Stepping into someone’s shoes: subrogation in personal injury law

When someone else caused the accident and a settlement is within reach, several letters may start arriving. For one, the long-term disability insurer wants repayment, but so does OHIP. That is subrogation in action, and in personal injury cases across Canada, missing it can cost an injured person dearly.

What is subrogation in personal injury law?

Subrogation is the right of reimbursement. Black’s Law Dictionary defines it as “the substitution of one party for another whose debt the party pays, entitling the paying party to rights, remedies, or securities that would otherwise belong to the debtor.”

In personal injury practice, it means an insurer that has paid benefits to an injured person can step into that person’s shoes and pursue the responsible party, up to the amount paid out.

Common law and statutory basis for subrogation

The doctrine has been part of Canadian law for well over a century. In National Fire Insurance Co. v. McLaren (1886), 12 O.R. 682, it was held that subrogation is “a creature of equity not founded on contract, but arising out of the relations of the parties.” Most modern policies include an express clause granting this right before full indemnification is reached.

Provincial statutes can also be a basis for the doctrine of subrogation. In Ontario, for example, s. 152(1) of its Insurance Act provides that upon making a payment under a covered contract, the insurer is subrogated to all rights of recovery of the insured and may bring action in the insured’s name.

The basics of subrogation is explained in this video:

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Principles governing subrogation

The doctrine was refined in Douglas v. Stan Fergusson Fuels Ltd., 2018 ONCA 192, setting out five principles governing how subrogation rights operate at common law:

• the right arises only upon full indemnification; meaning, all losses, insured and uninsured, are covered
• until that threshold is reached, the injured person controls the litigation and is the dominus litis
• claims are derivative, which means that the insurer can be in no better position against the wrongdoer than the injured person would be
• any recovery beyond or is in excess of what the insurer actually paid goes back to the injured person
• if the injured person independently recovers money for a loss the insurer already covered, that money is held in trust for the insurer

Deductibility vs. Subrogation

However, subrogation is not the same as deductibility. The Supreme Court of Canada drew this distinction in Cunningham v. Wheeler; Cooper v. Miller; Shanks v. McNee, [1994] 1 SCR 359. While deductibility asks whether a benefit reduces what the tortfeasor owes, a subrogated claim asks whether the insurer has a direct right to reimbursement from the injured person’s recovery.

How do LTD insurers pursue subrogation rights?

When a serious injury forces someone out of work, long-term disability (LTD) benefits help replace lost income. If that person later recovers compensation through a tort settlement, the LTD insurer may want that money back. Whether it can get it depends almost entirely on how the injury happened.

Motor vehicle accidents: the right is extinguished

LTD insurers cannot pursue subrogation in motor vehicle accident cases, as established by provincial insurance laws.

An example is s. 83(7) of British Columbia’s Insurance (Vehicle) Act. It states that despite any right of subrogation a person may have under an agreement, the common law, or any enactment, a person who pays or provides benefits — or assumes liability to do so — is not subrogated to the injured person’s right of recovery.

Non-motor vehicle cases: it gets complicated

Outside the motor vehicle context (e.g., slip and falls, occupier’s liability, medical malpractice), LTD insurers may have a contractual right to reimbursement through a clause in the policy.

However, the private insurance exception is a significant limit. As confirmed in Cunningham, the exception holds that an insured person should not lose a benefit they personally paid for simply to reduce the tortfeasor’s liability. Where it applies, LTD benefits are not deductible from the tort award and the reimbursement clause may be unenforceable.

The Ontario Court of Appeal added a further limit in Rochon v. Rochon, 2015 ONCA 746. It says that an insurer cannot subrogate against its own insured, as doing so “does not fulfil the aims of subrogation, which is to avoid overpayment of the insured.”

In any non-motor vehicle case involving LTD benefits, four questions need answers:

• Does the policy contain a subrogation clause?
• Did the insured pay any part of the premium?
• Has the insured been fully indemnified for all losses?
• Does the insurer’s claim put it in conflict with its own insured?

Here’s another video that explains subrogation:

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When can an insurer recover from a tortfeasor?

Statutory rights of subrogation extend beyond private insurers to public programs, and all of them need to be accounted for before any file closes.

Ontario Health Insurance Plan (OHIP)

The OHIP’s right arises under s. 30(1) of the Health Insurance Act (HIA), covering past insured services and anticipated future services resulting from another’s negligence. Below is what the OHIP covers and what it does not:

• covered: hospital stays, physician visits, diagnostic tests, OHIP-funded therapy, and Community Care Access Centre services
• not covered: nurses’ fees, ambulance costs, private room charges, or privately funded care

Under s. 31(1) of the HIA, any person commencing a personal injury action, except in motor vehicle cases, must include a claim on behalf of OHIP. Missing it does not make the obligation disappear; any settlement or release is not binding on OHIP without its approval, so an injured person whose claim omits OHIP may still owe that amount out of pocket.

Notably, one nuance often goes unnoticed. Under s. 30(3) of the HIA, the OHIP is entitled to claim at the uninsured rate, even for Ontario residents. That rate, which is the rate charged to non-residents, can be double the standard insured rate.

In addition, the OHIP has no subrogation rights in motor vehicle accident cases, as codified in s. 30(5) of the HIA.

Workplace Safety and Insurance Board (WSIB)

Where an injured worker receives benefits from the Workplace Safety and Insurance Board (WSIB) and then pursues a tort action, the WSIB is subrogated to the worker’s rights under s. 30(10) of the Workplace Safety and Insurance Act (WSIA). Instead of the worker, it is the WSIB that controls whether to commence, continue, abandon, or settle the action.

The make-whole rule

One principle applies across all such claims is that the injured person must be made whole first. In Ledingham v. Ontario Hospital Services Commission, [1975] 1 SCR 332, the Supreme Court held that where insurance limits cannot satisfy both the injured person’s personal claims and a subrogated claim, the injured person’s recovery takes priority. The subrogated entity draws only from any surplus that remains.

How should lawyers structure competing claims?

Managing multiple subrogated interests at settlement demands careful sequencing, and the order is clear. In motor vehicle cases, the tort claim should be resolved first, statutory accident benefits (SABS) claims second, and LTD last or not at all.

Independent medical examination reports generated within a SABS claim are producible in the tort action. It means that the longer a tort claim sits open alongside active benefits proceedings, the more reporting that can be used against the injured person across files.

Subrogated claims are rarely fixed numbers, and most entities will surely negotiate. Three grounds commonly support a reduction:

• liability discount: where contributory negligence is accepted — say, 25 percent — the subrogated entity will generally accept a matching reduction
• insufficient limits: where policy limits cannot fully compensate a seriously injured person, subrogated entities will reduce their claims, particularly when presented with a future care cost report
• settlement discount: subrogated entities recognise that settling avoids trial risk and often accept a reduced figure accordingly

Several procedural steps must also be completed before any settlement closes. Written instructions are needed from each subrogated entity confirming the agreed amount. The Direction to Settle must clearly set out the injured person’s net recovery after all payments.

Also, how payments are characterised in settlement documentation matters, as the mapping of proceeds to specific heads of damage affects deductibility and assignment obligations going forward.

Subrogation: the shoes you didn’t know you were wearing

The insurers and public programs standing behind an injured person have real claims, real deadlines, and real consequences when they are missed. Stepping into someone’s shoes may be a privilege for the insurer. For everyone else, it is a calculation that deserves close attention from the start.

Bookmark Canadian Lawyer’s Personal Injury page for read more articles, in addition to the rules on subrogation.