Subrogation Against Subcontractors During the Course of Construction: Examining the “Unnamed Insured” Defence

A.        What is the “Unnamed Insured” Defence?

The “unnamed insured” defence is commonly asserted in subrogated actions brought with respect to builders risk policies. This defence arises from the fact that in Canada, builders’ risk policies tend to be treated as a unique species of insurance contract whose practical purpose can only be served if subcontractors are considered to be unnamed insureds.[1] Since an insurance company cannot bring a subrogated action against its own insureds, subcontractors are generally protected from subrogated actions.

In any construction project, there is always a risk that a subcontractor will damage the property of another or the construction project as a whole. Canadian courts regard the primary purpose of builders’ risk policies as being to ensure that funds are available for the completion of a construction, without the various sub-trades having to resort to protracted litigation in the event of negligence by anyone connected with the construction. In other words, the practical purpose of extending insurance to cover all the subcontractors who are working to complete the construction is that they are spared the necessity of fighting between themselves. Courts have held that this is a risk accepted by the insurers at the outset.[2] 

It is nevertheless incorrect to assume that all subcontractors will automatically obtain the status of unnamed insured under a builder’s risk policy. There are important exceptions to this rule. Subrogation professionals should be alert to the circumstances in which it may be possible to challenge the “unnamed insured” defence.

 

B.        When is a Subcontractor an Unnamed Insured?

Ultimately, the issue of whether subcontractors are included as insureds in a policy which does not expressly name them is one of contractual interpretation; courts will look at both the construction contract and the wording of the insurance policy in order to make this assessment. It is largely irrelevant whether a contractor has agreed to obtain the insurance for the benefit of the subcontractor. The intention of the contractor to insure the subcontractor under the builder’s risk policy is not determinative of how an insurance policy will be interpreted.[3] Rather, there are two features of builder’s risk policies that appear to give rise to the unnamed insured defence:  

 

i)          “Property Owned by Others”

 

Where an insurance policy insures an entire construction project, including “property owned by others,” Canadian courts have interpreted the policy as inferring that it actually insures parties other than just the named insureds.[4] In the context of construction contracts, subcontractors are seen as having such an “identity of interest” with the general contractor (in that it will stand to gain from the project’s existence and will lose from any damage to it), that they are considered unnamed insureds by necessary implication.[5] Thus, a subcontractor’s interest in the project may be considered insured even when he is not named as an insured on the policy and his interest is not disclosed.

In this regard, however, there has been an important new development. In May 2010, the B.C. Court opined, in Brookfield Homes v. Nova Plumbing,  that where property damage coverage for contractors and subcontractors is limited “to the extent of the Insured’s legal liability for insured physical loss or damage to such property”, the unnamed insured defence may not apply. In other words, where a subcontractor is insured only to the extent that the named insured is found legally liable for the loss or damage, it may be that a subcontractor cannot be regarded as an unnamed insured, even in the context of a builder’s risk policy.[6]

 

ii)         Waivers of Subrogation for any “interest with respect to which insurance is provided by this policy”

Where a policy provides that no subrogation lies against a “corporation, firm, individual, or other interest with respect to which insurance is provided by this policy”, courts have held that, having regard to the special nature of builder’s risk policies, judicial pronouncements on the commercial necessity for including subcontractors; and the language of the clause itself, subcontractors must be taken to be unnamed insureds by necessary implication.[7] Any doubt on this issue is resolved against the insurance company.[8]

C.        Two Case Examples

 

Below are two cases that illustrate the application of the above principles. In the first case, the subcontractor was considered to be an unnamed insured under the insurance policy. In the second case, on very similar facts, the defence was held not to apply.

i)          Janeland Developments Inc. v. Michelin Masonry Inc.[9]

A general contractor’s insurer brought a subrogated action against a defendant masonry subcontractor who negligently caused the collapse of a wall at a building project. The construction contract contained a hold harmless clause in favor of the home builder and required that the subcontractor was required to obtain its own comprehensive general liability insurance. There was no corresponding obligation on the general contractor to obtain insurance of any kind. The general contractor had obtained a “Builder’s Risk Broad Form” policy which contained the “Property Insured” and “Waiver of Subrogation” wording referred to above. On these facts, the Ontario Court found that the subcontractor was an unnamed insured under the policy:

  • The wording in the policy, in stating that it covered “property owned by others”, extended coverage to the masonry subcontractor as an unnamed insured.

