November 2015 – Under the Limit

Ontario: the limitation of subrogated claims

Subrogation is the right of a party that has indemnified another to stand in its shoes, to exercise any rights that the indemnified party had against third parties in order to reduce the loss that the indemnifying party has sustained. It’s long settled that the subrogating party stands in no different position relative to the indemnified with respect to rights against third parties. It necessarily follows that limitation periods which apply to the indemnified party apply to the indemnifying party’s subrogated claim, or so it was generally understood.

In CMHC v. Greenspoon, Justice Perell found that the limitation period commenced at different times for the indemnified party’s claim and its subrogated claim.

The plaintiff CMHC had a subrogated claim to that of lenders whose mortgages had gone into default. CMHC sued the defendant solicitor that acted on the mortgages for failure to disclose material facts to the lenders before they advanced CMHC insured loans. Because the lenders had mortgage insurance, a proceeding against the defendant could not be an appropriate means to seek a remedy for their loss (CHMC would make them whole):

[44]         Since CMHC’s claim was a subrogated claim to that of the approved lenders, Mr. Greenspoon argued that the limitation period of the negligence claim began to run when the approved lenders objectively ought to have known that they had a solicitor’s negligence claim against him. I disagree, because given that the approved lenders had obtained mortgage default insurance and having regard to the nature of their loss, i.e., a deficiency in recovery on the mortgage security, a proceeding against Mr. Greenspoon would not be an appropriate means to seek a remedy for the deficiency, precisely because the approved lenders had insurance for the eventuality of a deficient recovery on the defaulted mortgage.

[45]         In other words, the benefits and burdens of discovering a claim moved from the approved lenders to their insurer, CMHC, which had a subrogated action in its own name pursuant to the National Housing Act.

[46]         This analysis of who must discover the subrogated claim avoids the peculiar result that if the running of the limitation period for claims against Mr. Greenspoon was based on the knowledge of the approved lenders, then their insurer’s subrogated claim could be statutorily barred before the CMHC could bring an action in its own name.

[47]         In my opinion, there is no genuine issue for trial that acting reasonably and using reasonable diligence, CMHC ought to have discovered its subrogated claim against Mr. Greenspoon around the time that it paid the approved lenders for the deficiency in the mortgage recovery. It was at that time that CMHC could have made inquiries of the approved lenders and required them to obtain Mr. Greenspoon’s report and conveyancing file material and anything else that it might require to follow-up on its own RFFI.

I don’t think the court got this right. It seems to me that you can arrive at the same result–ensuring CMHC’s claim isn’t statute-barred before it has the opportunity to commence it–without departing from the principles of subrogation.

The crux of the issue is Justice Perell’s finding that a claim against the defendant was not an appropriate means to seek a remedy for the lenders. This means that the lenders couldn’t discover their claim within the meaning of section 5(1)(a) of the Limitations Act (because they couldn’t know the section 5(1)(a)(iv) criterion that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it”). If the lenders couldn’t discover their claim, the basic two year limitation period couldn’t commence, and the claim would be subject only to the 15 year ultimate limitation period. Once CMHC stands in the lenders’ shoes, the appropriateness of a proceeding becomes knowable and time can begin to run. Meanwhile, there is no real risk of the limitation period expiring beforehand.

It will be interesting to see whether this decision is followed.

Ontario: There’s no special discovery test for professional malpractice

In March, I wrote approvingly of Justice Stinson’s discovery analysis in Brown v. Wahl. The Court of Appeal recently upheld the decision.

The Court of Appeal’s decision is noteworthy for two reasons. First, the Court rejected the appellant’s argument that Lawless v. Anderson created a four-part test for discoverability in respect of professional malpractice claims:

[3]         Lawless was a medical malpractice case. In describing when the plaintiff knew all the material facts required to discover her claim against the defendant, this court stated, at para. 30:

It was clear to the appellant at this point that she had suffered more than an unfortunate and unsatisfactory outcome. She was aware of what was wrong, why it was wrong, what would have to be done to correct it and who was responsible. In other words, the appellant had all of the material facts necessary to determine that she had prima facie grounds for inferring that the respondent had been negligent.

