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
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
 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.
 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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