 

  • The fact that the agreement for masonry services did not require the general contractor to insure the subcontractor was not sufficient to convince the court that the subcontractor was not intended to be an unnamed insured under the insurance policy.

 

  • The wording in the waiver of subrogation clause constituted a general waiver of all claims by the insurer against the subcontractor, who was an “interest with respect to which insurance is provided by this Form.”

 

  • Finding that the subcontractor was an unnamed insured was in keeping with the court’s desire to reduce the litigation which flowed from losses of this type. It also recognized the reality of complex industrial life and provided comfort and security to owners, builders and subcontractors involved in commercial projects. [10]

 

ii)         Brookfield Homes v. Nova Plumbing[11]

In this May 2010 decision, the ONtario Court was asked to decide whether a subrogated action could be brought by a home builder’s insurer against a plumbing contractor whose negligence with a welding torch caused fire damage to several homes under construction. The home builder had contracted the plumber to provide plumbing services for a new subdivision that was undergoing construction. As in Janeland, the contract contained a hold harmless clause in favor of the home builder and required the plumbing subcontractor to obtain liability insurance, and to waive the subrogation rights of its insurers against the home builder. There was no corresponding obligation on the part of the home builder to obtain insurance of any kind or provide any subrogation waivers.

Unlike in Janeland, however, the home builder argued that it did not take out “builder’s risk” policies on behalf of its contractors. Rather, it obtained “all perils” property insurance, and contractually required its contractors to take out liability insurance. The subcontractor described the policy as a builder’s risk policy. The Court, in finding that the subcontractor was not an unnamed insured, made the following findings:

  • The label of the policy, be it “builder’s risk”, “all-risks” or “all perils”, is not determinative. Rather, it is the policy language that matters.
  • In this case, the “property damage” coverage for contractors was explicitly limited, stating that the policy “also insures the interest of contractors and subcontractors…during construction of an insured location…to the extent of the insured’s legal liability for insured physical loss or damage to property”.  In other words, the subcontractor was insured only to the extent that the home builder was found legally liable for the loss or damage.
  • Although the Court’s decision did not set out the wording of the policy’s subrogation clause, the policy provided that the insurer’s right of subrogation was preserved and required the home builder to cooperate in any subrogation proceeding.
  • The Court concluded, based on the considerations set forth above, that both the construction agreement and the policy allocated the risk of loss caused by a contractor to the contractor, rather than the home builder. As such, the plumbing subcontractor could not be regarded as an unnamed insured.

 

Conclusion

Although subcontractors may often be regarded as unnamed insureds with respect to property policies that provide coverage for construction projects, this is not always the case. The issue of whether a subcontractor can rely on an “unnamed insured” defence to a subrogated action requires an analysis of both the construction contract and the policy in question. Significantly, as noted in the recent case of Brookfield Homes, a subcontractor may not be able to utilize this defence where the property coverage for subcontractors has been expressly limited to amounts for which the named insured is legally liable.


[1]               Sylvan Industries Ltd. v. Fairview Sheet Metal Works Ltd., [1994] B.C.J. No. 468 at para. 6.  (B.C.C.A.) [“Sylvan”].

