How Insurers Can Lose Their Subrogation Rights: Lessons From Millennium Insurance Corporation v. Kapeluck (2025 ABCA 82)

Subrogation is a powerful recovery tool for insurers, but it is not automatic. The recent decision of the Alberta Court of Appeal (the "Court") in Millennium Insurance Corporation v. Kapeluck, 2025 ABCA 82 ("Kapeluck") provides a clear example and guidance as to some of the circumstances in which subrogation rights may be lost.

For insurers, in-house counsel, and claims managers, Kapeluck is a timely reminder that subrogation rights can vanish through inaction or missteps, even when policy language appears to preserve them.

What happened in Kapeluck, and why did it disrupt subrogation rights?

The respondents (the plaintiffs in the original lawsuit) were spouses who purchased a new home to be constructed. They obtained new home warranty insurance from Millennium Insurance Corporation ("Millennium"), and after their home was constructed, sued numerous parties, including Millennium, alleging negligence and breach of contract in the construction of their home. Millennium defended the claim, and in its defence asserted a right of set-off, based on Millennium having paid to or on behalf of the respondents approximately $140,572.

The respondents later reached a settlement with some of the co-defendants and entered into a Pierringer agreement with the settling defendants. A Pierringer agreement is a settlement with some, but not all defendants, in which the settling defendants will be fully removed from the action. The plaintiffs' remaining claim is limited to the proportionate liability of the remaining defendants as may be subsequently determined by the court, and crossclaims and third-party claims against the settling defendants will be dismissed and/or barred. A Pierringer agreement requires court approval, for which the respondents applied.

Millennium opposed the application, arguing that the respondents' claim must "subsume or include" Millennium's subrogated claim, including as against the settling defendants, and that the proposed Pierringer agreement prejudiced Millennium's right of subrogation. The Court of King's Bench of Alberta granted an order approving the Pierringer agreement, and Millennium appealed.

What did the Court of Appeal decide in Kapeluck?

The Court dismissed Millennium's appeal. The Court observed that at common law, an insurer would have subrogation rights only if the insured had been fully indemnified. The respondents' insurance policy with Millennium, however, permitted Millennium to bring an action at its own expense if Millennium "makes a payment or undertakes a repair, or assumes liability for any payment or repair under this Policy."

Millennium had crossed that threshold, but it was not enough for Millennium to succeed in its appeal. Fatal to Millennium's position were the following factors:

• There was no evidence that Millennium intended to advance a subrogated claim, or that it was relying on the respondents to include a subrogated claim on Millennium's behalf;
• Millennium did not involve itself in any aspect of the prosecution of the respondents' claim, or contribute toward the respondents' legal costs;
• Millennium asserted its subrogation right only when the respondents sought approval of the Pierringer agreement with the settling defendants; and
• There was adversity between the respondents and Millennium, in that Millennium had asserted a right of set-off in its defence of the respondents' claim.

Relying on the Ontario case of Tree-Techol Tree Technology v. Via Rail Canada Inc., 2017 ONSC 755, affirmed 2017 ONCA 876, the Court determined that the respondents had not included any subrogated claim in their Statement of Claim – even implicitly – and that Millennium had failed to take necessary steps to make and pursue a subrogated claim.

The Court also noted that the chambers judge in the Court of King's Bench of Alberta had expressed concern with the equities of Millennium's conduct in this case, i.e., having done nothing to assert or advance its subrogated claim while the respondents advanced their claim for years at their own expense, only to assert a subrogated claim when the respondents had reached a settlement with the settling defendants. Both levels of court viewed that conduct by Millennium to amount to Millennium having been "lying in the weeds."

What are the key lessons for insurers?

The Kapeluck decision offers several practical takeaways for insurers and claims professionals:

• Act promptly: Subrogation rights are not self-executing. They must be actively asserted and pursued.
• Document your intent: If relying on the insured to advance a subrogated claim, make that arrangement explicit, preferably in writing.
• Avoid adversarial positions: Once an insurer becomes adverse to its insured, its subrogation rights may be compromised.
• Coordinate litigation strategy: Maintain communication and alignment with insured parties and co-defendants to prevent procedural conflicts.

Takeaways

Kapeluck is an important reminder to insurers that rights of subrogation must be asserted and pursued timely and in accordance with policy provisions, or risk being lost. In particular, an insurer that sleeps on its subrogation rights and takes an adversarial position toward its insured will likely lose subrogation rights. This is so even where the insured has caused or contributed to adversity as between the insured and insurer, by naming the insurer as a co-defendant in an action seeking compensation from both the insurer and others for the insured's loss and damage.

What is subrogation in insurance law?

Subrogation allows an insurer that has paid a loss to step into the insured's shoes to recover from responsible third parties.

Why did Millennium Insurance lose its subrogation rights in Kapeluck?

Because it failed to assert or act on those rights in a timely manner, remained passive during litigation, and took an adversarial stance toward its insured.

What did the Alberta Court of Appeal emphasize about insurer conduct?

That equitable and timely engagement is essential: an insurer that remains passive and later claims subrogation may well lose its subrogation rights.

What practical steps can insurers take to protect subrogation rights?

Document intent early, coordinate with insureds, take active and cooperative steps to try to prevent the insurer being named a co-defendant in any litigation by the insured, and participate in and provide financial support for litigation when relevant claims are pursued.

How does Kapeluck influence future insurance litigation?

It provides support from the Alberta Court of Appeal for previous Ontario case law holding insurers accountable for delay or disengagement in subrogation matters. These principles are likely to be adopted and applied in similar cases in other Canadian common law provinces.

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.