The respondents (the Kapelucks) brought a claim against multiple defendants, seeking damages for negligence and breach of contract arising from the construction of their home.

In their claim, the Kapelucks also named Millennium Insurance Corporation as a defendant.  Millenium was the home warranty insurer providing coverage to the Kapelucks through their home builder.  

The Kapelucks reached a settlement with some of the defendants and entered into a Pierringer agreement, which required the approval of the court.

Millennium opposed the application and argued the settlement prejudiced their right of subrogation.

In response, the Kapelucks brought their own application for a declaration that their claims did not include any subrogated claims advanced by, for, or on behalf of Millennium. The chambers judge granted the order, which Millennium appealed.

Millennium’s arguments included the following:

• The Kapelucks had a duty to protect Millennium’s subrogated claim;
• The pleadings were “broad and all encompassing” and should include the subrogated claim;
• Millennium’s right to subrogation was inherent, therefore, they were not required to actively pursue its claims or provide notice of its intention to assert them; and
• It would have been an abuse of process for it to commence a separated subrogation action.

What the Court Said

The Alberta Court of Appeal upheld the chamber judge’s decision, dismissing Millenium’s appeal.

The court referenced the equitable doctrine of subrogation at common law and outlined that an insurer could only advance a subrogation claim if its insured had been fully indemnified. However, the Court confirmed that the common law right of subrogation could be altered by specific terms in the insurance contract. Here, the insurance contract allowed Millennium to bring a subrogated claim at its own expense upon any payment made to the insured.

The Court said that the evidence did not suggest that Millennium intended to advance a subrogated claim, nor they were relying on the Kapelucks to pursue a subrogated claim on their behalf. Millennium did not involve itself in any aspect or the prosecution of the claim and they did not contribute toward legal fees — until the Kapelucks sought court approval of the Pierringer agreement.

Furthermore, Millennium asserted a right of set-off against the Kapelucks, further emphasizing the adversity between the parties, and undermining the suggestion that the Statement of Claim included any subrogated claim on behalf of Millennium.

The Court held that an insured is under no obligation contractual or statutorily, to include an insurer’s subrogated claim in its action. Only when an insurer chooses to pursue such a claim is an insured required to cooperate and refrain from any steps that may compromise the insurer’s claim. 

Ultimately, Millennium’s Appeal was dismissed.

Takeaways

Although insurers have a common law and contractual right of subrogation, they must take the necessary steps to assert this right. Despite the duty of utmost good faith owed by both parties to an insurance contract, an insurer cannot passively wait while an insured litigates its claim, to later attempt to assert their right of subrogation once a settlement has been reached. Therefore, it is important that insurers assert their intention of pursuing a subrogated claim, and do not leave it wholly in the hands of their insureds.

If you are an insurer contemplating the possibility of subrogation, please contact Shayne Kamuchik in Edmonton, Jordan Lalonde in Calgary, or any member of Field Law’s Insurance Group for guidance and assistance in this area.

Link to decision: Millennium Insurance Corporation v Kapeluck, 2025 ABCA 82