When subrogating, insurers are quick to consider issues like limitations, liability, and the likelihood of recovery. What they’re often missing, though, is an assessment of whether they are
actually able to bring suit against a projected defendant. That’s where the anti-subrogation rule comes into play.
The anti-subrogation rule comes from the 1976 Supreme Court of Canada decision of
Commonwealth Construction Co. v. Imperial Oil Ltd., which explained that “… subrogation cannot be obtained against the insured himself.” In essence, the rule stands for the premise that an insurer cannot seek subrogation against its own insured – or a co-insured – for a loss that it has contractually agreed to indemnify. Doing so would effectively allow the insurer to recover from the very party whose risk it agreed to assume under the subject policy.
The anti-subrogation rule may present a complete defence to a subrogated claim, arising primarily in three scenarios: (1) where the projected Defendant is a named insured; (2) where the projected Defendant covenanted to insure the Plaintiff; and (3) where the underlying policy expressly waives subrogation and the projected Defendant is deemed an “unnamed insured.”
Projected Defendant a Named Insured
Where the prospective Defendant is a named insured under the subject policy, its insurer cannot pursue a subrogated claim against that insured – even if the loss is attributable to their own conduct – on the basis that the insurer had contractually assumed the materialized risk.
Projected Defendant Covenanted to Insure
The British Columbia Court of Appeal, in its 2000 decision in
Orange Julius v Surrey, found that a tenant could not subrogate against its landlord based on the anti-subrogation rule. Because the subject lease required the tenants to obtain property insurance in the joint names of the landlord and tenant and to waive recourse and subrogation rights against the landlord, the Court of Appeal held that the claims for property damage and consequential losses – such as business interruption – were barred.
Subrogation Waiver/Unnamed Insured
A claim may also be barred by the anti-subrogation rule where the defendant is an “unnamed insured.” In its 2023 decision in
Duri Homes Ltd v Quest Coatings Ltd, the Alberta Court of Appeal held that a party not named in the underlying policy seeking to rely on the anti-subrogation rule must establish that: (1) they are an unnamed insured under the policy; and (2) they have an insurable interest capable of supporting the policy. In that case, Duri’s insurer brought a subrogated action against Quest – who was hired by the property owner and not contracted by Duri directly – to recover amounts paid to repair damage from a fire to a home Duri was constructing and upon which Quest had performed painting and staining before a fire ensued.
In determining that Quest was an unnamed insured, the Court considered clause 1 of the subject policy which insured, among other things, property “owned by others” than the insured so long as that property “enter[ed] into and form[ed] part of the completed project” and was “necessary to complete the project.”
The Court of Appeal ultimately held that because (a) Quest’s property and contributions ultimately formed part of the completed project; and (b) the subject policy included a subrogation bar, Duri was precluded from suing Quest (whose interest was held to be insurable).
Limitations
It is important to note, however, that there are limitations to the anti-subrogation rule: it applies only to negligent – and not intentional – actions. To that end, and in the 2007 case of
Condominium Corporation No. 9813678 v Statesman Corporation, the Alberta Court of Appeal wrote:
The law is well settled that the insurer has no subrogation rights against an insured. In other words, it cannot sue any of its insured for losses paid out under the same policy, no matter how negligent they were in causing the loss (barring arson or other deliberate cause).
Takeaways
The anti-subrogation rule should always be top-of-mind when both making and defending a subrogation claim: when making a claim, it speaks directly to recoverability whereas when defending, it can act as a
carte blanche defence.
Finally, even where the subject policy does not name a party, the anti-subrogation rule might still apply. Insurers and counsel alike should therefore, in that event, query as to whether the subject party (a) is an unnamed insured under the policy; and (b) has an insurable interest in the subject property, such that the rule would still apply.
The opinions expressed in this article are those of the author(s) and should not be taken as legal advice. Any errors, omissions or inaccuracies are the responsibility of the author(s).
