What’s in a name? When is an “unnamed insured” entitled to insurance proceeds?

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Is it possible for a party not named in an insurance policy to be entitled to insurance proceeds under that policy? In short, it is. Parties who are not a “named insured” under an insurance policy can be eligible to receive insurance proceeds directly as a replacement for lost property that was covered under the policy of insurance. University of Alberta Professor Barbara Billingsley describes “unnamed insureds” as follows:

Named insureds are mentioned by name in the contract as persons to whom insurance proceeds are payable. Typically, named insureds are the purchasers of the insurance. In contrast, unnamed insureds are not mentioned by name in the contract but are entitled to receive insurance benefits because they fall within a particular class of person covered by the contract. 1

In this blog post, we will briefly discuss how the concept of the “unnamed insured” arises when:

  • A general contractor purchases insurance for a construction project; or
  • A party/corporation insures the physical assets of a separate but related party/corporation from fire.

Construction-based policies and the “unnamed insured”

In Sylvan Industries Ltd. v. Fairview Sheet Metal Ltd2, the court found that two subcontractors not named in a builders’ all risk insurance policy were “unnamed insureds” in part on the basis that the description of the property insured under the policy included property belonging to the subcontractors. The end result in Sylvan was that the insurer was barred from bringing a subrogated claim against the subcontractors, as they were, in fact, insured under the policy. 3 The court indicated that the cost of lost equipment and materials of the subcontractors was paid out under the policy. 4

Sylvan was upheld by the BC Court of Appeal. However, the Court of Appeal noted that “a party cannot attain the status of unnamed insured simply by holding an insurable interest in the property insured; rather, an intention to insure that party must be proved.” 5 This principle was satisfied in Sylvan CA in part because a builders’ all-risk policy is a unique type of contract that is intended to cover all contractors on a project. 6

In Surespan Structures Ltd. v. Lloyd’s Underwriters 7, two subcontractors that provided engineering services as part of a larger construction project sought a declaration that they were “insureds” under a project professional liability insurance policy. The policy listed named insureds, as well as “any other firm(s) which have or will provide Professional Services in regard to the Project …”. 8  The court refused to limit coverage to the parties named in the contract, and granted the declaration that the two engineering subcontractors were “insureds” under the policy. 9

Fire damage and the “unnamed insured”

In Austin Powder Ltd. v. Howard10  a judgment debtor’s house burned. The debtor intended to rebuild the house, and the insurer was to pay the builder directly. The judgment creditor sought to divert the insurance proceeds. A dispute arose as to whether the insurance proceeds could be paid directly to the builder, thereby avoiding garnishment. The insurance policy specifically insured relatives of the named insureds living in the household. The insurer had already paid more than CA$20,000 to the insureds’ son, an unnamed insured who was residing on the property and lost certain personal property items.11  While certain insurance proceeds payable to the named insureds (the parents) were subject to garnishment, the court found that the son’s living expenses “are benefits that are separate and distinct from any debt owing to [the parents]” and were not subject to garnishment. 12

In Sooter Studios Ltd. v. 74963 Manitoba Ltd., 13  the insurer sought to bring a subrogated claim in the name of the owner of a building (Sooter Studios) damaged by fire against the lessee of that building (749). Sooter Studios was not actually named in the policy of insurance, although its principle and sole shareholder was. At issue was whether Sooter Studios was an unnamed insured under the insurance policy by virtue of its relationship with the insured as its principle and sole shareholder. In making reference to the Supreme Court of Canada’s decision in Kosmopolous,14 the Court concluded that the insurer was entitled to bring a subrogated claim in the name of Sooter Studios on the basis that its sole shareholder and principal was named in the policy.

The Manitoba Court of Appeal reversed the lower court’s decision.15 The building owner, Sooter Studios, was not a named insured and the policy did not include an unnamed insured provision. The insurer could not bring a subrogated claim against 749 through Sooter Studios simply based on Sooter Studios’ insurable interest.

The important question for the Court of Appeal was whether Sooter Studios was an unnamed insured entitled to recover the insurance proceeds, notwithstanding the lack of an unnamed insured provision in the policy. To determine this, the Court stated it must look to the intention of the parties. The Court noted the doctrine of “necessary implication” commonly applied to “builder risk policies” (such as in Sylvan CAsupra) where the intent is to cover all contractors on site. The Court cited the following:

It is true that an individual’s interest in property may be considered insured even if they are not named as an insured on the policy and their interest is not disclosed. However, two conditions are necessary in order to entitle the unnamed insured to recover.

First, the individual must have an insurable interest. It may be argued that Ted Allan has an insurable interest in the premises, such that he stands to gain from its existence and to lose from any damage to it. …

In any case, there must still be shown an intention on the part of the trustee to have insured for her benefit (see Keefer v. Phoenix Insurance Co. of Hartford Conneticut (1901), 31 S.C.R. 144). The onus is on the defendant to prove such an intention on the balance of probabilities.16

Ultimately, the Court was unable to determine the issue because of a lack of evidence regarding the intention of the parties.

Conclusion: How to identify an unnamed insured

Determining exactly when a party is an unnamed insured in a given situation is necessarily a fact-specific analysis. The law does not appear to be settled across all jurisdictions on this issue. However, having regard to the above case law, the following principles arise:

  • A person is an unnamed insured if they are not named in the insurance policy but fall within a category of people named therein (i.e., “relatives living in the house”, see Austin; “firms providing engineering services”, see Surespan);
  • Certain types of insurance contracts are, by nature, intended to cover multiple parties (e.g., builders’ risk policies) – these contracts will necessarily cover many unnamed insureds related to the intended coverage of that type of policy (Sylvan and Sylvan CA);
  • A party cannot attain the status of unnamed insured simply by holding an insurable interest in the property insured; rather, an intention to insure that party must be proved (Sylvan CA); and
  • Two conditions are required in order for a party not named in an insurance contract to recover insurance proceeds. First, the individual must have an insurable interest. Second, there must be shown an intention on the part of the named insured to have provided insurance coverage for the unnamed party’s benefit. The onus is on the unnamed party to prove such an intention on the balance of probabilities (Sooter CA).

1 Barbara Billingsley, General Principles of Canadian Insurance Law, 2nd ed, (2014, LexisNexis, Canada) at 17.
2 1992 CanLII 1913 (BCSC) [Sylvan].
Sylvan at paras 3 and 26.
Ibid at para 23.
5 Sylvan Industries Ltd. v Fairview Sheet Metal Works Ltd., 1994 CarswellBC 129 (BCCA) [Sylvan CA] at para 5.
Sylvan CA at para 6.
7 2018 BCSC 1058 [Surespan].
Surespan at para 17.
9 Ibid at paras 67-69.
10 2003 CarswellOnt 2964 (ONSC) [Austin].
11 Austin at para 6.
12 Ibid at para 14.
13 2005 MBQB 114 [Sooter].
14 Kosmopolous v Constitution Insurance Co. of Canada, [1987] 1 SCR 2, 1987 CarswellOnt 132 at paras 1 and 42, in which the SCC decided that a sole shareholder of a corporation has an insurable interest in the assets of that corporation.
15 2006 MBCA 12 [Sooter CA].
16 Sooter CA at para 48, citing National Trust Co. v Allan (1999), 141 Man R (2d) 94 at paras 29-31.