The right to subrogate parallels the right of the insured to recover damages

An insurer may not bring a subrogated claim against an employee of an insured where the insured has no right to claim against the employee.

Portage La Prairie Mutual Insurance Co. v. MacLean, [2012] N.S.J. No. 520, October 1, 2012, Nova Scotia Supreme Court, P.J. Duncan J.

The insurer brought a claim on behalf of the insured against its entry-level employee for losses arising out of a fire it alleged was caused by the employee’s negligence.

In the course of the defendant employee’s employment with the insured, she left a hot plate unattended. When she returned, there were full-blown flames. The fire caused substantial property damage to the insured. The insurer’s expert testified the fire was probably caused by the heat from the hot plate.

The employee brought an application for summary judgment to have the claim dismissed. The Court’s decision to dismiss the claim turned on whether the insurer had a real chance of success. This involved a question of law as to the nature of a subrogated claim. An insurer has no greater rights in a subrogated claim against the employee than those held by the insured. Therefore, the overarching question was whether the law permitted the insured employer to hold its employee liable in tort for loss arising from the property damage.

Applying the Anns test, the Court held a duty of care did not arise between these parties such that an employee was liable to an employer for ordinary negligence in these circumstances. Thus, the insured had no cause of action against the employee for ordinary negligence. The action was dismissed as the insurer had no real chance of success.

In obiter, it was held that the insurer had specifically contracted out of the right to sue an employee of the insured. In the CGL portion of the policy, the insurer named employees as insureds for negligent acts carried out in the course of employment. Section 11 of the property portion of the policy provided that, upon making any payment under the policy, the insurer was subrogated to all right of recovery of the insured. However, this section also provided that all rights of subrogation were waived against any person to which insurance was provided under the policy. The Court held the waiver in s. 11 encompassed both the property and CGL portions of the policy. Thus, the Court held, on plain reading, the rights of subrogation against the employee had been specifically waived by the insurer as employees of the insured were covered under the policy, specifically the CGL portion.

This case was digested by Djuna M. Field and edited by David W. Pilley of Harper Grey LLP.

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