Commentaries are intended as an introduction or overview of the topic. The commentaries for some topics are more detailed than others but none of them should be taken as a complete and full recitation of the law applicable to the topic.
Marine insurance in Canada is governed by the Marine Insurance Act which is modeled on the English Act of 1906.
Over the years we have prepared various papers relating to marine insurance. Links to these papers are provided below. Readers are cautioned that the papers, though current as of the date prepared, are not updated.
Marine Insurance Act
The database contains 58 case summaries relating to Marine Insurance. The summaries are sorted in reverse date order with 20 summaries per page. If there are more than 20 summaries, use the navigation links at the bottom of the page.
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Direct Action Against Insurer - Defences
C.H. Robinson Worldwide v. Northbridge Insurance, 2015 ONSC 232
No summary available.
Action vs Insurance Broker - Applicability of Canadian Maritime Law - Jurisdiction of Federal Court
Coastal Float Camps Ltd. v. Jardine Lloyd Thompson Canada Inc., 2014 FC 906
Précis: The Federal Court refused to strike a claim for negligence against a marine broker as it was not “plain and obvious” the court was without jurisdiction.
The plaintiff’s vessel capsized and sank on 5 November 2009. The plaintiff’s insurer denied coverage on the grounds of material non-disclosure and misrepresentation. The plaintiff commenced this action against the insurer for a declaration that the loss was covered. The plaintiff later amended the statement of claim to include a claim against its marine broker for negligence and breach of contract. The broker then brought this application to strike the allegations against it in the statement of claim on the grounds that the Federal Court has no jurisdiction to entertain the claims.
Decision: Application dismissed.
Held: The applicable test on a motion to strike is whether it is plain and obvious the claim discloses no reasonable cause of action. The fact that a claim is novel or difficult is not a sufficient ground to strike. “The burden on the defendant is very high and the Court should exercise its discretion to strike only in the clearest of cases.” The broker relies upon the decision in Intermunicipal Realty & Development Corp v Gore Mutual Insurance Co,  2 FC 691 where it was held the Federal Court did not have jurisdiction over a marine insurance broker in agency and misrepresentation. However, the plaintiff cites a number of authorities that show the law concerning the jurisdiction of the Federal Court has evolved considerably since Intermunicipal Realty was decided and that it may no longer be good law. It is not plain and obvious the plaintiff’s claim cannot succeed.
Marine Insurance - Ship Repairer's Legal Liability - Application of Provincial Laws - "Faulty Design" Exception - Notice of Loss Requirement
Verreault Navigation Inc. v. The Continental Casualty Company, 2014 QCCS 2879
Précis: The Quebec Superior Court held that a claim against underwriters for indemnity under ship repairer liability policies was governed by Canadian maritime law and not the civil law of Quebec and where the court further held that the underwriters were not liable based on a “faulty design” exclusion in the policy and a notice/reporting provision.
The plaintiff ship repairer, sued its primary liability underwriter (Continental) and its excess liability underwriter (Lombard Insurance Company of Canada), to recover costs incurred to correct certain deficiencies in the heating, ventilating and air conditioning (HVAC) system of a passenger ferry it had repaired for the Government of Canada. The actual defective work had been done by a subcontractor of the plaintiff. The underwriters denied liability on two grounds: first, that the policies contained a "faulty design" exception which applied in the circumstances; and, second, that both policies excluded losses not discovered and reported within one year of delivery of the vessel to the customer.
Decision: Action dismissed.
Held: The claim is subject to uniform Canadian maritime law and not Quebec civil law. The "faulty design" exception of the two policies applies since the HVAC equipment installed on the ferry was inadequate and defective. At the time of its installation, the equipment did not comply with applicable state-of-the-art standards for such systems on passenger vessels operating in Canada. In addition, the notice of loss was given more than 12 months after the redelivery the ferry to the Government, contrary to the requirements of both policies. This was a violation of the assured's obligation of utmost good faith under s. 20 of the Marine Insurance Act.
