Insured has right to control a subrogation claim until fully indemnified, Ontario courts confirm

An insured has a right to control a subrogation claim until such time as it has been fully indemnified, notwithstanding language in a subrogation clause that gives an insurance company the right to be “subrogated to the rights of the insured.”
The Ontario Court of Appeal confirmed a ruling of the Superior Court of Justice in Zurich Insurance Company Ltd. v. Ison T.H. Auto Sales, in an endorsement released on Oct. 25.
Zurich and the Chartis Insurance Company of Canada paid $1.1 million for property losses Toronto Honda sustained following a July 2008 explosion and fire in an apartment building in Toronto. The insured, Toronto Honda, was storing 71 new cars in a rented space in the underground lot of the building.
Toronto Honda claims it has an additional uninsured loss of $700,000. It commenced an action against the alleged wrongdoer and included in the action both its claim for the uninsured loss and Zurich’s subrogated claim against the alleged wrongdoer.
A dispute between the insurers and the insured arose regarding the carriage and control of the subrogated claim.
In arguing that they should have control over the subrogation action, the insurance companies made two points.
First, they said language contained in the policy gave them the right to control the action. The policy states: “The insurer, upon making any payment or assuming liability therefore under this policy, shall be subrogated to all rights of recovery of the insured against any person, and may bring action in the name of the insured to enforce such rights.”
Second, the insurers argued the “fair and sensible” result would be for them to control the claim, since their ‘hard’ $1-million claim for property damage trumped the insured’s ‘soft’ $700,000 claim for business losses.
Both the Ontario Superior Court and the Ontario Court of Appeal rejected the insurer’s claims. The courts ruled Ontario case law “confirms that the insured is in control of the litigation, or dominus litis, until it has been fully indemnified for its insured and uninsured losses.”
The courts further noted Toronto Honda’s subrogation action was for uninsured losses that had no connection with the subject matter of insurance.
“The right to be ‘subrogated to the rights of the insured’ means that the insurer is entitled to stand in the shoes of the insured for the purpose of asserting the insured’s legal rights against the third party,” the Superior Court ruled in a decision that the Court of Appeal described as ‘masterful.’
“It does not mean that the insurer is entitled to assert claims of the insured in which it has no interest.”
On the “fair and sensible” point, the Appeal Court cited the lower court judge’s ruling with approval: “There is no evidence before me to show that Toronto Honda’s business loss claim is any less recoverable than the property claim.”