Insurer not entitled to pursue subrogated action in name of insured who was an undischarged bankrupt at time action was commenced

Insurance law – Homeowner’s insurance – Right of insurer to subrogation – Practice – Appeals

Douglas v. Stan Fergusson Fuels Ltd., [2018] O.J. No. 1266, 2018 ONCA 192, Ontario Court of Appeal, March 9, 2018, A. Hoy, A.C.J.O., P.S. Rouleau, C.W. Hourigan, M.L. Benotto and L.B. Roberts JJ.A.

An insurer brought a subrogated action in the name of its insureds, who were homeowners insured under a homeowner’s insurance policy. In 2008, a fuel company attended the insureds’ property for a routine home oil delivery. During the delivery, the entire shipment of heating oil escaped and contaminated the property. The policy covered the damage. The insurer sought to recover its losses by way of a subrogated action against the fuel company.

In 2007, one of the insureds had made an assignment in bankruptcy. She received a discharge from her debts, but her interest in the property remained vested in her trustee.

In 2009, the other insured made an assignment in bankruptcy and he was replaced on title to the property.

The insurer commenced the action against the fuel company in 2010. The fuel company brought a motion for summary judgment to dismiss the claim, but the motion was dismissed. The fuel company appealed that dismissal arguing the insureds had no capacity to bring the action because each had become bankrupt before the claim was issued with the result that their property, as well as any causes of action, had vested in their trustees, who were not named plaintiffs. The appeal was dismissed on the basis that the insurer had the right to bring a subrogated action in the name of the insured who made an assignment in bankruptcy after the loss.  The fuel company appealed to the Ontario Court of Appeal.

The Ontario Court of Appeal allowed the appeal and dismissed the action. The court found the insurer was not entitled to commence an action in the name of the insured. At the time the action was commenced, the insureds’ cause of action had vested in his trustee and he was an undischarged bankrupt. As a result, the insured lacked capacity to bring the action and the insurer could not commence a subrogated claim in his name.

This case was digested by Cameron B. Elder, and first published in the LexisNexis® Harper Grey Administrative Law Netletter and the Harper Grey Administrative Law Newsletter. If you would like to discuss this case further, please contact Cameron B. Elder at [email protected].