Subrogating Against Government Authorities For COVID-19 Losses

• Published date: 25 May 2020
• Author: Ms Karen Weslowski
• Subject Matter: Government, Public Sector, Coronavirus (COVID-19), Government Contracts, Procurement & PPP, Government Measures, Insurance Claims, Litigation, Contracts and Force Majeure
• Law Firm: Miller Thomson LLP

Introduction

The worldwide number of COVID-19 cases is growing daily, with nearly two million currently active cases.¹ Of those cases, approximately 27,000 are within Canada.² As the pandemic continues worldwide, more claims have and will be made to insurers regarding COVID-19 losses. Although some losses will be denied coverage, there will likely be indemnification in some circumstances.

Indemnification of COVID-19 claims raises the issue as to an insurer's ability to subrogate against government authorities for their policies and responses to the pandemic. There may also be claims against other businesses which caused or contributed to the insured's losses, such as airlines operating without proper screening or manufacturers of defective products.

On April 21, 2020 the state of Missouri filed a claim against the Chinese government in relation to losses allegedly suffered by their state and citizens.³ The claim alleges that the Chinese government was not honest regarding the dangers of the virus and that the actions of the government did not do enough to slow the spread of COVID-19.

According to a law professor at the University of California, Missouri's lawsuit may not have much of an impact, since U.S. law generally prohibits lawsuits against other countries.⁴ However, it raises interesting questions regarding possible subrogation claims in Canada against both domestic and foreign "wrongdoers".

Subrogation

The Canadian common law of subrogation requires three elements: (1) the insured must have a right of recovery against a third party; (2) the insured must be fully indemnified for the losses sustained; and (3) the payment by the insurer must be true indemnity.

The various provincial Insurance Acts⁵ provide that the insurer, upon making a payment or assuming liability under a contract, is subrogated to all the rights of recovery of the insured person and may bring an action in the name of the insured to enforce those rights.

In order to have a right of subrogation, the business or person who has been indemnified must have a cause of action against the alleged wrongdoer, which the insurer can then enforce. This could exist in tort, contract or any other area of law.

Liability of public authorities

Canada

In Canada, the government has no general liability at common law, but statutory liability has been created by provincial Crown proceeding acts.⁶ The tort liability of public authorities is similar to that of natural persons or businesses, in that there...