Collisions – Cutting of Submarine Cable – Liability – Limitation - Meaning of "Such Loss" - Insurance – Wilful Misconduct
Peracomo Inc. v. Telus Communications, 2012 FCA 199 2014 SCC 29
Précis: The Supreme Court of Canada overturned a decision of the Federal Court of Appeal in which a vessel operator was held to be disentitled to the benefit of limitation of liability. The Supreme Court of Canada held that limitation of liability was available to the operator who had intentionally cut a submarine cable. However, the operator’s conduct did constitute “wilful misconduct” within the meaning of the Marine Insurance Act and, as a consequence, the loss was excluded from the insurance coverage.
The respondent was the owner of two submarine cables on the bottom of the St. Lawrence River. The appellants were the corporate owner and operator of a fishing vessel. The operator snagged one of the submarine cables belonging to the respondent while fishing. The operator cut the cable with a saw believing that it was not in use. A few days later he snagged the cable a second time and did the same thing. The respondent commenced these proceedings alleging negligence and damages of approximately $1 million to repair the cable. The appellants denied liability saying insufficient notice had been given of the location of the cables and that, in any event, the cables should have been buried. The appellants further disputed the damages and claimed the right to limit liability. A further issue was whether the appellants’ insurance coverage was jeopardized by reason of “wilful misconduct” on the part of the appellants.
At trial (reported at 2011 FC 494), the trial Judge found that the cables were included in notices to mariners and were shown on navigation charts and that it was the duty of the appellants to be aware of them. The trial Judge further found that it was not practical to bury the cables and held that the sole cause of the loss was the intentional and deliberate act of the appellant operator. With respect to damages, the trial Judge held that the respondent was entitled to damages in the nature of superintendence and overhead and allowed 10% for this. The trial Judge then turned to limitation of liability and noted that to avoid limitation the respondent had to prove a personal act or omission of the appellants committed either “with intent to cause such loss” or “recklessly and with knowledge that such loss would probably result”. The trial Judge held, for the first time in Canada, that this test had been met and the appellants were not entitled to limit liability. The trial Judge said that the operator had intentionally cut the cable and that the loss was the diminution in value of the cable, not the cost of repair. The trial Judge said the operator intended the very damage that occurred but just did not think the cable would be repaired. The trial Judge further held that the operator was “reckless in the extreme” and that the loss was a certainty. Turning to the insurance issue, the trial Judge referred to authorities that established wilful misconduct “implies either a deliberate act intended to cause the harm, or such blind and uncaring conduct that one could say that the person was heedless of the consequences”. The trial Judge had little difficulty in concluding this test had been met and the insurance coverage void.
On appeal (reported at 2012 FCA 199), the Federal Court of Appeal agreed with the trial Judge on the issue of liability finding, among other things, that the appellants ought to have used up-to-date charts which disclosed the existence of the cable. A liability issue raised on appeal that does not appear to have been raised at trial was whether the operator could be jointly and severally liable with the corporate appellant. The operator argued that he should not be liable as his acts were those of the corporation. However, the Court of Appeal said that employees, officers and directors are personally liable for their tortious conduct causing property damage even when their actions are pursuant to their duties to the corporation. Concerning the limitation issue, the Court of Appeal also agreed with the trial Judge finding that the appellants intended to physically damage the cable and that it did not matter whether they were aware of the actual loss that would result. Finally, on the insurance issue, the Court of Appeal was not persuaded the trial Judge had made an error in concluding that the conduct of the appellants was "a marked departure from the norm and thus misconduct". Further, the Court of Appeal agreed that this misconduct was the proximate cause of the loss. The appellants appealed to the Supreme Court of Canada. There were three issues on the appeal:
1. Is the operator personally liable?
2. Are the appellants entitled to limit their liability?
3. Was the loss caused by wilful misconduct such that it is excluded from coverage under the insurance policy?
Decision: Appeal allowed, in part. The appellants were entitled to limit liability but the loss is excluded from the insurance coverage.
(1) The Federal Court of Appeal correctly held that the operator was personally liable even though he was carrying out his corporate duties.
