Insurer’s right to subrograte under Standard Mortgage Clause requires fulfillment of two preconditions, (1) the insurer must make payment of the loss award, or part of it, to the mortgagee; and (2) the insurer must establish a claim that it has no liability to the mortgagor.
Pinder v. Farmers’ Mutual Insurance Co. (Lindsay),  O.J. No. 4964, November 26, 2009, Ontario Court of Appeal, D.R. O’Connor A.C.J.O., R.A. Blair and R.G. Juriansz JJ.A.
This appeal raised the question of whether the subrogation right of an insurer under the Standard Mortgage Clause in a home insurance policy may be exercised simply on the insurer paying the loss award to the mortgagee without the insurer establishing that it has no liability to the insured.
The Respondent Insurer had insured the home of the Appellant Insureds. The Insureds had a mortgage with the Bank of Montreal. The Insureds submitted a claim to the Insurer seeking indemnity for repairs to the house, damage to its contents, and additional living expenses following a fire. The Insurer denied their claim on two grounds:
1) the Insureds had voided the policy by failing to notify the Insurer of a material change in the risk, namely, a change in the heating system of the premises; and
2) the Insureds had made wilfully false statements with respect to their contents claim and their claim for alternative living expenses, thus vitiating their right to recover.
The Bank of Montreal submitted a Proof of Loss seeking payment of the mortgage under the Standard Mortgage Clause and the Insurer paid that claim. The Insurer then, relying on its right of subrogation under the Standard Mortgage Clause, claimed the sum it had paid to the Bank of Montreal from the Insureds. The motions judge granted summary judgment against the Insureds in the amount paid by the Insurer to the Bank of Montreal. The Insureds appealed seeking an Order dismissing the Insurer’s Motion for Summary Judgment directing that the two Actions be tried together (the Insureds had commenced a separate proceeding against the Insurer seeking a Declaration that the policy was valid and enforceable).
The Court of Appeal held that there are two preconditions to the Insurers’ entitlement to subrogation under the Standard Mortgage Clause. First, the Insurer must make payment of the loss award, or part of it, to the mortgagee. Second, the Insurer must establish a claim that it has no liability to the mortgagor insured. The Court found that this conclusion flows from the construction of the Standard Mortgage Clause and is not dependent on the specific facts of the case.
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