February 25, 2019 by Greg Meckbach
A Thunder Bay restaurant operator has lost its bid to block an insurer from filing a subrogated claim arising from a fire.
The Supreme Court of Canada announced Feb. 21 it will not hear an appeal from the Sushi Station restaurant, legally known as 1842259 Ontario Ltd. The restaurant is being sued by landlord Royal Host GP Inc., a subrogated claim launched by the landlord’s insurer. The insurer seeks to recover costs for emergency services, restoration, damaged contents and the loss of income suffered while the hotel was closed and being repaired.
Allegations against Sushi Station have not been proven in court. The Sushi Station is in a multi-storey Travelodge hotel. The 2011 fire broke out in the kitchen of Sushi Station and caused damage to other areas of the building.
The restaurant wanted to appeal Royal Host GP Inc. v. 1842259 Ontario Ltd., a Court of appeal for Ontario ruling released in May 2018. The decision overturned a 2017 ruling by Ontario Superior Court Justice Marc Garson. Initially, Judge Garson ruled in favour of the restaurant operator, finding the subrogated claim was barred.
The lease agreement between Royal Host and the restaurant requires the landlord to have $10 million in property insurance. It also requires the tenant to pay part of that insurance.
But the lease also stipulates that the tenant is not relieved of any liability arising from its negligence or omissions. In addition, no insurance interest is conferred upon the tenant under any policies of insurance carried by the landlord.
Justice Garson nevertheless found the lease agreement bars a subrogated claim against the tenant. The lease agreement, he ruled, did not “expressly preserve the right of subrogation by the landlord’s insurer against the defendants.”
As a general rule, Garson wrote, “courts have limited the subrogation rights of an insurer when a landlord covenants to pay for the insurance and agrees to look to its own insurer for any loss.” In support of his decision, the judge cited a trilogy of Supreme Court of Canada rulings from the 1970s.
Pyrotech Products Ltd. v. Ross Southward Tire Ltd., Smith v. T. Eaton Co. and Cummer-Yonge Investments Ltd. v. Agnew-Surpass Shoe Stores Ltd. are all based on fires on commercial property.
That trilogy established that when a landlord agrees to insure the premises, this is for the benefit of the tenant, who would get no benefit if the landlord could sue the tenant. Another general principal from the Eaton trilogy is that when a tenant pays for insurance coverage, it should benefit from that coverage.
But the trial judge erred in allowing the principles from the 1970s trilogy to override the plain language contained in the lease between Royal Host and the numbered company operating the Sushi Station, Justice Russell Juriansz of the Court of Appeal for Ontario countered.
The principles from the Eaton trilogy did not establish free-standing principles but rather “reflect the particular provisions of the leases that were in issue in those cases,” Justice Juriansz wrote. “In law, a tenant is liable for damage caused by its negligence. The question is whether the parties to a lease have contracted that the ordinary principles of negligence law will not apply and the tenant will not be liable to the landlord for damages caused by its negligence.”
The lease agreement between 1842259 Ontario and Royal Host has a “notwithstanding” clause. It states that, “notwithstanding” the landlord’s obligation to have fire insurance, and “notwithstanding” any contribution by the tenant towards the landlord’s insurance, the tenant agrees to three provisions: