Plenty. Particularly if you are an insurer attempting to advance a subrogated claim and your insured is in bankruptcy protection proceedings. This was the circumstance faced by the insurer in Douglas v. Ferguson Fuels. What would have otherwise been a garden variety oil spill subrogated action was complicated by ongoing bankruptcy proceedings involving the insureds. By the time the subrogated claim was issued the insured had made an assignment in bankruptcy. By application of s. 71 of the Bankruptcy and Insolvency Act, the insured's right of action vested in the trustee once an assignment in bankruptcy was made. The subrogated action was commenced in the name of the insured and the court, applying long standing principles of bankruptcy law held that the claim commenced in the name of the insured was a nullity. Had the claim been brought in the name of the Trustee the insurer would have been entitled to proceed.
There were a number of technical issues argued in relation to the law of misnomer (where the court will substitute the correct party for a party improperly identified) and the distinction between the law of subrogation and assignment. Ultimately the court determined that the naming of the insured personally instead of the Trustee could not properly be characterized as a misnomer. The action was ultimately dismissed. Two of the five judge panel dissented on the basis that the insurer should have the opportunity to argue the misnomer issue before the Superior Court motions judge.
The take away: be mindful of the technical consequences of an assignment in bankruptcy as it pertains to advancing subrogated actions. Although the issue more often arises where a target defendant is in a bankruptcy proceeding (which requires that steps be taken by the subrogating insurer in order to proceed) this case demonstrates that advancing a claim on behalf of a bankrupt insured can be a minefield that requires planning and thoughtful advocacy.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
