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Subrogated Claims by Insurers in Commercial Leases (Part II)

In my blog entry of October 28, 2005 (Subrogated Claims by Insurers In Commercial Leases) I reviewed the ability of an insurer of a Landlord to proceed against a Tenant to recover from the Tenant amounts paid out by the insurer under a claim by the Landlord. This is referred to as a subrogated claim. 

This situation can arise where a Tenant (or one of its employees or other persons for whom it is responsible) causes damage to the building and the Landlord makes a claim under its policy. The Landlord’s insurer can then subrogate (stand in the shoes of the Landlord) and claim against parties that have caused the damage.

In a typical net lease, the Tenant would be paying the cost of the Landlord’s fire and extended coverage insurance (or its proportionate share in a multi-tenanted building) and would likely feel that as a result of such payments it should have the benefit of the insurance policy (and not be faced with reimbursing the insurer). However, that is not always the case. It generally depends on the provisions of the lease.

In my October 28, 2005 blog entry I reviewed the factors that the courts have considered as to whether or not an insurer would be successful against the Tenant. I also referred to the Manitoba Queen’s Bench case of Sooter Studios Ltd. v. 74963 Manitoba Ltd. (2005) 32 R.P.R. (4th) 316 as an example of the application of such principles. That case was appealed and the Manitoba Court of Appeal released its decision, which can be found at (2006) 42 R.P.R. (4th) 196. The Manitoba Court of Appeal agreed with the Motions Judge and concluded that the insurer was not barred from bringing a subrogated claim against the Tenant. The court had two main reasons. There was an express indemnification in the lease whereby the Tenant agreed to indemnify the Landlord from claims and losses suffered as a result of an act or omission of the Tenant and, most importantly, there was an absence of an express covenant of the Landlord to insure.

This confirms the importance, from the Tenant’s perspective, of having appropriate lease provisions so that a Landlord’s insurer is restricted from making a subrogated claim.

Bill Rowlands  

August 29, 2006 in Leasing | Permalink

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