Royal Host GP Inc. v 1842259, 2018 ONCA 467 is an Ontario Court of Appeal decision regarding the commercial landlord's right to subrogate.
The Appellant – landlord – owns a multi-story commercial building in which it operates a hotel. The respondent – tenant – leased a portion of the building in which they operated a restaurant. Contained within their lease agreement was a requirement for the landlord to obtain fire insurance, which the tenant contributed financially to the premiums for that insurance.
A fire broke out in the respondents' kitchen, resulting in extensive damage to the building. The Appellant was indemnified by their insurer for the losses. As a result, the Appellant's insurer commenced this subrogation claim, in the appellant's name, seeking recovery of damages suffered.
Decision of Motion Judge
The motion judge relied on the trilogy of Supreme Court of Canada decisions: (i) Agnew-Surpass v. Cummer-Yonge; (ii) Ross Southward Tire v. Pyrotech Products; and (iii) T. Eaton Co. v. Smith et al. Citing that "As a general rule, courts have limited the subrogation rights of an insurer when a landlord covenants to pay for the insurance and agrees to look to its own insurer for any loss." Subsequently, the motion judge concluded that the language in the lease did not create a right of subrogation for the landlord's insurer – dismissing the action.
Decision of Ontario Court of Appeal
The Court disagreed with the motion judge's interpretation of the trilogy of Supreme Court decisions. Stating that the Supreme Court trilogy determined that it is the terms of the lease that establish the rights and obligations between landlord and tenant, and not the insurance policy.
Here, the crux of the case focused on the impugned provision of the lease, which stated the landlord would covenant to purchase fire insurance on the building and required the tenant to pay their proportionate share of the cost of such insurance. The Ontario Court of Appeal held that the first part of the provision, if interpreted alone, would give the tenant protection under the landlord's insurance. However, this provision also contained a clear notwithstanding clause that excluded the tenant from i) relief from liability, ii) interest in insurance, and iii) proceeds of insurance. The Court stated that, "to alter the allocation of risk represented by the covenant to insure, express language must be used." The Court found that this notwithstanding clause explicitly and unambiguously provided that the tenant would remain liable for their own negligence despite contributing to the cost of the landlord's insurance.
The Ontario Court of Appeal set aside the motion judge's order, maintaining that the terms of the lease establish rights and obligations between landlords and tenants, and not the insurance policy.
Put simply, this Court of Appeal finding stands for the principle that the interpretation of language included in a commercial lease is paramount when determining whether a landlord has the right to subrogate. Without clear and unambiguous language, the Supreme Court trilogy continues to apply the common law principle that the tenant will enjoy protection from the landlord's insurance.
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