“Who runs the lawsuit?”

Subrogation is often considered a technical doctrine; it allows an insurer to ‘step into the shoes of its insured.’ In practice, however, control of the litigation is anything but technical. The party with carriage decides who the lawyers are and how the case is run. Control shapes strategy, timing, and ultimately recovery.

In Ontario, the default common law rule puts the insured in the driver’s seat: the insured controls the litigation until fully indemnified.¹ The insured is the ‘dominus litis’ – the master of the action. This rule can be modified by policy wording or legislation, but courts are cautious about doing so. Recent cases also show that insurers who delay, overreach, or disengage risk losing influence altogether. They teach us that the right of control requires strategic attention before the loss even happens.

The Common Law Rule: The Insured Controls the Action

The common law is the starting point. Courts repeatedly confirm that, unless displaced, the insured has control of any recovery action until fully indemnified for all insured and uninsured losses arising from the same loss event.

The leading Ontario decision confirms this principle.² There, the insured suffered a significant property and business interruption loss, but its insurer only covered the property damage. The insured commenced an action against third parties for its uncovered BI loss and its insurer’s subrogated claim for property damage.³ The insurer brought an application to seize control of the action, but the court refused.

Although the insurer paid part of the claim and had a subrogated interest, the court refused to grant the insurer carriage of the action. The court reaffirmed the rule in clear terms: until the insured is fully indemnified, the insured remains the dominus litis.⁴

This means that, unless there is contrary policy wording or legislation:

• the insured has the right to select and instruct counsel;
• the insured has the right to control litigation strategy and settlement, and
• the insurer’s subrogated claim is pursued within the insured’s action, not independently.

Limits on the Insured’s Control

The insured’s right of control is not absolute. When an insured exercises its right of carriage, it must:

• act in good faith,
• prosecute the claim diligently, and
• protect the insurer’s subrogated interest.⁵

An insured who abandons the action, compromises the insurer’s rights, or acts improperly may be liable for damages. But these obligations do not transfer control to the insurer – they merely constrain how the insured must exercise it.

It is also possible for a situation where an insured’s interest in a subrogated action is so disproportionate to the insurer’s that a court may allow the insurer to have control.⁶ However, this would likely be a very high bar for an insurer to meet.

The bottom line is, under Ontario common law, the insured retains the right to control the action, but must do so responsibly and with regard to the insurer’s interest.

When Can an Insurer Take Control of a Subrogated Action?

The Common law can be altered in two ways: by contract or by statute.⁷

Policy Wording and Control

Clear policy wording can shift carriage and control to the insurer – even before full indemnity. But the standard for doing so needs very clear language in the policy.

Generic subrogation clauses are not enough.

Typical policy language stating the insurer is “subrogated to all rights of recovery” and may bring an action in the insured’s name does not shift control. This generic language only does two things:

1. it allows the insurer to advance a claim before full indemnity, and
2. it permits pro-rata sharing of recovery where losses are not fully recovered.⁸

What it does not do is address who controls the litigation.

Courts treat these clauses as silent on carriage. If the policy does not expressly say who has control, the common law applies – and the right to control remains with the insured.⁹

To displace the insured, the policy must do so explicitly. Effective wording should directly address:

• control and carriage of the action,
• appointment and instruction of counsel,
• cost-sharing,
• settlement authority, and
• allocation of recovery proceeds.

Legislative Changes

Some provinces have altered the common law by statute. Alberta provides the clearest example.

Under Alberta’s Insurance Act:¹⁰

• if the insured’s only interest in recovery is its deductible or co-insurance, the insurer has control, and

• where interests exceed that threshold, and the parties cannot agree, wither may apply to the court to resolve disputes over issues that include carriage, settlement, counsel, and costs.¹¹

This is a significant departure from Ontario’s approach. It expressly removes control from the insured in certain circumstances and empowers Courts to allocate control based on relative interests.

Practical Guidance: Managing Control in Real Claims

Because carriage determines outcomes, it must be addressed early and intentionally – not reactively.

How Insurers Should Draft Policy Wording to Control Subrogated Actions

If the insurer intends to control recovery actions, that intent must be reflected in the policy. A boilerplate subrogation clause will not suffice.

Policies should expressly address:

• who controls subrogated actions,
• how counsel are selected,
• how costs are shared,
• address consultation rights,
• how settlement decisions are made, and
• how recoveries are allocated.

If control matters, it should be written into the policy.

Why Early Insured Engagement Matters in Subrogated Litigation

Subrogation and control issues should be addressed when an insurer confirms coverage for the first party claim, not years later.¹²

Early discussion with the insured should address:

• whether recovery will be pursued,
• how the action will be structured,
• who will control it,
• who will pay for it, and
• how disagreements will be resolved.

Even where the policy is silent, insurers can – and should – seek a standalone agreement with the insured addressing these issues.

Courts have shown little empathy for insurers who are passive while the insured prosecutes an action at their expense, only to reappear at later stages seeking influence. This conduct has been criticized as inequitable and can undermine an insurer’s subrogation rights.¹³

Control is Strategic, Not Procedural

The question of who controls a subrogated action is not a procedural footnote. It determines strategy, settlement posture, and a successful recovery.

For insurers, the lessons are clear:

• control cannot be assumed,
• clear policy wording should address control,
• issues of control should be discussed with the insured at an early stage, and
• late intervention can be fatal.

Effective subrogation requires early planning, clear policy drafting, and active coordination with the insured. When insurers engage early, communicate clearly, and respect the insured’s role, they preserve both recovery potential and the integrity of the insurer-insured relationship.

¹ Somersall v Friedman, [2002] 3 SCR 109 at para 53.

² Zurich Insurance Co v Ison TH Auto Sales Inc, 2011 ONSC 1870, aff’d 2011 ONCA 663  [Ison].

³ For a full description of the facts, see Ison at paras 3-21.

⁴ Ison at para 70.

⁵ Ison at para 36, quoting MacGillivray on Insurance Law Relating to All Risks other than Marine, 4th ed (London: Sweet & Maxwell, 1953).

⁶ Ison at para 78.

⁷ Tuffnail v Meekes, 2020 ONCA 340 at para 33.

⁸ See, for example: Ison at paras 19, 20, 44-49 and 73.

⁹ Ison at para 71.

¹⁰ Insurance Act, RSA 2000, c I-3.

¹¹ Ibid., at s. 546 (3) and (4).

¹² See, for example: Ison at para 81.

¹³ See, for example: Millenium Insurance Corporation v Kapeluck, 2025 ABCA 82 at para 7.