreement arose on coverage for certain losses.  Tree-Techol commenced an action against Intact in February 2013 and in March 2016 the two reached settlement with Intact paying Tree-Techol $50,000.

On February 21, 2014, five days prior to the expiration of the limitation period, Tree-Techol filed a claim against VIA for $5,000,000 for damages, costs, expenses and losses sustained as a result of the derailment. Tree-Techol sought to recover for damages they were unable to recover from their insurer.  In the circumstances, Tree-Techol’s losses were far greater than the $138,000 they had received from their insurer.

Intact did not commence an action for its subrogated claim prior to the expiration of the limitation period. But after expiration of the limitation period, Intact sought to have Tree-Techol’s statement of claim amended to protect their subrogated claim.  Tree-Techol refused to cooperate in light of the coverage dispute between the parties.

Under the Ontario Insurance Act and the insurance policy between Tree-Techol and Intact, upon making any payment or assuming liability under the contract, the insurer is subrogated to all rights of recovery of the insured against others and may bring an action to enforce those rights.  However, an insurer’s right of subrogation is subject to the limitation period applicable to the claim.

Because the insurer missed the limitation period to start its claim for the covered damages, it tried to obtain intervener status in the insured’s action of uninsured losses. The question whether Intact could be granted intervener status turned on whether Intact had an interest in the subject matter as the other considerations under the Rules of Court were not engaged.  To have an interest, there must have been an obligation on the insured to protect the insurer.

In determining whether such obligation exists, the court reviewed case law that illustrated the different circumstances created where the insurance monies paid out do not cover the loss and those where the monies paid out are sufficient to cover the cost. Where the monies paid out are sufficient, the insurers are subrogated to the full rights and remedies of the insured.  However, where the insurance monies paid are not sufficient, the insurers are not subrogated to the full rights of the insured so as to enable them to interfere with or control the insured in the prosecution and settlement of any claims, except to require that the insured act with diligence and good faith in prosecuting or settling any claims.

The court identified that in these circumstances, Intact was not fully subrogated but had an interest. That interest, however, was not tantamount to an obligation on the insured to bring an action for the insurer.  The only obligation found was to cooperate with an insurer in its pursuit of a subrogated action.

While an insurer has an obligation to include an insured’s uninsured portion of the loss in its subrogated claim, the reverse is not true. Insurers must be mindful of applicable limitation periods as an insured has no obligation to include an insurer’s claim for monies paid out under a policy.  Even when a coverage claim has been resolved, there is no guarantee that an insured will cooperate.