[2]               As stated by Grandpre J. in Commonwealth Construction Company v. Imperial Oil Limited, [1978] 1 S.C.R. 317 (S.C.C.), at p. 328:

“Whatever its label, its function is to provide the owner the promise that the contractors will have the funds to rebuild in case of loss and to the contractors the protection against the crippling cost of starting afresh in such an event, the whole without resort to litigation in case of negligence by anyone connected with the construction, a risk accepted by insurers at the outset. This purpose recognizes the importance of keeping to a minimum the difficulties that are bound to be created by the large number of participants in a major construction project, the complexity of which needs no demonstration. It also recognizes the reality of industrial life.”

[3]                See for example, Sylvan Industries Ltd. v. Fairview Sheet Metal Works Ltd., (1994) 89 B.C.L.R. (2d) 19 (C.A.).

[4]               Madison Developments Ltd. v. Plan Electric Co.,[1997] O.J. No. 4249 (Ont. C.A.) [“Madison”].

[5]               For example, in Madison, ibid, the Court of Appeal stated: “…the policy insures property owned by others, suggesting that others than those named in the policy are insured. The contractor obtained that insurance, a loss occurred, and payment was made under the policy. The insurer must be taken to be aware of the contractor’s contracts with subcontractors, or to have some control over them if not yet entered, because the insurer’s subrogation rights can be eliminated by such a contract…” The Court concluded that the subcontractor was an unnamed insured by necessary implication.

[6]               Brookfield Homes v. Nova Plumbing, 2010 ONSC 2131 (CanLII).

[7]               Sylvan, supra note 16 at para. 17; Esagonal, supra note 21 at p. 9 of 10.

[8]               Ibid.

[9]               [1996] O.J. No. 513 (Ont. Gen. Div.).

[10]             Ibid at para. 15.

[11]             Supra, note 6.

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Interim Injunctions to Freeze Assets where Fraud is Alleged

I recently gave a lecture for the Civil Litigation LLM at Osgoode Hall Law School. It deals with freezing assets before trial in the context of civil litigation where fraud is alleged. The law school was kind enough to send me the video, which I’ve set out below. It’s divided into two parts, and I’ve posted my powerpoints between them which, hopefully, should make it easier to follow along.

Part 1:

Part 2:

International Sales Contracts: Which Law Applies?

I have put together an “interactive quiz” dealing with international sales law and the application of the Convention on Contracts for the International Sale of Goods (CISG), the U.S. Uniform Commercial Code (UCC) and Canadian Sale of Goods Legislation- unfortunately, WordPress won’t accept the script in a post, so I have posted a link to it. Feel free to try it out and please let me know if you have any comments or suggestions.

17th Willem C. Vis Moot, 2010 – TOP 4 TEAMS

Osgoode Hall Law School v. University of Ottawa

King’s College London v. University of Hamburg

The final rounds are tomorrow.

2010 Willem C. Vis Moot – Day 5 in Pictures

I took a day trip to Melk, which is 80 minutes by train out of Vienna. The fare is quite reasonable –  approximately 27 Euros return for two people.

View from the Train

View of Melk from the train station

Bee Hive

View from the stairs to Melk Abbey

Inside Melk Abbey’s Courtyard

The Danube

The Library in Melk Abbey

A secret door hidden in the bookcase

The Melk Abbey Church

Looking up – the church ceiling

There’s always a gift shop!

How To Enforce Civil Judgments in Ontario

NOTE: The following article is directed to subrogating insurance companies who have obtained judgments against defaulting creditors, however the methods of enforcement discussed below are not limited to subrogated actions and apply more generally to civil judgments for damages that are to be enforced in Ontario.

INTRODUCTION

As subrogation professionals will know, obtaining a judgment against a defendant in a subrogated action may often be only the first step in a long process – obtaining a judgment is no guarantee of obtaining payment. When a court issues a judgment, it is not concerned with whether the unsuccessful party will ever actually pay the amount. It is up to the subrogating insurer, being the nominal plaintiff, to take this initiative. This situation is the same in cases where a criminal court orders that a defendant pay restitution, and the order is later converted to a civil judgment. Nonetheless, our civil court system does provide the successful insurer (the “judgment creditor”) with mechanisms to assist in collecting payment from the unsuccessful defendant (the “judgment debtor”). The two most common mechanisms for this purpose are (1) a writ of seizure and sale, and (2) a garnishment of debts, such as wages, owing to the debtor. In practice, however, these mechanisms can become quite complicated and are often inefficient. As a practical matter, it therefore bodes well for subrogation professionals to be aware of the advantages and limits of these enforcement mechanisms from the outset of contemplated litigation.

WRITS OF SEIZURE AND SALE

General Information

A writ of seizure and sale is the usual method of enforcing a judgment or court order in Ontario. Generally speaking, a writ is a document that is issued by a court to an Ontario sheriff. Once filed with a sheriff’s office, the writ allows a judgment creditor to direct a sheriff to seize and sell real estate and personal property owned by the debtor in order to satisfy the creditor’s judgment. Any proceeds of a sale that exceed the sum of (a) monies owed to creditors, including interest, and (b) the costs of enforcing the writ, are returned to the debtor. This writ, however, is only effective to the extent that a debtor actually has assets that can be sold to satisfy this judgment. There is no minimum amount that a debtor must owe in order for a creditor to obtain a writ. The lawyer for the judgment creditor obtains this writ by filing a “requisition” for the writ with the court’s registrar, along with proof of the amount owing. A requisition is, essentially, a request to the court for a writ, addressed to a sheriff’s office in a region where the debtor holds property. The writ tells the sheriff of the amount of money that is owed to the creditor, as well as any payments that have been received since the judgment was issued.

Ontario does not have a “province-wide” registry for filing writs. Instead, Ontario is divided into districts, each with a separate sheriff’s office that can enforce writs only for property located in that particular district. The practical consequence is that a creditor will have to determine the location(s) in Ontario of debtor’s property, and file a writ with the sheriff’s office for each district where property is located. A creditor can file a writ of seizure and sale within six years of obtaining an order or judgment. A writ must be renewed every six years after the date of filing or it will expire.

Another important aspect of filing a writ is that a sheriff will not automatically enforce the writ or ‘keep tabs’ on the debtor’s assets for the creditor. Even though a writ is filed with the sheriff’s office, the sheriff will not take steps to enforce the writ until directed to do so by the creditor, and will require specific instructions and information from the creditor with respect to any property that is available for seizure. The sheriff also charges the creditor a fee for seizing the debtor’s assets and selling them by way of a public sale and may require a “bond of indemnity” from the creditor which makes a creditor liable for any wrongful seizure of such property. Although the creditor can add the expenses of enforcing a judgment to the amounts owing by a debtor, it is up to a creditor to ensure that the debtor has assets that can properly be seized and sold so as to make the costs of enforcement worthwhile. Additionally, the proceeds of a sale do not go directly to the creditor who requested that the writ is enforced, but instead are held by the sheriff for 30 days and then distributed equally among the debtor’s creditors.

Seizure and Sale of Personal Property

The definition of “property” that can be sold under a writ of seizure and sale is quite broad. In addition to seizing tangible land and goods, the sheriff can seize:

  • Money, cheques, bills of exchange, promissory notes, bonds, mortgages or other securities, book debts and “choses in action”;
  • Money paid into court pending judgment;
  • The mortgagee’s interest under a mortgage;
  • Rights under letters patent of invention;
  • Equitable interests, including an equity of redemption;
  • Shares in a private company; and,
  • Shares or dividends in a chartered bank or corporation having transferable shares.

Under Ontario’s Execution Act, certain assets belonging to a debtor are sheltered from seizure and sale by creditors. Generally speaking, the following items are exempt from seizure:

  • necessary and ordinary wearing apparel of the debtor and his or her family not exceeding $5,650 in value;
  • the household furniture, utensils, equipment, food and fuel that are contained in and form part of the permanent home of the debtor, not exceeding $11,300 in value;• tools and instruments and other chattels ordinarily used by the debtor in the debtor’s business, profession or calling not exceeding $11,300 in value (unless the debtor is in the farming business, in which case different limits apply);
  • a motor vehicle not exceeding $5,650 in value;
  • welfare payments;
  • insurance moneys;
  • pension benefits;
  • a portion of a worker’s net wages; and
  • benefits under the Canada Pension Plan and under the Employment Insurance Act.

Seizure and Sale of Land

When a writ is filed with an Ontario sheriff, the sheriff will automatically forward the writ to the Land Titles Office in his particular district. The writ is said to “bind” any land or real estate owned by the debtor in the sheriff’s district. That is, even if the debtor sells the property to a third party, then so long as the third party could have learned about the writ by contacting the sheriff’s office and making the proper inquiries, the writ stays attached to the property so that the property can be sold by the creditor in satisfaction of the judgment. Where a debtor owns a home jointly with a spouse or some other person, the property can still be sold under a writ of seizure and sale, but the creditor can only sell the debtor’s joint interest in the property. Typically, the purchaser of the property would buy the debtor’s joint interest and become a joint owner with the spouse. The purchaser would then bring partition proceedings which would force the spouse to purchase the creditor’s joint interest or sell the property in its entirety and split the proceeds. Another option would be for the creditor to purchase the spouse’s joint interest, and then re-sell the property.

A creditor is required to follow certain timelines before selling a debtor’s land and real estate. Before a creditor can take any steps to sell a debtor’s lands, the writ of seizure and sale must remain filed with the sheriff for at least four months. While the creditor can take steps to prepare for the sale after that time, the sheriff cannot sell the property for another two months, or six months from the date that the writ is issued. Before a sheriff conducts a sale of land, the sheriff requires specific instructions to sell the lands together with a deposit of $5,000 to cover the cost of advertising and $240 to cover the sheriff’s fees for enforcement. The sheriff has discretion to adjourn the sale date, if necessary, in order to realize the best possible sale price.

GARNISHMENT OF INCOME AND OTHER DEBTS

A creditor may enforce an order for repayment or recovery of money by garnishing the debts payable to the debtor by other persons, referred to as “garnishees”. Garnishment is a legal mechanism that permits a creditor to seize or intercept a portion of debts that are owed to the debtor by third parties, before payment is made. Notice of garnishment can be used with respect to a debtor’s bank account, wages owing from an employer, or other monies owing to a debtor.

A Notice of Garnishment warns a third party garnishee that the debtor owes money to the creditor. The Notice explains to the garnishee that they must pay to the Sheriff the money (or property) in the garnishee’s possession owing to the debtor up to the amount set out in the Notice of Garnishment. If the garnishee fails to do so, the court can award judgment against the garnishee. The garnishee must either pay the amount set out in the Notice or complete a “Garnishee’s Statement” stating the reasons why the debt was not paid. Any debt payable to the debtor by the garnishee, as well as any future debt payable within six years, is subject to garnishment.

Just as with a Writ, a Notice of Garnishment is issued by the court and is filed with the Sheriff’s Office in the garnishee’s district. A separate Notice must be obtained for each Garnishee. Thus, each time a debtor changes employment, a new Notice of Garnishment must be obtained from the court. Garnishment can be used to intercept:

  • up to 20% of a debtor’s wages;
  • commissions and gratuities;
  • pay equity to employees;
  • moneys held in a debtor’s bank account, or one-half of a debtor’s joint bank account;
  • moneys held in a R.R.S.P., including a locked-in R.R.S.P;
  • the cash surrender value of a life insurance policy;
  • moneys held as a retainer by a lawyer where no further services are contemplated;
  • moneys owing to a medical doctor by OHIP; and,
  • inheritance owed to a residual beneficiary.

The following debts are exempt from garnishment:

  • 80% of a debtor’s wages, unless the debt pertains to spousal support in which case the exemption is reduced to 50%;
  • R.R.S.Ps that contain an insurance element;
  • investor-directed R.R.S.Ps;
  • moneys payable on account of personal injury damages for pain and suffering;
  • moneys held by a debtors lawyer as a retainer for an appeal or defence;
  • moneys paid by a debtor to a landlord as a security deposit under a lease; and
  • moneys deposited by a debtor as security for a bank in issuing a letter of credit.

CONCLUSION

When an insurer is successful in a subrogated action, but the defendant is unwilling or unable to pay the judgment, the two principal methods by which the insurer can enforce the judgment are (1) seizure and sale of the debtor’s real and personal property; and (2) garnishment of debts owing to the debtor. In practice, however, these mechanisms can become quite inefficient. In Ontario, there is no centralized bureaucracy for the sheriff’s offices with respect to enforcement of judgments. Additionally, these enforcement mechanisms are only as good as the assets and debts to which they attach. Initiating subrogated litigation may only worthwhile if, at the end of the day, there is money to recover. Obtaining a judgment for a debt is only the first part of the battle, since enforcement of that debt may be a very difficult and time-consuming process. It is important therefore, before embarking upon litigation, to discuss possible recovery options and other issues with an experienced lawyer.

INTRODUCTION
As subrogation professionals will know, obtaining a judgment against a defendant in a
subrogated action may often be only the first step in a long process – obtaining a judgment is
no guarantee of obtaining payment. When a court issues a judgment, it is not concerned with
whether the unsuccessful party will ever actually pay the amount. It is up to the subrogating
insurer, being the nominal plaintiff, to take this initiative. This situation is the same in cases
where a criminal court orders that a defendant pay restitution, and the order is later converted
to a civil judgment.
Nonetheless, our civil court system does provide the successful insurer (the “judgment
creditor”) with mechanisms to assist in collecting payment from the unsuccessful defendant
(the “judgment debtor”). The two most common mechanisms for this purpose are (1) a writ
of seizure and sale, and (2) a garnishment of debts, such as wages, owing to the debtor.
In practice, however, these mechanisms can become quite complicated and are often
inefficient. As a practical matter, it therefore bodes well for subrogation professionals to be
aware of the advantages and limits of these enforcement mechanisms from the outset of
contemplated litigation.
WRITS OF SEIZURE AND SALE
General Information
A writ of seizure and sale is the usual method of enforcing a judgment or court order
in Ontario. Generally speaking, a writ is a document that is issued by a court to an
Ontario sheriff.
Once filed with a sheriff’s office, the writ allows a judgment creditor to direct a sheriff to
seize and sell real estate and personal property owned by the debtor in order to satisfy the
creditor’s judgment. Any proceeds of a sale that exceed the sum of (a) monies owed to
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November 15, 2007
METHODS FOR ENFORCING CIVIL JUDGMENTS IN ONTARIO
By: Pamela D. Pengelley
Cozen O’Connor
One Queen Street East, Suite 1920, Toronto ON M5C 2W5
Phone: (416) 361-3200 • Fax: (416) 361-1405
ppengelley@cozen.com
creditors, including interest, and (b) the costs of enforcing the writ, are returned to the debtor. This writ,
however, is only effective to the extent that a debtor actually has assets that can be sold to satisfy this
judgment. There is no minimum amount that a debtor must owe in order for a creditor to obtain a writ.
The lawyer for the judgment creditor obtains this writ by filing a “requisition” for the writ with the court’s
registrar, along with proof of the amount owing. A requisition is, essentially, a request to the court for a writ,
addressed to a sheriff’s office in a region where the debtor holds property. The writ tells the sheriff of the
amount of money that is owed to the creditor, as well as any payments that have been received since the
judgment was issued.
Ontario does not have a “province-wide” registry for filing writs. Instead, Ontario is divided into districts, each
with a separate sheriff’s office that can enforce writs only for property located in that particular district. The
practical consequence is that a creditor will have to determine the location(s) in Ontario of debtor’s property,
and file a writ with the sheriff’s office for each district where property is located. A creditor can file a writ of
seizure and sale within six years of obtaining an order or judgment. A writ must be renewed every six years
after the date of filing or it will expire.
Another important aspect of filing a writ is that a sheriff will not automatically enforce the writ or ‘keep tabs’
on the debtor’s assets for the creditor. Even though a writ is filed with the sheriff’s office, the sheriff will not
take steps to enforce the writ until directed to do so by the creditor, and will require specific instructions and
information from the creditor with respect to any property that is available for seizure. The sheriff also charges
the creditor a fee for seizing the debtor’s assets and selling them by way of a public sale and may require a
“bond of indemnity” from the creditor which makes a creditor liable for any wrongful seizure of such
property. Although the creditor can add the expenses of enforcing a judgment to the amounts owing by a
debtor, it is up to a creditor to ensure that the debtor has assets that can properly be seized and sold so as to
make the costs of enforcement worthwhile. Additionally, the proceeds of a sale do not go directly to the
creditor who requested that the writ is enforced, but instead are held by the sheriff for 30 days and then
distributed equally among the debtor’s creditors.
Seizure and Sale of Personal Property
The definition of “property” that can be sold under a writ of seizure and sale is quite broad. In addition to
seizing tangible land and goods, the sheriff can seize:
• Money, cheques, bills of exchange, promissory notes, bonds, mortgages or other securities,
book debts and “choses in action”;
• Money paid into court pending judgment;
• The mortgagee’s interest under a mortgage;
• Rights under letters patent of invention;
• Equitable interests, including an equity of redemption;
• Shares in a private company; and,
Page 2
SUBROGATION & RECOVERY
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• Shares or dividends in a chartered bank or corporation having transferable shares.
Under Ontario’s Execution Act, certain assets belonging to a debtor are sheltered from seizure and sale by
creditors. Generally speaking, the following items are exempt from seizure:
• necessary and ordinary wearing apparel of the debtor and his or her family not exceeding
$5,650 in value;
• the household furniture, utensils, equipment, food and fuel that are contained in and form
part of the permanent home of the debtor, not exceeding $11,300 in value;
• tools and instruments and other chattels ordinarily used by the debtor in the debtor’s
business, profession or calling not exceeding $11,300 in value (unless the debtor is in the
farming business, in which case different limits apply);
• a motor vehicle not exceeding $5,650 in value;
• welfare payments;
• insurance moneys;
• pension benefits;
• a portion of a worker’s net wages; and
• benefits under the Canada Pension Plan and under the Employment Insurance Act.
Seizure and Sale of Land
When a writ is filed with an Ontario sheriff, the sheriff will automatically forward the writ to the Land Titles
Office in his particular district. The writ is said to “bind” any land or real estate owned by the debtor in the
sheriff’s district. That is, even if the debtor sells the property to a third party, then so long as the third party
could have learned about the writ by contacting the sheriff’s office and making the proper inquiries, the writ
stays attached to the property so that the property can be sold by the creditor in satisfaction of the judgment.
Where a debtor owns a home jointly with a spouse or some other person, the property can still be sold under
a writ of seizure and sale, but the creditor can only sell the debtor’s joint interest in the property. Typically, the
purchaser of the property would buy the debtor’s joint interest and become a joint owner with the spouse. The
purchaser would then bring partition proceedings which would force the spouse to purchase the creditor’s joint
interest or sell the property in its entirety and split the proceeds. Another option would be for the creditor to
purchase the spouse’s joint interest, and then re-sell the property.
A creditor is required to follow certain timelines before selling a debtor’s land and real estate. Before a
creditor can take any steps to sell a debtor’s lands, the writ of seizure and sale must remain filed with the
sheriff for at least four months. While the creditor can take steps to prepare for the sale after that time, the
sheriff cannot sell the property for another two months, or six months from the date that the writ is issued.
Before a sheriff conducts a sale of land, the sheriff requires specific instructions to sell the lands together with
Page 3
SUBROGATION & RECOVERY
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News Concerning Recent Subrogation & Recovery Issues
a deposit of $5,000 to cover the cost of advertising and $240 to cover the sheriff’s fees for enforcement. The
sheriff has discretion to adjourn the sale date, if necessary, in order to realize the best possible sale price.
GARNISHMENT OF INCOME AND OTHER DEBTS
A creditor may enforce an order for repayment or recovery of money by garnishing the debts payable to the
debtor by other persons, referred to as “garnishees”. Garnishment is a legal mechanism that permits a creditor
to seize or intercept a portion of debts that are owed to the debtor by third parties, before payment is made.
Notice of garnishment can be used with respect to a debtor’s bank account, wages owing from an employer,
or other monies owing to a debtor.
ANotice of Garnishment warns a third party garnishee that the debtor owes money to the creditor. The Notice
explains to the garnishee that they must pay to the Sheriff the money (or property) in the garnishee’s
possession owing to the debtor up to the amount set out in the Notice of Garnishment. If the garnishee fails
to do so, the court can award judgment against the garnishee. The garnishee must either pay the amount
set out in the Notice or complete a “Garnishee’s Statement” stating the reasons why the debt was not paid.
Any debt payable to the debtor by the garnishee, as well as any future debt payable within six years, is subject
to garnishment.
Just as with a Writ, a Notice of Garnishment is issued by the court and is filed with the Sheriff’s Office in the
garnishee’s district. A separate Notice must be obtained for each Garnishee. Thus, each time a debtor changes
employment, a new Notice of Garnishment must be obtained from the court.
Garnishment can be used to intercept:
• up to 20% of a debtor’s wages;
• commissions and gratuities;
• pay equity to employees;
• moneys held in a debtor’s bank account, or one-half of a debtor’s joint bank account;
• moneys held in a R.R.S.P., including a locked-in R.R.S.P;
• the cash surrender value of a life insurance policy;
• moneys held as a retainer by a lawyer where no further services are contemplated;
• moneys owing to a medical doctor by OHIP; and,
• inheritance owed to a residual beneficiary.
The following debts are exempt from garnishment:
• 80% of a debtor’s wages, unless the debt pertains to spousal support in which case the
exemption is reduced to 50%;
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SUBROGATION & RECOVERY
Alert!
News Concerning Recent Insurance Coverage Issues
• R.R.S.Ps that contain an insurance element;
• investor-directed R.R.S.Ps;
• moneys payable on account of personal injury damages for pain and suffering;
• moneys held by a debtors lawyer as a retainer for an appeal or defence;
• moneys paid by a debtor to a landlord as a security deposit under a lease; and
• moneys deposited by a debtor as security for a bank in issuing a letter of credit.
CONCLUSION
When an insurer is successful in a subrogated action, but the defendant is unwilling or unable to pay the
judgment, the two principal methods by which the insurer can enforce the judgment are (1) seizure and sale
of the debtor’s real and personal property; and (2) garnishment of debts owing to the debtor. In practice,
however, these mechanisms can become quite inefficient. In Ontario, there is no centralized bureaucracy for
the sheriff’s offices with respect to enforcement of judgments. Additionally, these enforcement mechanisms
are only as good as the assets and debts to which they attach. Initiating subrogated litigation may only
worthwhile if, at the end of the day, there is money to recover. Obtaining a judgment for a debt is only the first
part of the battle, since enforcement of that debt may be a very difficult and time-consuming process. It is
important therefore, before embarking upon litigation, to discuss possible recovery options and other issues
with an experienced lawyer.
Cozen O’Connor is internationally recognized for its ability to successfully evaluate and prosecute all types
of subrogated property losses, both domestic and international. Our lawyers’ expertise in dealing with all
forms of property damage disputes, and issues surrounding their enforcement, can be deployed for the benefit
of your company to assist in the recovery of subrogated claims.