(2) The Federal Court of Appeal took too narrow a view of the intent requirement under art. 4 of the Convention on Limitation of Liability for Maritime Claims. The Federal Court of Appeal held that if the operator knew he was cutting a cable that the intent requirement is satisfied. This undermines the Convention’s purpose to establish a virtually unbreakable limit on liability and does not accord with its text. The conduct barring limitation is expressed in restrictive language. The person is entitled to limit liability unless it is proved that “the loss resulted from his personal act or omission, committed with the intent to cause such loss, or recklessly and with knowledge that such loss would probably result”. There is some dispute in the authorities as to how specifically the loss must have been intended. Some authorities say the “very loss” intended must have resulted. Other authorities say it is sufficient if the resulting loss was the “type of loss” intended. We do not have to take a firm position on this issue as, on either view, the appellants are entitled to limit their liability. The trial Judge found as a fact that the operator thought the cable was useless. The operator did not think his actions would damage someone’s property or necessitate the repair of the cable. Therefore, there was neither “the intent to cause such loss” or “knowledge that such loss would probably result”.
(3) The policy of insurance covered the appellants in respect of their liability for damage to any fixed or movable object arising from an accident or occurrence. The policy was subject to s.53 (2) of the Marine Insurance Act which excludes coverage for any loss attributable to the “wilful misconduct” of the assured. The standard of fault under s. 53(2) is not the same as the standard under the Convention. Both the purposes and the texts are different. The essence of wilful misconduct includes not only intentional wrongdoing but also conduct exhibiting reckless indifference in the face of a duty to know. The findings of fact by the trial judge make it clear that the operator’s conduct constituted wilful misconduct. He had a duty to be aware of the cable and “he failed miserably in that regard”. His conduct exhibited a “lack of elementary prudence”. His actions were “far outside” the range of conduct expected of a person in his position. He was aware he was cutting a submarine cable and had knowledge of the risk that he could be cutting a live cable. His conduct is consistent with indifference to the risk in the face of his duty to know. The fact he believed the cable was not in use is beside the point. “To hold otherwise is to conflate recklessness with intention.” Wilful misconduct does not require either intention to cause the loss or subjective knowledge that the loss will probably occur. “It requires simply misconduct with reckless indifference to the known risk despite a duty to know.”
Marine Insurance - Wreck Removal - Damages - Interest - Costs
Universal Sales Limited v. Edinburgh Assurance Co. Ltd., 2012 FC 1192
In prior reasons (2012 FC 418) the plaintiff had been awarded judgment against the defendants in the amount of approximately $5 million. These reasons dealt with the outstanding issues of interest and costs. With respect to interest, the issues were: should the plaintiff be deprived of part of the interest because of delay in prosecuting the matter; from what date should interest run; what should the rate be; and, should interest be compounded. With respect to costs, the issues were: should the plaintiff be entitled to enhanced costs; should costs be reduced because the plaintiff obtained less than 50% of the damages they sought; and should a settlement offer made by the plaintiff in the amount of $4.5 million but withdrawn 8 days before trial be taken into account.
Decision: Pre-judgment interest awarded at the legal rate of 5%. Costs fixed at $85,000.
Held: In admiralty interest is a function of damages and the trial judge enjoys a wide discretion. The delays were no more caused by the plaintiff than by the defendants. In the circumstances the plaintiff should not be deprived of interest for delay. Given that a particularized claim was only given to underwriters on 10 November 2000 and aspects of the claim had to be investigated, a reasonable start date for the interest calculation is the date the defendants were served with the Statement of Claim which was 12 July 2001. The rate of interest shall be at the legal rate of 5% as the commercial rates during the relevant period had been low. Although the court may order compound interest, the evidence must show compound interest is necessary to fairly compensate the plaintiff. As no evidence is led to justify compound interest, simple interest is awarded. Enhanced costs are not awarded merely because a case is complex. There must be more such as reprehensible conduct. The costs to be otherwise awarded to the plaintiffs should not be reduced because of partial success. The general principle is that costs follow the event and in this case the plaintiff obtained judgment. Rule 420 allows the court to consider offers of settlement in assessing costs that do not fall strictly within the Rule. The withdrawn settlement offer should have a bearing on costs.
