Document 182267

10 | March 25, 2011
The lawyers weekly
Insurance Law
F ocus
How to distinguish equitable contribution from subrogation
Ending over a decade-long
history of litigation, the Saskatchewan Court of Appeal has
clarified the distinction between
the assertion of rights by way of
subrogation and claims for contribution by one insurer against
another, in a case involving
double insurance. The substantive difference between the two
claims is that a contribution
action permits the court to
determine proportionate liability to indemnify the insured’s
loss among the multiple insurers of the same risk; a subrogation action depends entirely on
the liability of the insurers to
the insured.
In Insurance Co. of the State
of Pennsylvania v. Cameco
Corp., [2010] S.J. No. 445, a
procedural dispute arose among
certain insurers of Cameco Corporation in relation to the
attempts by Global Aerospace,
Inc. to obtain equitable contribution from the other two insurers, the Insurance Company of
the State of Pennsylvania
(ICSOP) and American Home
Assurance Company (AHA).
Cameco held three insurance
policies: an aviation liability
policy by Global and a general
liability policy with each of
ICSOP and AHA. Cameco put
the insurers on notice of a poten-
tial claim following a fatal helicopter crash carrying employees
of Cameco. The estates of the
deceased employees commenced actions against Cameco.
ICSOP and AHA refused to
defend the claims, but Global
proceeded to defend subject to a
reservation of rights. Global
ultimately settled the actions
for $6,411,000, constituting full
indemnity for Cameco.
Following the settlement,
Global was advised it was statute
barred from commencing an
action for equitable contribution
against ICSOP and AHA. Therefore, Global applied to amend
the statement of claim in the
Cameco action to add itself as a
plaintiff and claim payment
from ICSOP and AHA under
those policies, by way of contribution to the costs of defence
and indemnity paid by Global on
behalf of Cameco.
granted, but ultimately overturned on appeal. The court held
that the Saskatchewan Limitations Act did not permit amendments which would transform a
contract claim by Cameco into a
claim for equitable contribution
by another insurer. As a result of
this ruling, Cameco took steps to
amend the statement of claim to
convert it into a subrogated
action on behalf of Global. In
conjunction with this, Global
also commenced a separate
action directly against ICSOP
and AHA claiming equitable
contribution for its costs of
defence and settlement of the
claims against Cameco.
The primary issue raised in
this case was whether, where
more than one insurer has
issued a policy of liability insurance for the same risk and one
of the insurers has fully indemnified the insured, the paying
insurer can maintain a subrogated action, in the name of
the insured, against the nonpaying insurer(s).
The court concluded that a
claim for contribution against a
co-insurer of the same insured
for the same peril is substantively different than a claim
brought by an insurer in the
insured’s name by way of subrogation. In a subrogated claim,
the subrogated party (insurer),
is entitled to all of the amount
recoverable by the nominal
plaintiff (insured) as against
the third party up to the amount
of its indemnity. In contrast, in
a contribution action, the proportionate liability of each
insurer is determined and the
paying insurer will recover
from the other insurers only
such amount as exceeds its proportionate share.
The court was heavily swayed
by the decisions in Pacific Forest Products Ltd. v. AXA Pacific
Insurance Co., [2003] B.C.J.
No. 973 and Caledonia North
Sea Ltd. v. London Bridge
Engineering Ltd., 2000 S.L.T.
1123. Those decisions confirmed
the principle that where an
insured is covered by more than
one policy for the same risk, the
law treats the various policies as
one insurance, thereby precluding the insured who has
recovered from one insurer to
recover again from the other
insurer. The law will not allow
the insured to recover more
than the full amount of its loss,
regardless of the fact that the
insured may have more than
one policy that could indemnify
it for the same loss.
This is different from the situation where the insured has a
primary right against a third
party. Therefore, in cases where
the insured is covered for the
same risk by more than one
policy, the insurer’s only way to
enforce its right to contribution
from other insurers is by means
of an action in its own name for
equitable contribution.
What does this mean for multiple insurers of the same peril?
Understanding the difference
between the right to claim equitable contribution versus equitable subrogation will avoid
unnecessary legal expenses and
unfavorable outcomes.
As a rule of thumb, if the risks
are the same, equitable contribution is available. If the risks
are different, equitable subrogation is available. This is, of
course, subject to any legislation
in the relevant jurisdiction that
may alter the common law on
this point. n
Don McGarvey is a partner,
and Tara Argent is an associate,
with McLennan Ross LLP in
Edmonton, practising commercial litigation and commercial
BC court muddies waters on tort immunity in leases
No sooner did the Ontario
Court of Appeal clear up some
confusion about the doctrine of
tort immunity and bars to subrogation conferred by insurance covenants in leases, than
two decisions of the B.C.
