When I graduated law school, I never expected to practice in an area where waivers of subrogation came up so frequently (or at all). Even today, I’m surprised by the number of times an unattended stovetop can lead to complex coverage issues. Coincidence or not, here we are again; another stovetop, another disputed waiver of subrogation.
The recent Superior Court decision, Rocky Heights v. Judith Biber, involved an application to determine whether subrogation was barred by the language of a CGL policy. The decision does not devote significant space to the background of the claim but the below facts can be deciphered.
Rocky Heights Development Ltd. was the landlord, while Judith Biber and her husband were tenants. Biber also happened to be a corporate officer of Rocky Heights. The Bibers left hot oil on the stove unattended resulting in fire damage to the premises. Rocky Heights had a CGL policy with Optimum, which presumably paid for some of the damage. Optimum sought to subrogate versus Biber in the name of its insured, Rocky Heights.
The Optimum coverage included a “Commercial Building, Equipment and Stock Broad Form”, which contained the following language:
The insurer, upon making payment or assuming liability therefore under this Form, shall be subrogated to all the rights of recovery of the Insured against others and may bring an action to enforce such rights. Notwithstanding the foregoing, all rights of subrogation are hereby waived against any corporation, firm, individual, or other interest with respect to which insurance is provided by this Form. [Emphasis added]
The policy’s definition of “Insured persons” included:
[If the named insured is an] organization other than a partnership or joint venture, the said organization is an insured. The executive officers and directors are insureds, but only with respect to their duties as officers or directors. [Emphasis added]
Rocky Heights (i.e. Optimum, as subrogated insurer) argued that Biber was not in the course of her duties as an officer at the time of the incident causing the fire. As such, it submitted that the insurance was not “provided by [the] form” and the subrogation clause did not extend to Biber in the circumstances.
The court found that the subrogation waiver did extend to Biber, relying heavily on a prior decision, Tony and Jim’s Holdings Ltd. v. Silva, 1999 CanLII 969 (ON CA). In that decision, the Court of Appeal dealt with a very similar situation involving a corporate landlord attempting to subrogate against Mr. Silva who caused a fire while cooking. He was arguably in the course of employment and asserted that he was President of the corporate tenant. The landlord’s insurance policy contained a virtually identical subrogation clause to the Rocky Heights policy.
The Court of Appeal in Silva held that the waiver of subrogation clause applied to Mr. Silva, despite him not being named on the policy or a party to the commercial lease. The decision was largely driven by the fact that the lease impliedly required the landlord to insure the premises. The court found that the lease combined with the subrogation clause supported that Mr. Silva was an intended beneficiary of the waiver.
The court in Rocky Heights fully adopted the conclusions from Silva, although it is not entirely clear that the two are on even footing. Unlike Rocky Heights, the Silva decision did not deal with a similar definition of “insured person”, which appears to limit coverage for officers/directors to acts performed in the course of their corporate responsibilities. As a potential contrasting factor, it seems that in Rocky Heights Ms. Biber may not have been in the course of her employment or her corporate duties. Additionally, in Rocky Heights, it is not clear whether the lease required the landlord to insure the premises and the relevant terms, which were important in extending coverage to Mr. Silva.
Altogether, the recent Rocky Heights decision reinforces the well-established precedent that third parties can benefit from limitations of liability provisions, including waivers of subrogation. However, it would be helpful to have more particulars about the underlying facts. The decision gives application to the prior Silva decision, which on its face might be broader than intended by the Court of Appeal. This may raise some interesting deliberation if Rocky Heights appeals.
See Rocky Heights v. Biber, 2019 ONSC 3593 (CanLII)
Better known around the water cooler as “Amazon Prime”, Tim has a knack for knowing just what his insurance clients need and delivering it overnight (at a premium). Whether he’s flexing his subrogation muscles, “nerding out” over a new coverage issue or investigating fraud, Tim enjoys thinking outside the box.