[4]         The appellant submits that, in the above-quoted passage, the Lawless court established a four-part test for determining when a prospective plaintiff may be said to have known the material facts necessary for bringing a negligence claim against a medical practitioner in a cosmetic surgery action. This test establishes, according to the appellant, that such a claim is discovered by the prospective plaintiff only when he or she knows: i) of the harm alleged; ii) why it was wrong; iii) what action is required to correct the wrong; and iv) who was responsible.

[5]         Based on this suggested four-part test, the appellant argues that the motion judge erred by failing to properly or adequately analyze the evidence and apply it to the questions of when the appellant was positioned to determine “why” her dental treatment by the respondents was “wrong” and “what would have to be done to correct it”.

[6]         We reject this argument.

[7]         First, Lawless does not create a new four-part test for discoverability in respect of professional malpractice claims. To the contrary, Lawless confirms, at para. 30, that the test for discoverability is when a prospective plaintiff “had all of the material facts necessary to determine that she had prima facie grounds for inferring that the respondent had been negligent”. The Lawlesscourt’s reference, immediately preceding this comment, to the four factors relied on by the appellant reflects the application of this test to the evidence before the court in Lawless.

This was the correct response to a dubious argument. Whatever the Ontario limitations regime may need, it’s not new discovery tests for specific claims.

Second, the Court followed its description of discoverability in Lawless. This is problematic because it’s a description of the common law discoverability test, rather than the section 5 test in the Limitations Act. I describe the mischief resulting from this confusion here.

Ontario: no, Schmitz v. Lombard hasn’t been overturned

For the insurance bar, two points are worth noting in Justice Faieta’s decision in Buurman v. The Dominion of Canada General Insurance Company.

First, the limitation periods in section 5.9.3 of OAP 1, section 8(3) of the Schedule to Ontario Regulation 676, and section 17 of OPCF 44R don’t trump the basic section 4 limitation period in the Limitations Act. This is because these limitation periods are not included in the Limitations Act’s section 19 schedule. This seems self-evident, but the defendant apparently thought it was an argument worth venturing.

Second, unsurprisingly, Justice Faieta found that the Court of Appeal decision in Lingard v. Milne-McIsaac didn’t overturn its decision Schmitz v. Lombard, which remains binding:

[17] Dominion submits that the last sentence of paragraph 11 of the Lingard decision should be read as deciding that the limitation period for a claim for indemnity against an insurer under OCPF 44R begins when the insured discovers that the other vehicle was uninsured …

[18] It is my view that Schmitz was not overturned in Lingard for at least two reasons. First, the focus of the Lingard decision was not whether the limitation period had expired. The issue before the Court was whether the Plaintiff had acted diligently in seeking to add its insurer as a Defendant. Accordingly, the Court’s findings regarding the commencement of the limitation period appear to be obiter. On the other hand, in Schmitz the sole issue before the Court was the time at which the limitation period begins to run for an indemnity claim under OCPF 44R. Second, unlike Schmitz, in Lingard the Court’s finding regarding the commencement of the limitation period is unsupported by any analysis. Nor does it appear that Schmitz was drawn to the Court’s attention in Lingard.

Ontario: Is it really a new cause of action?

You can’t amend a claim to assert a new cause of action if the cause of action is statute-barred. The question is, when’s an amendment a new cause of action?

In Beauchamp v. Gervais, Justice Dunphy sets out the following test:

[23] The preceding authorities establish that in order to qualify as something other than a new cause of action the proposed amendments must, in substance, be: (i) an alternative claim for relief, or a statement of different legal conclusions based on no new facts or not going beyond the factual matrix from which the original claim arose; (ii) better particulars of the claims already made; (iii) a correction of errors in the original pleading; or (iv) the assertion of a new head of damage arising from the same facts. If the amendments cannot be characterized in one of these ways, the amendments should not be permitted, in order to not deny a defendant the right to rely upon a limitations statute.

This paragraph follows a lengthy summary of the relevant jurisprudence that’s worth reading if you’re considering the issue.