Background:

• The Kapelucks sued multiple defendants in May 2018 for negligence and breach of contract regarding their home’s construction.
• Millennium Insurance Corporation (Millennium), a home warranty provider, was named as a defendant. The Kapelucks obtained home warranty coverage through Millennium.
• The Kapelucks settled with certain construction defendants via a Pierringer agreement, requiring court approval.
• Millennium opposed the settlement, arguing it prejudiced its subrogation rights (the right to recover funds paid to the insured).
• The Kapelucks applied for a declaration that their claims did not include subrogated claims by Millennium. The chambers judge ruled in their favor.
• Millennium appealed.

Court of Appeal Decision:

• Millennium’s Position:

  • The Kapelucks’ claim must have included its subrogated claims as they had a duty to protect them.
  • Subrogation was inherent, meaning Millennium did not need to take active steps to assert it.
  • Filing a separate subrogated claim would have been abusive.

• Court’s Analysis:

  • Subrogation at Common Law: An insurer can only advance subrogation if the insured is fully indemnified, unless modified by contract (Somersall v Friedman, 2002 SCC 59).
  • Policy Terms: Millennium’s policy allowed it to bring a subrogated claim at its own expense.
  • Millennium’s Inaction: No evidence showed Millennium attempted to assert subrogation or relied on the Kapelucks to do so. It did not contribute to litigation costs.
  • Equitable Considerations: The court criticized Millennium for "lying in the weeds" until a settlement was reached.
  • Precedent (Tree-Techol v VIA Rail, 2017 ONCA 876): An insured has no obligation to advance an insurer’s subrogated claim unless the insurer actively pursues it.
  • Millennium’s Position as a Defendant: It asserted a set-off defense against the Kapelucks, contradicting its argument that its claim was included.

Outcome:

• Appeal dismissed.
• The Kapelucks’ claim did not include Millennium’s subrogated claim.
• No monetary award specified.

Key Takeaway: Insurers must actively assert subrogation rights and cannot assume an insured will do so on their behalf.