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Immunities and Exploits: Considerations for Subrogation as against Municipal or Regional Governments

Adam Grant
Adam Grant,
Partner

March 2018

by Adam Grant

First presented at a Client Subrogation Seminar.

As a result of the special nature of local governments, including cities, towns, counties, regional municipalities, etc., they enjoy a special role in respect of litigation, and have a number of unique defences at their disposal which can often discourage or thwart subrogation efforts altogether. However, it is important to understand that such defences are not insurmountable, but only require special consideration in order to deal with.

More importantly, a detailed understanding of the available defences typically asserted by municipalities can actually make it more likely that actions can succeed as against them.

Nuisance under the Municipal Act

Pursuant to section 449 of the Municipal Act1 (section 393 of the City of Toronto Act2), municipalities are immune to claims in nuisance arising from the escape of water or sewage from public water or sewage works. Under the common law of nuisance, the escape of a substance from one property, which travelled to another would attract strict liability. As such, when public works such as water supply lines and sewers failed, causing damage to nearby property, municipalities were strictly liable. This ultimately ended up costing municipalities a large amount of money, so an exception was carved out in legislation.

If a municipality was negligent in some manner, which led to the escape of water or sewage, it remains actionable.

While this can be a powerful defence, it is important to remember that this does not exempt claims in negligence, but only nuisance. If a municipality was negligent in some manner, which led to the escape of water or sewage, it remains actionable. Likewise, the defence is only available in respect of the escape of specific substances from public works. It does not exempt claims in respect of such things as vibrations, escapes of other substances, or escapes from non-public works.

While this defence may limit the availability of claims arising from sewer backups and water main breaks, it leaves open a whole host of other claims related to escapes of substances, which can still be pursued under the tort of nuisance.

Policy vs Operational Decisions

Municipal governments, like all governments and quasi-governmental bodies, have the ability to enact policies, typically by way of council decisions. Policy-making is the responsibility of government, as elected by the people, so courts are loath to interfere with decisions of policy. As such, the general rule is that decisions of pure policy cannot be actionable, even if they are the cause of a loss. Operational decisions remain actionable, however.3

The distinction between these types of losses can be somewhat confusing. Courts must focus on the character of the decision itself in determining whether a decision is one of pure policy or if it is an operational decision. Policy decisions are typically ones that are made on the basis of financial, economic, social, or political factors. The specific actor that is called upon to make the decision is of little to no consequence.4 Likewise, decisions that are made on the basis of a discretionary power granted under statute are considered to be policy decisions.

Operational decisions are typically more day-to-day decisions relating to the specifics of how policies are to be carried out. As such, they are typically driven by administrative direction, professional opinion, technical standards, or general standards of reasonableness.

This immunity is also codified in section 450 of the Municipal Act, and section 390 of the City of Toronto Act.

Standard of Care

As a corollary of the immunity for policy decisions, the standard of care to which municipalities are to be held is typically defined by their own policies. For example, a municipality has the discretionary power under the Building Code Act to determine what inspections to perform on new buildings. The performance of the inspection by the building code inspector is not immune from liability, but the inspector can only be held liable if he failed to perform the inspections set out in the city's policy.5

What is, therefore, most important in considering liability on the part of municipalities is their specific policy governing the actions or inactions at issue.

In the case of sewer backups or failure of other municipal works, one needs to consider the municipal policies for maintenance of the works, as well as for the replacement of the works. If a municipality fails to follow its own policies, it can and will be held liable for that failure.

...inaction, without explanation, cannot constitute a policy decision so as to avoid liability.

An example of this arose in the case of Raubvogel v. City of Vaughan,6 where a resident sued the City of Vaughan for damages arising from a watermain break, on the basis that the City had not followed its own policy in respect of replacement of the watermain. The court ultimately held that the City's policy was to replace watermains after 10 failures, and that the City had failed to either begin the process of replacement after that criterion was met, or render any further decision not to do so. The court reinforced the idea that inaction, without explanation, cannot constitute a policy decision so as to avoid liability.

This case opened up municipal liability in two ways. Firstly, it made it extremely important to consider the specific, documented, municipal policy governing whatever action or inaction is alleged to be problematic. In the case of sewer backups, one must consider flushing and maintenance policies. For building code inspections, one must consider the checklist of inspections to be performed. Subrogation counsel can and should push the municipality to provide the actual bylaw or policy document enacting these requirements, and then consider whether the city has complied with the obligations under their policy.

Secondly, the Raubvogel case opened up considerations of liability based on when and how municipal works must be replaced. If a city enacts policies as to the timing of or criteria for replacement of municipal infrastructure, it can and will be held to account for losses arising from the failure to adhere to those policies. It must be remembered that cities can always revise their policies, such that they can continue to defer replacement of works, even where their core policy requires replacement, but they must actually consider and make those policy decisions. It will be presumed that a municipality has done nothing without reason in the absence of such updated policies.

Injurious Affection

Damage caused to properties arising from works performed by municipalities evokes a special type of liability, called injurious affection. Under the common law, this would fall under the law of nuisance, which attracts strict liability. However, when dealing with municipal governments, liability for injurious affection must be dealt with under the Expropriations Act.7 That Act sets out a very specific procedure for dealing with such claims.

Claims for injurious affection must be made in writing to the municipality within 12 months of the discovery of the loss. This does not require the issuance of a Statement of Claim, but does require more than a typical subrogation demand. Some level of detail must be provided setting out the municipal works at issue, and the damages caused to the property. Once that is complete, the claim must be pursued by way of arbitration before the Ontario Municipal Board, which requires a delivery of a Notice of Negotiation.

Municipalities are strictly liable for damage to property caused by municipal construction or other such works. The majority of these claims arise from vibration caused by municipal construction. One must prove causation, and the quantification of damages, but there is no obligation to prove negligence or standard of care. In essence, it does not matter how much precaution the municipality takes. If they cause damage to real property as a result of their construction, they will be held to account for those damages.

Because of the shortened limitation period for the initiation of such claims, it will be important for subrogation adjusters to retain counsel within the first year following the loss, even if damages cannot be fully quantified. The written claim made to the municipality is not required to fully quantify the damages, but should contain most of the elements that would be present in a Statement of Claim.

Conclusion

Municipalities have been provided with a number of useful defences which may apply to potential subrogation claims. However, such defences are offset by enhanced exposure to liability in a number of other respects. Maximizing potential claims can be achieved with a thorough understanding of these issues.


1 Municipal Act, 2001, S.O. 2001, c. 25
2 City of Toronto Act, 2006, S.O. 2006, c. 11, Sch. A
3 Just v. The Queen In Right of British Columbia, [1989] 2 S.C.R. 1228
4 Just v. The Queen In Right of British Columbia, [1989] 2 S.C.R. 1228
5 A municipality will be held to a standard of reasonableness for any inspection that they choose to conduct, regardless of whether they are required to perform such inspection under their policy. See Ingles v. Tutkaulk Construction, [2000] 1 S.C.R. 298
6 Raubvogel v. City of Vaughan,
2016 ONSC 7478
7 Expropriations Act,
R.S.O. 1990, c. E-26


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