Marine Insurance – Cargo All Risks - Fortuity - Burden of Proof – Sufficiency of Packing
Feuiltault Solution Systems Inc. v. Zurich Canada, 2011 FC 260 2012 FCA 215
Précis: The Federal Court of Appeal dismissed an appeal relating to insufficient packaging and discussed at length the burden of proof under an all risks policy.
The plaintiff was the owner of a cargo of machines stowed in three containers and shipped by sea from Montreal to Europe. Two containers were stowed under deck and the third was stowed on deck. Upon delivery of the containers it was discovered that all of the units were damaged by rust. A claim by the plaintiff under its cargo policy with the defendant was denied on the grounds of insufficiency of packaging and the damage was not caused by a fortuity. Specifically, the defendant alleged that the damage occurred because the timbers used to brace the cargo had excessive water content which condensed during the voyage. The evidence established that the three containers were in good condition and that there was no ingress of water into the containers. The plaintiff relied on the fact that it had previously sent several similar shipments packed in the same way without incident. However, at trial (2011 FC 260) the trial Judge found as a fact that the packing was insufficient in that the wood used to brace the cargo was unsuitable and the individual units should have been wrapped in some manner. The trial Judge also accepted that an all risks policy requires that there be a “fortuity” and that the burden was on the plaintiff to prove such fortuity. That burden had not been discharged. The plaintiff appealed.
Decision: Appeal dismissed (2012 FCA 215).
Held: The Federal Court of appeal agreed with the trial Judge that the packing was unsuitable and was the cause of the loss. Although this was sufficient to dispose of the appeal, the Court addressed at length the question of the burden of proof under an "all risks" policy. Specifically, the Court of Appeal held that the trial Judge had erred in holding the assured had the burden of proof. The Court of Appeal said that where an all risks policy contains exclusions that exclude non-fortuitous losses, such as inherent vice or wear and tear, the onus of proving lack of fortuity falls on the insurer. The insured under an all-risks policy need only show that the cargo was in good condition when the insurance attached and that the goods were damaged while the insurance was in force.
Marine Insurance - Wreck Removal - Liability of Underwriters for Expenses - Sue and Labour
Universal Sales Limited v. Edinburgh Assurance Co. Ltd., 2012 FC 418
Précis: Underwriters were required to reimburse the assured for a settlement payment made in respect of an action for wreck removal costs.
The plaintiffs (the insureds) sought indemnity from the defendants (their insurers) for a settlement payment of $5 million made by them to the federal government related to the costs of raising the “Irving Whale”. The payment was made in settlement of a proceeding brought by the Crown for $42 million. The plaintiffs did not obtain the prior approval of their underwriters before making the settlement. The plaintiffs also claimed for sue and labour expenses of $3.6 million and defence costs of $1.8 million. The insurers denied coverage alleging the plaintiffs were not required to make the settlement payment and that there was no coverage under the policy.
Decision: Plaintiff awarded judgment, in part.
Held: With respect to the claim for sue and labour expenses, the trial Judge denied this claim on the basis that the expenses did not diminish or avert a loss under the policy. This was so because the estimated costs at the time the expenses were incurred were in excess of $21 million but the policy limit was only $5 million. Thus, the sue and labour expenses could not possibly have benefited the underwriter. With respect to the settlement payment, the trial Judge held that he was satisfied that the plaintiffs would have been held liable to the Crown in nuisance if the settlement payment had not been made. With respect to the claim for defence costs, the trial Judge was of the view that these should be apportioned between the plaintiffs and underwriters on the grounds that both benefited from these costs. He somewhat arbitrarily apportioned these defence costs 25% to underwriters and 75% to the plaintiffs.
Charters - Agreement to Insure -
Lafarge Canada Inc. v. JJM Construction Ltd., 2011 BCCA 453
The parties entered into four identical charter parties pursuant to which the charterer was to be liable for damage to the barges except for normal wear and tear. The charterer was also responsible for obtaining hull and machinery insurance naming the owner as an additional insured. The barges were returned with damage but not all of the damage was covered by the insurance that had been obtained by the charterer.
