10 | March 25, 2011 The lawyers weekly Insurance Law www.lawyersweekly.ca 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- Don McGarvey & Tara Argent 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. The amendments were 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 insurance. 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. 62. First, in T. Eaton, the leases provided that “the lessor…will… keep the buildings upon the said Neo Tuytel ‘‘ 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: n “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]”; n “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 n “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 … Agreement.” 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