Subrogation by an insurer in co-ownership matters

On October 23, in Optimum Insurance Company Inc. v. National Security Insurance Company¹, the Superior Court of Québec reiterated the extent of subrogation by an insurer in the rights of a syndicate of co-ownership.

In this case, a fire was caused by an article used for smoking that caught fire near a flowerpot located on the balcony of a private unit. The fire spread into the common portion of the co-ownership, causing more than $1.5 million in damages. The co-owner of the unit did not commit a gross or intentional fault. In the declaration of co-ownership, there is no clause whereby the syndicate of co-ownership waived its right to sue co-owners.

The insurer of the co-ownership compensated the syndicate of co-ownership for the damages and subsequently filed an action against the co-owner. The insurer alleged that it was entitled to sue the co-owner in order to recover the damages paid to the syndicate of co-ownership, since it was subrogated in its right.

The Court stated that there are situations where insured persons were unnamed in insurance policies. These are, by extension of the definition of an “insured”, unnamed insured persons and represent an exception to the rule that only the persons expressly designated in the insurance policy can benefit from the insurance coverage. If the co-owner qualifies as an unnamed insured, the recourse of the insurer would then be assimilated as suing the insured in order to recover the compensation paid to its insured…

In order to determine the co-owners’ status in the insurance policy, the Court analyzed the syndicate’s obligations in the declaration of co-ownership, including the syndicate’s obligation to enter into and maintain insurance for the common portion and the private portions, and the fact that the insurance premiums are indirectly paid by the co-owners through the common expenses. Given these two factors, the Court determined that the co-owners represent unnamed insured persons and thus, could not be sued by the insurer for damages covered by the policy.

Therefore, even in the absence of an explicit waiver of the right to sue the co-owners in the declaration of co-ownership, a syndicate of co-ownership, which takes out an insurance policy for the common portion and the private portions at the expense of the co-owners, implicitly waives its right to sue its co-owners for damages that may be caused by no intentional or willful fault. Therefore, as unnamed insureds, the co-owners cannot be sued by the insurer.

By Catherine Demers

¹ 2019 QCCS 4391.