Supreme Court significantly
compromised such certainty — ​
and then some.
In a trilogy of decisions more
than 30 years ago, the Supreme
Court of Canada (SCC) held
that a tenant may be exculpated
from claims by the landlord for
loss or damage to its property
by other terms of the lease,
despite an otherwise enforceable covenant to repair by the
tenant. That is, if either: (1) the
landlord covenanted to insure
the subject property (AgnewSurpass Shoe Stores Limited v.
Cummer-Yonge Investments
Ltd., [1975] S.C.J. No. 74; and
T. Eaton Co. v. Smith, [1977]
S.C.J. No. 125, or (2) the tenant
covenanted to pay its share of
the insurance premiums (Ross
Southward Tire Ltd. v. Pyrotech
Products Ltd., [1975] S.C.J. No.
First, in T. Eaton, the leases
provided that “the lessor…will…
keep the buildings upon the said
A tenant may be
exculpated from
claims by the landlord
for loss or damage to
its property by other
terms of the lease,
despite an otherwise
enforceable covenant
to repair by the tenant.
premises insured against loss by
fire…” The leases also contained
“the standard repairing covenants, namely, the covenant to
repair, the covenant to repair on
notice, and the covenant to leave
or yield up in good repair.” However, the SCC dismissed the land-
lord’s claim against the tenant,
stating that, “the landlord’s
covenant to insure is a covenant
that runs to the benefit of the tenant, lifting from it the risk of liability for fire arising from its negligence and bringing that risk
under insurance coverage…”
Second, in Ross Southward,
there was no covenant, by either
party, to obtain insurance
coverage, but the lease provided
that “the lessee shall pay all…
insurance rates immediately
when due,” to insure the premises. Like T. Eaton, the lease
also contained the usual tenant’s covenant to repair the
premises and covenants to leave
the property in good repair, but
the SCC dismissed the landlord’s claim for fire damage to
its property.
The court stated, “The tenant…is entitled to rest in respect
of loss by fire on the discharge
of its obligation to pay for fire
insurance…. It has paid for an
expected benefit, as between
itself and its landlord which any
standard fire policy would
reflect in providing indemnity
to the landlord…”
Kruger Products Ltd. v. First
Choice Logistics Inc., [2010]
B.C.J. No. 2333, involved a
multi-million dollar claim for
paper owned by the plaintiff
Kruger (formerly Scott Paper),
which was warehoused pursuant to a management agreement with the defendant First
Choice, and destroyed by fire. In
the agreement, Kruger covenanted to insure the contents of
the warehouse. In his Nov. 26,
2010 decision, Justice Burnyeat
distinguished the trilogy, and
other appellate decisions, on
grounds, among others, that:
“there is no language in the…
Agreement which suggests an
intent that the property insura n c e p o l i c y o f S c o tt s h o u l d
benefit First [Choice]”;
“there is a critical distinction
b e tw e e n l e a s e s … o n t h e o n e
hand and contracts of bailment
on the other hand regarding the
insurable interest of the parties
in the bailed property”; and
“acceding to the submission
made by First [Choice] would
make meaningless the indemnifi c a t i o n c o n t a i n e d i n t h e …
However, such holdings are
inconsistent with decisions of
the SCC (not limited to the trilogy), and others by the British
Columbia Court of Appeal
(BCCA). For example, regarding
the first ground above, the BCCA
held in North Newton Warehouses Ltd. v. Alliance Woodcraft Manufacturing Inc.,
[2005] B.C.J. No. 1243 (leave to
appeal to SCC denied), that “One
might properly say that there is
something approaching a presumption in favour of a tenant
benefiting from a landlord’s
covenant to insure. That is the
legal principle that I take to be
established from the trilogy...”
As a further example, the
very SCC decision on which the
trial court relied in its second
ground (Commonwealth Construction Co. v. Imperial Oil
Ltd., [1978] 1 S.C.R. 317), held
that, “In certain fields of mercantile law, e.g. bailment in the
widest sense, full insurable
interest has for a long time been
held to exist in others than the
owner because of their special
relationship with the property
entailing possibility of liability.”
Indeed, the BCCA stated in
North Newton that, following
decisions of the Ontario Court of
Appeal (ONCA), neither the lack
of an insurable interest in the
See Immunity Page 11