ROCKY HEIGHTS v. BIBER 2019 ONSC 3593 – Will the waiver of subrogation operate to protect an insured acting outside of the scope of her role in the corporate insured?

residential fire

In the recent Ontario decision, Rocky Heights v. Biber, 2019 ONSC 3593, the Ontario Supreme Court was asked to determine whether a subrogated claim could be made against Ms. Biber, an officer of the insured company, Rocky Heights Development Ltd. (“Rocky Heights”), for negligently causing a fire in the residential building owned by the corporate insured.  Ms. Biber had been a tenant of the residential building and negligently started a fire which caused damage to the building.  The corporate insured claimed for property coverage under its CGL policy.  The insurer covered the loss and sought to subrogate against the wrongdoer who started the fire – Ms. Biber.

Ms. Biber argued that a subrogated claim could not be brought against her due to the waiver of subrogation under clause 11 of the CGL policy which prohibited subrogation claims against insureds of the policy. The subrogating insurer took the position that as an officer, Ms. Biber is an insured under the CGL policy only insofar as she is carrying out her duties as an officer, but not for anything she may have done as a tenant of the building.  As such, the insurer argued, the waiver of subrogation clause could not operate in favour of Ms. Biber in the circumstances.

Clause 11 of the CGL policy is as follows:

The insurer, upon making payment or assuming liability therefore under this Form, shall be subrogated to all the rights of recovery of the Insured against others and may bring an action to enforce such rights. Notwithstanding the foregoing, all rights of subrogation are hereby waived against any corporation, firm, individual, or other interest with respect to which insurance is provided by this Form.

It was clear that Ms. Biber was an “insured” as defined by Clause 1 (c) of the CGL policy:

  1. IF THE INSURED IS DESIGNATED IN THE DECLARATION PAGE AS (c) An organization other than a partnership or joint venture, the said organization is an insured. The executive officers and directors are insureds, but only with respect to their duties as officers or directors.

The court in Rocky Heights found that the waiver of subrogation created by the clear language of the CGL policy operated to prohibit this subrogation claim against Ms. Biber because she was an “insured” under the policy.  The scope of the waiver of subrogation was not restricted by whether the act or omission in question occurred within her duties as an officer of the insured corporate tenant under the policy.

In making its decision, the court considered the case of Tony & Jim’s Holdings Ltd v. Silva, [1999] O.J. No. 705 (Ont. C.A.) which contained substantially similar facts and an identical waiver of subrogation clause as the one in the application before this court. In Silva, the court determined that the waiver of subrogation extended to the president of the corporation who had started a fire on the residential property due to the broad language used in the subrogation waiver that applied to anyone who “had an interest with respect to which insurance is provided” (para 11). A president or directing mind of a corporation was surely captured by this language.

Finally the court noted that based on the contra proforentum rule, any ambiguity in the policy should be interpreted against the drafter of the policy and, in this case, in favour of Ms. Biber.

Insurers are reminded by this decision that the plain reading of the policy wording will govern the rights of the parties the insurance contract.  Any ambiguities will be read against the drafter of the policy – the insurer.  Any waiver of subrogation clearly set out in the policy will operate to protect an insured, regardless if the act or omission in question arose in the context of the insured’s role in the insured company.