An insurer may recover all funds paid to an insured through subrogation, even if the insured does not recover all of the funds paid to her from the tortfeasor in the underlying lawsuit

The Insured was unsuccessful in her appeal of the decision of the Summary Trial Judge finding that she was required to repay the Saskatchewan Health-Care Association (the “Association”) for disability benefits she had received under the Plan administered by the Association.  The insured claimed that her lawyer was in conflict of interest because he represented both her, and her subrogated insurer’s interests, when he settled her claim.  In addition, the insured argued that the insurer could not subrogate for all of their paid proceeds since the claim was settled on a compromised basis.  The Court of Appeal rejected this argument on the basis that an insurance company should not suffer a financial loss because an insured settled her claim on a compromised basis.

Saskatchewan Health-Health Care Assn. v. Zipchen, [2007] S.J. No. 620.  Saskatchewan Court of Appeal.  G.R. Jackson, R.G. Richards and Y.G.K. Wilkinson J.J.A.

The Insured was injured in several motor vehicle accidents. She received disability benefits under a disability plan (the “Plan”) administered by the Association. The Plan provided the Association with a right of subrogation in respect of benefit paid thereunder. The Insured subsequently settled her civil actions with Saskatchewan General Insurance (“SGI”) and the Association claimed a subrogated interest in the settlement funds. The Association was successful in an application for summary judgment finding that the Insured was required to repay disability benefits that had been provided to her in the amount of roughly $27,900.

On appeal, the Insured argued that because the lawyer who had acted for her in settling the motor vehicle accident cases had also agreed to act for the Association with respect to its subrogation rights, this created a conflict of interest which should operate to preclude the Association from acting on its rights of subrogation. The Chambers Judge found that if the Insured did have valid claims against third parties, such as her lawyer, she could pursue them in other proceedings. The Court of Appeal agreed and noted that any failure by her lawyer or any actions by SGI in relation to the subrogation issue would not negate the Association’s rights under the Plan.

The second argument advanced by the Insured was that the Association had no right of subrogation because it had failed to comply with various provisions in the Saskatchewan Insurance Act (the “Act”). The Court of Appeal noted that the provisions in the Act operate with respect to “contracts of insurance” and that it was not clear whether the Plan was a contract of insurance. The coverage at issue was not provided by a third party insurer, but rather, by the Health District or the Association on its behalf. The second difficulty with this argument was that the provisions in the Act which the Insured relied on did not apply to contracts of “accident” and “sickness” insurance. Since coverage provided under the Plan was in the nature of disability insurance coverage, the Plan would, on its face, come within the meaning of accident or sickness insurance as these terms were used in the Act. Thus, even if the Plan was a contract of insurance, it would not attract the provisions that the Insured sought to rely on.

The Insured also argued that the Chambers Judge had erred with respect to the amount of money he had awarded to the Association. In particular, she argued that because she received less on settlement than she had demanded for past income loss, the amount that the Association was entitled to collect from her should have been reduced in the same proportion. The Court of Appeal rejected this argument, finding that there was no legal basis for concluding that the Association’s claim should be cut back to reflect the compromise that the Insured had made in settling her lawsuit.

The insured made a number of other arguments which were not persuasive, including an argument that the Chambers Judge had erred in failing to recognize the stress that the proceedings had caused her or the loss of opportunity which they had involved.

The Court of Appeal therefore found that there was no basis for interfering with the decision of the Chambers Judge.

This case was originally summarized by Shanti Davies and edited by David W. Pilley.

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