A Subrogated Claim against an Employee Common to both Plaintiff and Defendant is Bound to Fail

A subrogated claim against an individual and corporate entities was dismissed after the court found both the defendants and the plaintiff were the common employers of the individual who actually started the fire.

Insurance law – Fire insurance – Policies and insurance contracts – Unnamed insured – Subrogation – Right of insurer to subrogation – Employee – Vicarious liability – Insurer – Rights and duties of insurer

Shamac Country Inns Ltd. v. Sandy’s Oilfield Hauling Ltd., [2015] A.J. No. 905, August 17, 2015, Alberta Court of Queen’s Bench, Master R.P. Wacowich

The insured plaintiff owned and operated a hotel which burnt down. The insured commenced a subrogated claim on behalf of its insurer against a number of corporate entities as well as the individual who started the fire while using a propane torch to thaw ice in the drain pipe. The insured claimed the corporate defendants were vicariously liable for the acts of the individual. The corporate defendants as well as the plaintiff insured were all related companies and controlled by the same person. The defendants applied for summary judgment to have the action dismissed.

The corporate defendants argued the individual who started the fire was a common employee of the corporate defendants and the plaintiff insured. Accordingly, they argued the insurer was attempting to sue the insured’s own employee which was not permitted at law and, even if the individual was negligent, he was an unnamed insured because he was a common employee of the insured. As the insured was barred from claiming against his employee, the insurer was also barred. The corporate defendants took the position that, without a cause of action against the individual, there could be no vicarious liability on the part of the corporate defendants. The insured argued one or more of the corporate defendants employed the individual and that the individual was a “borrowed employee” rather than a common employee.

The individual was hired as a handyman/driver to work at the hotel which burnt down, another hotel owned by the insured, a rental property owned by one of the defendants, and as a driver for one of the defendant’s businesses. He spent more than 90% of his time working at the two hotels owned by the insured. At the time of the fire, one person owned all of the related companies, including the insured. The individual defendant was on one of the corporate defendant’s payroll because that company had greater cash flow. The same corporate defendant arranged for various benefits for the individual. The individual took overall direction from the owner of the related companies. At some point, the other related companies were reimbursing the payroll company for the salary paid to the individual.

The court reviewed the factors to consider in determining who the employer is when dealing with groups of related companies. It also reviewed the law on “common employees” and “borrowed employees”. The court held the evidence favoured a finding that the insured, along with the corporate defendants, were the common employers of the individual at the time of the fire. The borrowed employee principle did not apply. The insured was barred from claiming against the individual for the alleged negligence because an employer does not have a right to sue its own employee for simple negligence. The court dismissed the claim against the corporate defendants as there could be no vicarious liability on an employer without negligence by an employee.

This case was digested by Djuna M. Field and edited by David W. Pilley of Harper Grey LLP. If you would like to discuss this case further, please feel free to contact them directly at dfield@harpergrey.com or dpilley@harpergrey.com or review their biographies at http://www.harpergrey.com.

To stay current with the new case law and emerging legal issues in this area, subscribe here.