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.