The Ontario Court of Appeal's decision in Szilvasy v. Reliance Home Comfort 2012 ONCA 821 will prove to be a watershed decision in relation to subrogation recovery claims involving hot water tank leaks. The Court dismissed the appeal from the Divisional Court and upheld Reliance's liability to renters of hot water tanks which leak and cause property damage.

The lower courts had found Reliance liable for the water damage caused by the leaking hot water tanks on the basis of breach of the implied warranties set out in the Consumer Protection Act, 2002 and the Sale of Goods Act. The Court of Appeal unanimously upheld this result. In the course of her decision, Madam Justice Gillese made these pithy observations and comments:

[42]  Ms. Szilvasy was an ordinary homeowner. Reliance is in the business of supplying – by means of providing and servicing – hot water tanks to residences. At the relevant time, Reliance had approximately 1.2 million tanks on lease to its customers. In the circumstances, there can be no doubt but that Reliance knew the purpose for which Ms. Szilvasy rented the hot water heater (namely, to produce hot water for her home) and that she was relying on its skill and judgment to provide a properly functioning water heater. Accordingly, pursuant to s. 15.1, there was an implied condition that the water heater would be "reasonably fit" for the purpose of heating water in her home. The water heater in question was not reasonably fit for that purpose because it leaked.

[43]  Reliance argues that this interpretation amounts to the court implying a warranty that the rental heater would be "as good as new" throughout the term of the lease. I disagree. The water heater need not be in the same condition as a new heater. It can be worn, rusted or otherwise in a less than pristine condition so long as it is reasonably fit for the purpose of heating water – without leaking.

This is a very favourable decision for property insurers that are in a position to subrogate for property damage caused by leaking hot water tanks. Reliance will be held strictly liable for the damages flowing from such leaks and will not be in a position to argue contributory negligence on the part of the property owners. Nor will Reliance be able to contract out of these implied warranties as the Consumer Protection Act, 2002 does not permit same. We expect that this decision will compel hot water tank rental companies to be a bit more proactive in terms of monitoring the condition of its leased hot water tanks and replacing those which are getting long in the tooth. In the aftermath of this decision, hot water tank rental companies have initiated settlement negotiations with property insurers to resolve pending subrogation claims. Property insurers should take advantage of this opportunity.

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