In order to determine whether or not subrogation is a viable option with respect to any loss, it is first necessary to consider the cause of the loss, followed closely by who is responsible for the loss.
In the instance of a fire caused entirely by the negligence of the Insured, there is no wrong-doer or tortfeasor to sue. For instance, where the Insured knocks over a candle that he or she lit or where the Insured leaves a pot of oil on a stove unattended causing a fire. The circumstances change if the Insured knocks over a candle that he or she did not light and did not know was lit or if the Insured leaves a pot of oil on a stove when all of the elements are in the off position. The question then becomes: How did the fire start and who is liable for the resulting fire damage?
When a loss occurs and there is an indication that it might have been caused by a product failure or the negligence of someone other than the Insured, it is best to obtain a report with respect to its cause as quickly as possible. Having an expert perform an examination shortly following a loss will make it more likely that the expert will have access to evidence necessary for the purposes of analyzing the cause of the loss. Moreover, the expert's report will be instructive in determining the identities of parties who should be included in the claim.
This is especially critical in losses such as fires, where the entirety of the evidence as to the cause of the loss can be easily disturbed, and must necessarily be destroyed in order to repair the damage.
In many cases, destructive testing will be required as part of the investigation, and that should only be done after all known parties are invited to participate in the testing. If this cannot be arranged immediately, you will have to rely on the initial opinion of the expert to guide your decision making. The importance of identifying all potentially liable parties when contemplating subrogation cannot be overstated. In Ontario, the basic limitation period in which to start a claim is two years from the day on which the claim was discovered.1 & 2
It is therefore imperative that all potentially liable parties are identified as quickly as possible following a loss and well in advance of two years from the date on which the loss occurred. Early identification of potentially liable parties also increases the prospect of early settlement discussions in a matter and potential resolution, as well as assisting in identifying evidence that should be preserved in order to prove the claim.
In cases of fire that start following the work of a contractor or subcontractor, where it appears that the fire began as a result of that work or during that work, it is important to identify the party with whom the Insured contracted for the work and the party whose negligence caused the fire. With respect to the work of the party with whom the Insured contracted, the claim against the contractor may be pleaded in contract, in that the contract was breached, and in negligence. With respect to the work of any party who caused the fire, a claim for negligence may be made.
It is essential that the party with whom the Insured contracted is included as a Defendant in the claim. That party arguably had a duty to carry out the work competently and lawfully and to contract with competent subcontractors or employ competent agents, servants and/or employees in execution of the work.
Although pursuing the contractor alone is generally sufficient, it is often advisable to include the subcontractor. First of all, the Defendant contractor has no obligation to start a third party action against the subcontractor. Where the Defendant decides to do so, the process can be a lengthy one and will usually delay progress in the main action.
If the Defendant contractor cannot be found or does not have insurance, it may be impossible, in the former instance, or difficult, in the latter, to recover any amount for damages from the contractor.
Finally, by including the subcontractor in the claim, it is more likely that the parties will be able to obtain all relevant documents pertaining to the action. It also provides the Insured with an opportunity to examine the subcontractor for discovery which may assist in proving the claim against one or both of the tortfeasors.
Where there are several subcontractors involved in a project during which a fire is caused, it is generally prudent to include all of them in the claim for the reasons above.
In cases of flooding or water damage, there are several parties who may be liable for the damages caused, depending on the source of the water escape. For example, where a flexible connector is involved, the parties who may bear some responsibility include the manufacturer of the connector, the plumbing contractor who installed it, the plumbing contractor who repaired or serviced it subsequent to its installation and the home builder who sold the property to the insured in the first place.
In all product failures, a claim may be asserted directly as against the person who sold the defective item to the Insured3 but it remains prudent to investigate the entire supply chain, and name all parties through whom the product passed. The manufacturer of the product has an obvious level of exposure to the claim, but vendors in the supply chain may also have exposure if they did or should have conducted tests of the defective product, or if they were in a position to have warned users of the product.
Failure to Prevent/Mitigate
The avenue to subrogation is obvious where a party may have been directly responsible for causing the loss, but there remain other avenues of subrogation that can be pursued. In the case of defective workmanship, consideration should be given to any parties who had an obligation to inspect such workmanship. This can include architects or engineers, construction managers, municipal inspectors, administrative authorities, etc. Although these parties often had no part in directly causing the loss, they may have been in a position to discover the defective workmanship which ultimately caused the failure, and can be held liable for this.
Likewise, after a loss has occurred, a number of parties are responsible for mitigating the loss, such as emergency and security personnel, and those responsible for automatic mitigation systems such as sprinklers. In the event that the immediate response to the loss is not as effective as expected, there may be available avenues to pursue these parties for failure to properly respond to the loss. While actions as against emergency services such as fire departments can be difficult to succeed in, actions as against security companies, and parties responsible for the design and construction of fire suppression systems can be very lucrative.
Unfortunately, this class of subrogation target will often not be held liable for the full extent of the loss, as they ultimately did not cause it. However, when more direct targets are not available, or have insufficient insurance coverage, pursuing these targets can greatly increase the recovery potential.
The initial investigation following a loss is crucial. Obtaining a statement from the Insured and anyone else who is aware of the circumstances giving rise to the loss at the outset will ensure that the evidence is preserved over time as memories fade. Physical evidence should also be identified and preserved immediately. Consideration should be given to whether or not an expert's report is necessary in order to determine what caused the loss, the identities of potentially liable parties and, inevitably, assisting in proving the claim if the matter proceeds to litigation.
1. Limitations Act, 2002, S.O. 2002, c. 24, Sched. B.
2. Generally speaking, the date of loss should be treated as the date on which the claim was discovered for the purposes of setting a limitation period. However, each case must be considered on its facts.
3. Sale of Goods Act, R.S.O. 1990, c. S-1.
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.