Appeal arose from insured's damages claim alleging negligence relating to property's construction
The Alberta Court of Appeal has rejected the appeal of an insurance company that – in its capacity as a defendant in the insured parties’ claim – chose to protect its interest by asserting a right of set-off against the insured.
The appellant in this case was a registered warranty provider for home warranty insurance. It extended coverage to a builder that constructed a home. The respondents in this case, who were the homeowners, obtained new home warranty insurance coverage through the insurer when they purchased the home.
In May 2018, the respondents brought a statement of claim against numerous defendants, including the insurer. The respondents wanted damages based on alleged negligence and contractual breach arising from the construction of the property.
The respondents entered into a Pierringer agreement or a proportionate share settlement agreement to settle with some of the construction defendants. They applied for the court’s approval of the agreement. The insurer opposed this application on the basis that settling with the construction defendants would prejudice its subrogation right.
The respondents filed an application alleging that their claims did not include any subrogated claims advanced by, for, or on behalf of the insurer. A chambers judge ruled in favour of the respondents, which prompted the insurer to appeal.
The insurer alleged that the respondents’ action necessarily subsumed or included its subrogated claims because the respondents had a duty to protect those claims and because the “broad and all-encompassing” pleadings should be interpreted to cover its subrogated claims.
The insurer also argued that it did not need to actively pursue its claims or to file a notice of its intention to assert these claims since it had an inherent subrogation right. The insurer added that bringing a separate subrogated action would amount to an abuse of process.
In Millennium Insurance Corporation v Kapeluck, 2025 ABCA 8, the Court of Appeal of Alberta dismissed the appeal. The appeal court decided that none of the insurer’s arguments were successful in light of the facts of this case.
Citing the ruling in Somersall v Friedman, 2002 SCC 59, the appeal court noted that an insurance policy’s terms could modify the principles of subrogation. Here, the appeal court found that the insurance policy allowed the insurer to commence an action at its own expense upon any payment.
The appeal court saw no evidence supporting that the insurer intended to advance a subrogated claim, relied on the respondents to include a subrogated claim on its behalf, or involved itself in the prosecution of the respondents’ action, at least until the application seeking court approval of the Pierringer agreement.
The appeal court then cited as instructive the decision in Tree-Techol Tree Technology and Research Company Inc v VIA Rail Canada Inc, 2017 ONCA 876, where the Ontario Court of Appeal said that an insured had no contractual or statutory obligation to include an insurer’s subrogated claim in its action and only had to cooperate and to refrain from doing anything that could compromise the insurer’s claim if the insurer decided to pursue that claim.
The appeal court agreed with the chambers judge’s concern about whether it was fair for an insurer to lie in the weeds “for years while its insureds prosecuted a claim at its own expense, to then have the insurer assert its expectation of recovery of amounts paid under the policy by way of a subrogated claim once a third-party settlement had been achieved.”