The issue in the case was whether the agreement to insure relieved the charterer of liability to pay the repair costs for the uninsured damage.
The issue was first heard by an arbitrator who ruled in favour of the owner and ordered the charterer to pay damages of $650,000. The charterer obtained leave to appeal the arbitration award to the Supreme Court of British Columbia. At first instance (2010 BCSC 1851), the Chamber's Judge held that the party that agrees to insure cannot shelter behind that covenant to avoid liability for damage it causes. The Chamber's Judge also distinguished the cases relied upon by the charterer on the grounds that those cases involved subrogated proceedings brought by the insurer. The charterer appealed to the British Columbia Court of Appeal. The Court of Appeal (2011 BCCA 453) essentially agreed with the Chamber's Judge. The Court of Appeal referred to the various landlord and tenant cases relied on by the charterer and noted that in none of them was it held that a tenant who covenanted to obtain insurance was relieved from liability for damage.The Court did agree that where an insurance policy names two insureds the insurer has no right of subrogation against either but this was of no assistance to the charterer since these were not subrogation proceedings. The Court ultimately held that the covenant to insure was for the benefit of the owner and did not relieve the charterer of liability for damage.
Marine Insurance - Subrogation - Control of Action - Admiralty Practice - Striking Pleadings
Hodder Tugboat Co. Ltd. v. JJM Construction Ltd. et al., 2010 FCA 279
This case involved damage to two barges that were under charter. Following the incidents giving rise to the damage an action was commenced in the name of the owner and the charterer against Texada and Pacific. This action was essentially a subrogated action brought by the underwriters of the barges. Subsequently a second action was commenced by the owner against the charterer as well as Texada and Pacific. Texada and Pacific then brought this motion to strike the second action on the grounds that it was frivolous and vexatious. The motions Judge declined to completely strike the second action as there were aspects of the second action, including uninsured losses, which were not included in the first. Instead the Judge ordered that the actions be restructured such that the owner was the plaintiff in one action and the charterer the plaintiff in the other. Additionally, the Judge ordered that the actions be specially managed and heard together. During the course of his reasons the motions Judge also had to consider whether the underwriter or the insured had the right to control the subrogated action. The Judge held that even though the underwriter may have paid the full amount under the policy the insured retains the right to control the proceeding until it is fully indemnified. A subrogation receipt did not alter the common law on this point. The underwriters were subsequently granted status to appeal the order (2009 FCA 209) and launched an appeal. The appeal was dismissed with the Court merely saying that the order was a response to unusual circumstances, did not offend any principal of law or procedural fairness and was not prejudicial to any party.
Marine Insurance – Interpretation of Policy - Annual Aggregate Deductible - Liability of Broker More Marine Ltd. v. Axa Pacific Insuranc
More Marine Ltd. v. Axa Pacific Insurance Company, 2010 BCSC 88
The policy in issue in this case contained a clause stipulating an annual aggregate deductible (“AAD”) of $250,000. The assured alleged that the clause was added without its knowledge and without consideration. Additionally, the assured alleged that its broker was negligent. The evidence established that in the initial correspondence between the broker and the insurer the AAD clause excluded claims for constructive total loss and total loss, however, the endorsements ultimately issued did not exclude such claims. The Court found that this was a deliberate decision even though there was no direct evidence on how or why the change was made. The Court further found that the assured was aware of the AAD clause. The AAD clause was initially in the amount of $100,000 but it was later increased to $250,000 due to the poor claims history of the assured. Again, the Court found that this was known to the assured. The assured argued that a concluded policy of insurance could not be amended and that it had not expressly approved the AAD. The Court held that clearly a policy can be amended and further that the broker was the agent of the assured and had the authority to bind the assured. The Court additionally held that the assured had ratified the acts of the broker by taking advantage of those acts. The assured additionally argued that there was no consideration for the AAD clause and that on its proper interpretation it did not apply to a constructive total loss. The Court held that there was consideration in that the changes to the policy benefitted both parties. Further, the Court held that the AAD clause was not ambiguous and did apply to a constructive total loss. The Court then turned to the allegations against the broker. The Court noted that a broker owes a stringent duty to provide both information and advice to an assured, however, held that there was no breach of duty in the circumstances. The Court noted that the broker did not communicate some aspects of its negotiations with underwriters but held the assured did not suffer any loss as a result. The Court found as a fact that in order to obtain insurance coverage the assured had to agree to an AAD clause that included constructive total losses and total losses.
