Overview & Facts
In Scaffidi-Argentina v. Tega Homes Developments, 2021 ONCA 738, Tega Homes Developments Inc. (the “Owner”) engaged Goodeve Manhire Inc. and Goodeve Manhire Partners Inc. (collectively, “Goodeve”) to provide engineering consulting and construction services to the Owner’s residential condominium project in Ottawa, Ontario. Following construction, some adjacent properties suffered significant damage due to the project’s excavation works. The owners of the affected adjacent properties named the Owner, Goodeve and other project participants as co-defendants in an action for damages pleading negligence and nuisance. The Owner settled the claims of the adjacent property owners, the payment for which was made by the Owner’s insurer under the Owner’s wrap-up liability policy for the project (the “Policy”). The Policy included, as additional insureds, “all contractors, subcontractors, engineering and architectural consultants.” Accordingly, the Owner’s co-defendant, Goodeve, was an additional insured under the Policy. Importantly, the Policy included a waiver of subrogation clause that provided that “the Insurer shall have no right of subrogation against any Insured under this policy.” Notwithstanding this waiver of subrogation clause, the Owner’s statement of defence and crossclaim in the action “sought contribution and indemnity [from Goodeve] in respect of any amounts [the Owner] might be found liable to pay to the plaintiffs.” Goodeve sought and was granted a motion for summary judgment to dismiss the Owner’s crossclaim against Goodeve on the ground that, as an additional insured under the Policy, Goodeve was entitled to the waiver of subrogation provided therein. The Owner appealed.
(i) Scope of the Waiver of Subrogation
On appeal, the Owner argued that “the [P]olicy does not bar it from asserting a subrogated claim for indemnity against [Goodeve] because they are not covered under the [P]olicy for the professional services claims brought by the property owners.” The Owner’s position was that the Policy specifically excluded coverage for professional liability losses, and as such, their crossclaim was not precluded by the waiver of subrogation clause in respect of those losses. Summarily, the issue was whether coverage exclusions under the Policy had the effect of limiting the scope of the waiver of subrogation clause to applying only to losses covered thereunder. The Court of Appeal, applying the “clear language” principle set out at paragraph 22 of Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33, rejected the Owner’s position and found that the Owner had “contracted out of any right of subrogation against all insureds (including additional insureds) under the [P]olicy.” In other words, the waiver of subrogation clause effectively precluded all subrogated claims as against the insureds generally, including losses for which the Policy specifically excluded coverage. The Court of Appeal endorsed the motion judge’s finding that:
it would have been open to the [Owner] to have changed the wording of the policy, perhaps by altering the scope of the subrogation waiver or the definition of additional insured, to reflect the professional services coverage exclusion.
(ii) De facto Subrogation
The Owner contended that its “crossclaim never became a subrogated claim because its insurer made no payments pursuant to a [P]olicy obligation” in respect of the claims made against Goodeve in the action since they fell within the professional services exclusion. Accordingly, and notwithstanding the overarching settlement payment made by the Owner’s insurer, the Owner argued that its crossclaim against Goodeve simply was not a subrogated claim. The Court of Appeal held that that the Owner’s crossclaim was precluded by the waiver of subrogation, even though it was not pleaded specifically as a subrogated claim, as “[t]he act of seeking indemnity from a third party such as the respondents for payments is, by definition, subrogation.” In finding that the crossclaim was effectively a de facto subrogated claim, the Court stated that “the [Owner’s] insurer made payment to the plaintiffs after damages were assessed at the damages trial” and it was “self-evident that any recovery on the crossclaim would have been paid to the [Owner’s] insurer to cover the settlement amount”. The Court additionally noted that the fact an insurer has not yet made a payment out under an insurance policy “does not change the [subrogated] nature of [a] claim”.
The Tega Homes decision includes at least two important findings regarding a waiver of subrogation in insurance contracts: (1) absent express limiting language to the contrary, the Court will not limit the applicability of a broad waiver of subrogation clause to claims for insured losses only, and (2) the Court may be willing to look past technicalities to find a de facto subrogated claim. Accordingly, parties to insurance contracts should ensure that the language of any subrogation clause clearly reflects their intentions.