Wrinkles in Risk Shifting
Ontario’s Court of Appeal has again addressed issues relating to commercial tenancies and the impact of lease provisions which obligate one party or the other to obtain insurance for the benefit of another. In CLLC Inc. v. 20 Eglinton , the tenant was obligated to obtain insurance throughout the period of their possession of the premises, and for the entire term, with the landlord named as an insured. The tenant did not obtain the insurance as required. Water leaks in the premises resulted in loss and damage to the tenant who brought an action against the landlord. Summary judgment dismissing the action against the landlord was granted and the tenant appealed. The Court of Appeal set aside the summary judgment, noting that the motion judge had not adequately considered and resolved factual disputes in finding that there was no genuine issue for trial.
Although not technically a subrogated claim (because no insurance was obtained so no insurance claim was advanced), the principles and arguments that were in play are relevant to subrogated claims.
One particular point of interest was the issue of when the leaks caused damage and the resulting question of whether the premises were even insurable given that the water leaks may have been pre-existing. The defendant conceded that if the premises were not insurable for whatever reason, the tenant would not be bound by the covenant to insured.
As a result the Court of Appeal set aside the summary judgment motion given that there were genuine issues in play that required a trial. This case underscores a point made in prior blogs on this site and others – read the lease or whatever underlying agreement is in play carefully and understand how the obligations of the parties fit within the factual matrix. It will be different in every case.