Insurer is entitled to deduct the third party’s liability under subrogation provided it establishes the third party as the tortfeasor.
A (Appellant) and B (Driver) met with single-vehicle crash after returning from reception hosted by C where D (bartender) had served them drink. A brought claim against E [insurer under Ontario Policy Change 44R Form (OPCF)]. E brought claim against D for negligence and indemnity and C brought claim against D for negligence under the Liquor Licence Act. A had not brought any claim against D. There were five issues before the Judge out that two questions based on interpretation of the law are discussed below.
First, whether E is entitled to deduct the limits of D’s insurance coverage in calculating the amount it is required to pay to A? A’s protection under insurance coverage was $1,000,000, out of which $200,000 was limit of B’s motor vehicle policy, hence E’s maximum liability was $800,000. Under S. 20 of the OPCF 44R form, the insurer is subrogated to the rights of the eligible claimant by whom a claim is made, and may maintain an action in the name of that person against the inadequately insured motorist and the persons (tortfeasors) referred to in section 7 of form. Based on S. 7(b) the Court held that E was permitted to subrogate against D even though no claim was brought by A against D because D was “a person jointly liable” with B (driver and the inadequately insured motorist) for the damages sustained by A. This was held so because D was negligent as he had failed to monitor the quantity of alcohol that he served to A and B and failed to warn and ensure that B did not drive when leaving. Answering 1st question in affirmation, the Judge added the caveat that this entitlement of insurer is essentially founded on the third party’s potential responsibility for causing the insured’s damages. Resultantly, D’s insurance was “available” to A within the meaning of s. 7(b).
Second, does E have to share any amounts it recovers by way of subrogation with A only until A receives “full indemnification under the terms of the OPCF 44R endorsement” or until “full recovery of loss or damage suffered” i.e. complete indemnification? This question arose as the net amount received or recoverable from B’s, C’s and D’s insurers was less than the amount of the judgment in favour of A and there was a dispute between A and E as to who had to bear the shortfall. As the OPCF 44R was silent on what happens where the net recovery is insufficient to provide complete recovery, the Judge relied on S. 278(2) of the Insurance Act to fill the gap. S. 278(2) says that where the net amount recovered whether by action or on settlement is, after deduction of the costs of the recovery, not sufficient to provide complete indemnity for the loss or damage suffered, the amount remaining shall be divided between the insurer and the insured in the proportion in which the loss or damage has been borne by them. (emphasis supplied)