Canada: Tort Immunity Arising From Covenants To Insure: The BC Court Of Appeal Confirms Bar To Subrogated Claims

The BC Court of Appeal handed down reasons for judgment yesterday (January 9, 2013) in the most recent case related to covenants to insure:Kruger Products Limited v. First Choice Logistics Inc., 2013 BCCA 3 ("Kruger") on appeal from the trial decision (2010 BCSC 1242).

The facts of Kruger are relatively straightforward: Kruger, also known as Scott, owned both unfinished and finished paper products that were stored in a warehouse operated by the defendant First Choice Logistics Inc. ("FCL"). Due to known issues with the forklifts used in the warehouse, a section of paper caught on fire, which, in turn, ignited a stack of paper rolls. The fire quickly became too large to control and, ultimately, the entire warehouse and all of its contents was destroyed by the fire. A subrogated claim was brought by Scott's insurer against FCL.

One of the grounds of appeal related to the trial judge's finding of causation. The Court of Appeal upheld the decision in that regard; FCL breached its standard of care and caused the loss.

The bulk of the Court's analysis focused not on the facts of the case, but on the question of law regarding covenants to insure. This aspect of the case is also of the most relevance to those in the insurance industry.

At trial, it was found that the parties entered into a Warehouse Management Agreement that contained a covenant by Scott to maintain general liability insurance, tenant's legal liability insurance, and insurance of its inventory and property within the warehouse. Scott further covenanted to add FCL as an additional insured under all insurance policies it maintained. As a further point, it was noted that the Warehouse Management Agreement stated that, "all insurance policies contemplated hereunder shall constitute and respond as primary coverage to any insurance otherwise available to Scott".

Despite the covenant to insure above, the trial judge found that the subrogated action against FCL was not barred. He distinguished landlord-tenant cases (such as the famous trilogy of Agnew-Surpass Shoe Stores Ltd. v. Cummer-Yonge Investments Ltd. [1976] 2 S.C.R. 221, Ross Southward Tire Ltd. v. Pyrotech Products Ltd. [1976] 2 S.C.R. 35, and T. Eaton Co. v. Smith [1978] 2 S.C.R. 749) and construction project cases from Kruger, which involved a bailor and bailee. Because, in the trial judge's reasoning, a warehouser such as FCL does not have an insurable interest in the goods it stores, very clear and specific language would be needed for a covenant to insure to override that warehouser's contractual duty not to act negligently. That explicit wording being absent in Kruger, the trial judge found that the covenant to insure did not affect FCL's indemnification to hold Scott harmless from FCL's negligence.

The Court of Appeal reversed the decision of the trial judge with respect to the covenant to insure. J.A. Newbury, writing on behalf of a unanimous Court of Appeal, found that a warehouser does have an insurable interest in the property it stores because of the possibility of liability should something happen to that property. In any event, the Court of Appeal found that an insurable interest is not necessary where a covenant to insure is designed to benefit a party against whom a subrogated claim is brought. In Kruger, Scott was responsible for paying the insurance premiums stemming from the covenant to insure. Although in previous cases, such as those in the trilogy above, the negligent party paid the insurance premiums, the Court of Appeal found this difference to be unimportant. Support for the finding that the covenant to insure was for the benefit of FCL was found in the parties' express acknowledgment that the insurance referred to would respond as primary coverage.

J.A. Newbury also addressed a policy concern raised by the trial judge: that allowing tort immunity in situations such as Kruger would effectively encourage carelessness. J.A. Newbury disagreed with the trial judge's reasoning, and in this writer's opinion, one can easily appreciate that there are numerous reasons why simply being protected from liability does not mean that a party will act carelessly. In addition, it was noted that insurance covenants give certainty to the parties that make such covenants. Rather than relying on a party's financial ability to pay should its negligence cause a loss to occur, a party making a covenant can be certain that an insurer will answer should such a situation arise.

As a final point, J.A. Newbury noted that if the covenant to insure did not give rise to tort immunity for FCL, there would be no benefit to the provision whatsoever.

For insurers, the decision in Kruger may be viewed as a further restriction on the ability to make subrogated claims. It is important for insurers to know of the contents of contracts signed by its insureds. Where an insured has covenanted to name another party as an additional insured, it is likely that that party will be protected from a subrogated claim brought against it. This is true regardless of whether or not the insured actually informs the insurer of the promises it made to insure, and regardless of the negligence of the party that caused the loss.

It is conceivable that our courts could reach a different conclusion in different circumstances (i.e. one involving a very narrowly worded covenant to insure), but it appears that tort immunity based on covenants to insure is an expanding rather than contracting sphere.

Defences arising from covenants to insure occupy a very technical area of insurance law and one that is not well understood by many in the industry. Readers who wish to view a more detailed analysis can access a paper on the topic on our website at This paper was cited by the Court of Appeal in Kruger.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Alexander Holburn Beaudin + Lang LLP
Alexander Holburn Beaudin + Lang LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Alexander Holburn Beaudin + Lang LLP
Alexander Holburn Beaudin + Lang LLP
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions