Executive Summary: Key Legal and Evidentiary Issues

• Dispute centered on whether respondents’ claims included subrogated claims on behalf of the insurer.

• Millennium’s argument relied on broad pleadings and an alleged duty of the insureds to protect subrogation rights.

• The insurer remained inactive during litigation until settlement approval was sought.

• Policy clause permitted Millennium to pursue subrogated claims only if it actively chose to do so.

• The chambers judge emphasized inequity in Millennium asserting rights after years of non-participation.

• Appeal dismissed due to absence of any duty on insureds to include subrogated claims in their action.

Background of the proceedings

In May 2018, James and Joanne Kapeluck filed a statement of claim against multiple defendants, including Millennium Insurance Corporation, seeking damages for negligence and breach of contract concerning the construction of their home. Millennium was a registered warranty provider that extended new home warranty insurance coverage to the builder of the respondents’ home. As part of purchasing the property, the Kapelucks obtained new home warranty insurance coverage through Millennium.

Settlement and legal dispute

The respondents eventually entered into a Pierringer agreement with some of the construction defendants, which required court approval. Millennium opposed the application for approval, asserting the settlement prejudiced its subrogation rights. The Kapelucks responded with an application seeking a declaration that their claims did not include any subrogated claims by or on behalf of Millennium. The chambers judge granted the declaration.

Millennium’s position on appeal

Millennium argued that the action brought by the respondents “must ‘subsume or include’ its subrogated claims” based on the breadth of the pleadings and the respondents’ alleged duty to protect those claims. It contended that its right of subrogation was “inherent,” and it was not obligated to take active steps to assert it or notify the respondents. Millennium claimed that initiating a separate subrogated action would have been an abuse of process.

Subrogation under the policy and factual findings

Clause 11.02 of the policy allowed Millennium to pursue subrogated rights after making a payment or assuming liability under the policy. It required the insured to support and assist if Millennium chose to pursue such rights. As of May 2023, Millennium’s own evidence showed it had paid approximately $140,572 to or on behalf of the respondents. However, the record lacked evidence that Millennium intended to advance a subrogated claim or that it relied on the respondents to do so. Millennium did not engage in the prosecution of the action or contribute to legal fees until the Pierringer settlement was presented for court approval.

The chambers judge was concerned with the equity of allowing an insurer to “lie in the weeds” for years and then attempt to assert subrogation rights upon learning of a third-party settlement. The Court of Appeal shared this concern.

Legal analysis and precedent

The court noted that Millennium, as a defendant in the action, had chosen to protect its interests through a right of set-off. This demonstrated adversarial positioning and weakened the argument that the pleadings included subrogated claims on Millennium’s behalf.

The decision referenced Tree-Techol Tree Technology v Via Rail Canada Inc, 2017 ONSC 755, aff’d 2017 ONCA 876. In that case, the court held that an insured has no obligation—statutory or contractual—to include an insurer’s subrogated claim unless the insurer chooses to pursue it. The Alberta Court of Appeal found this precedent applicable and rejected Millennium’s attempt to distinguish it on the basis of the broad language in the Kapelucks’ pleadings. The court found that the claims against Millennium, as a named defendant, specifically alleged failure to remediate defects, which did not suggest the inclusion of subrogated claims.

Final judgment

The Court of Appeal dismissed the appeal. The court held that Millennium’s subrogated rights were not impaired by the respondents’ settlement and that the respondents were under no obligation to include Millennium’s claims in their action. The appeal was heard on March 3, 2025, and the memorandum was filed on March 5, 2025, in Edmonton, Alberta. The decision was delivered by Justices Crighton, Pentelechuk, and Kirker.