Insurers cannot subrogate against their own insureds, even where the insured is defended by another insurer. In Rochon v. Rochon, 2015 ONCA 746, Francois Rochon (“Francois”) was found negligent for having started a fire in his parents’ garage while working on his car. The house was insured under a residential home owner’s insurance policy (the “Policy”) issued by Grenville Mutual Insurance Company (“Grenville”). Francois’ car was insured under an automobile policy of insurance issued by Economical Insurance (“Economical”). It was an agreed fact that the fire had been started as a result of Francois’ use or operation of his motor vehicle. After compensating the parents for the damage to the home, Grenville sought to subrogate and commence a claim against Francois, which was defended by Economical. As stated by the Court of Appeal, “from a practical perspective [the action] effectively involves a contest between Grenville and Economical”.
Status as an Insured
Grenville’s first argument was that Francois was not an insured under the Policy. The Policy defined the insured in terms “you” and “your”, which were defined to include the named insured and, while living in the same household, the relatives of the named insured. While on its face this would appear to include Francois, Grenville argued that the terms “you” and “your” were used inconsistently in its own Policy, such that in Section 1, the section addressing property damage caused by fire, the terms only applied to an insured making a claim. As Francois had made no claim, Grenville argued he was not an insured under Section 1, and so could be sued as had been held in Moraweitz v. Morawietz (1986), 18 C.C.L.I. 108.
The Court of Appeal disagreed. The Court held that because Francois was unambiguously included as an insured under the definition of “you” and “your”, he could not be excluded merely because of the inconsistent use of the terms in the Policy. Moreover, ambiguous coverage provisions are to be construed broadly against the insurer, which again favours Francois’ inclusion. The Court distinguished the Moraweitz decision, noting that in that case the defendant son was not an insured under the relevant section of the policy.
Grenville further sought to exclude Francois on the basis of privity because the Policy permitted only the named insured to take legal action against it. The Court of Appeal rejected the argument, holding that the absence of a right of action against the insurer did not make Francois any less an insured.
Grenville’s second argument was that Francois did not have an insurable interest in the garage, a prerequisite to coverage. Grenville’s argument contradicted the Supreme Court of Canada’s decision in Scott v. Wawanesa Mutual Insurance Co.,  1 S.C.R. 1445, which Grenville tried to distinguish on policy grounds.
In Scott, the Supreme Court of Canada found that a dependent living with his parents had an insurable interest in the home shared with his parent. In Scott, however, the insurable interest was found to deny coverage. The son had deliberately started a fire in his home, and the policy contained an exclusion for property damage deliberately caused by an insured. If the dependent in Scott had not had an insurable interest, he would not have been an insured and the exclusion would not have applied.
Grenville argued that the policy reasons at play in Scott, preventing collusion between insurers who have a common interest in covered property, were not relevant where the dispute was between two insurers.
The Court of Appeal, however, found that the decision in Scott was not informed by such policy considerations. Rather, the conclusion flowed from the application of the “factual expectancy” test for finding an insurable interest set out by the Supreme Court in Kosmopoulos v. Constitution Insurance Co. of Canada,  1 S.C.R. 2. The test provides that an insurable interest exists where, apart from the insurance contract itself, the insured would benefit or suffer from the continued existence or destruction of the subject-matter of the insurance. A dependent living with his parents clearly has such an interest, because he/she benefits from and relies on the home. Accordingly, Grenville’s policy argument was rejected.
The Anti-Subrogation Rule
Finally, Grenville attempted to displace the anti-subrogation rule based on policy grounds. The anti-subrogation rule is a long-standing principle that an insurer cannot subrogate against its own insured, notwithstanding how negligent the insured may have been in causing the loss. The rule was firmly established by the 1976 Supreme Court of Canada decision, Commonwealth Construction Co. Ltd. v. Imperial Oil Ltd. et al.,  1 S.C.R. 317, where the rule was applied to unnamed additional insureds under an all-risk builder’s policy.
Grenville argued that the policy reasons that underlie the anti-subrogation rule do not apply where in reality the insurer’s subrogated claim is being made against another insurer. The Court of Appeal, however, found that the policy of the anti-subrogation rule went against Grenville’s position. The purpose of subrogation is to avoid the overpayment of the insured. An insured cannot sue himself for his own negligence. Accordingly, permitting an insurer to subrogate against its own insured does not further the purpose of subrogation, and it makes no difference that the insured has insurance coverage to defend the claim.
The Court also noted that by agreeing to provide insurance, Grenville had contracted to take onto itself the very risk at issue. It could not now sue its own insured when the risk materialized.
 Ibid. at paras. 31-32, 37-40.
 Ibid. at paras. 42-44.
 Ibid. at para. 33.
 Ibid. at paras. 45-46.
 Ibid. at paras. 54-60, 64-68.
 Ibid. at para. 55.
 Ibid. at para. 72.
 Ibid. at para. 73.
 Ibid. at para. 73.
 Ibid. at para. 74.
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