Marine Insurance – Stay of Proceedings - Arbitration Clause- Inconsistent Clauses – Waiver-Appeals – Standard of Review – Interpretation of Co
Oppenheim v. Midnight Marine Ltd., 2010 NLTD 3
The plaintiff’s barge sank at sea while carrying cargo and while being towed by one of the plaintiff’s tugs. The cargo owners subsequently commenced proceedings against the plaintiff and arrested the tug. The plaintiff advised the defendant, the insurer of the barge, of the action but the insurer refused to provide security or a defence as it was investigating whether the barge had been unseaworthy. The plaintiff ultimately settled with the cargo owners and commenced this action for indemnity. The defendant insurer brought this application to stay the proceedings on the grounds of an arbitration clause in the policy. The main difficulty was that there were two arguably inconsistent clauses in the policy. The cover note said that it was subject to English law and practice and to the non-exclusive jurisdiction of the English courts. However, within the policy itself was a clause that required any dispute to be referred to arbitration in London. The arbitration clause included words that it was to apply “notwithstanding anything else to the contrary” and that in the event of conflict “this clause shall prevail”. At first instance the motions Judge dismissed the application holding that the contract of insurance must be interpreted as a whole.
On appeal to the Newfoundland Court of Appeal, the Court first addressed the standard of review applicable when dealing with interpretation of contracts. The Court agreed that the interpretation of a contract was a question of mixed fact and law but did not agree that this meant in every case the standard of review was palpable and overriding error as opposed to correctness. The Court said that if a decision-make fails to consider a relevant factor this is an error of law reviewable to a standard of correctness. The Court went on to find that the motions Judge had made just such an error by failing to give any meaning to the arbitration clause in the policy. The Court resolved any conflict between the arbitration clause and the clause in the Cover Note by finding that the reference to “non-exclusive” in the Cover Note recognized the jurisdiction of the arbitrator in the arbitration clause and the jurisdiction of foreign courts over enforcement proceedings. The Court refused to apply the contra proferentum rule of contract interpretation noting that resort should be had to the rule only when all other rules of construction fail. A secondary issue was whether insurer had waived the right to rely upon the arbitration clause having not invoked the clause in prior years in prior disputes. On this issue the Court of Appeal accepted the evidence of a witness on English law to the effect that a failure to invoke an arbitration or jurisdiction clause for practical and commercial reasons is not a waiver in a subsequent dispute. In result, the appeal was allowed and the present action was stayed in favour of arbitration proceedings in London.
Carriage of Goods - Deck Carriage - Marine Insurance - Waiver of Subrogation - 3rd parties
Timberwest Forest Corp. v. Pacific Link Ocean Services Corporation, 2009 FCA 119
This was a subrogated claim for the loss of approximately C$1 million worth of logs. The logs were lost from the deck of a barge while en route from Vancouver to California. The issues in the case were: first, whether the cargo was sufficiently described as deck cargo to remove it from the application of the Hague-Visby Rules (thus denying the defendants the right to rely upon exclusion or benefit of insurance clauses in the contract); and second, whether the waiver of subrogation clause in the plaintiff’s insurance policy protected all of the defendants or just the specifically named contracting carrier. The contract of carriage was contained in a letter of understanding and set of standard terms and conditions which incorporated a bill of lading that was “contemplated” to be issued. The bill of lading, which was never in fact issued, included on its face a statement that “all cargo was carried on deck unless otherwise stated”. The plaintiff argued that a printed statement of deck carriage in a standard bill of lading that was not actually issued was not sufficient compliance with Art 1(c) of the Hague-Visby Rules to oust the application of the Rules. The motions Judge held, however, that the plaintiff was bound by the terms of the contract including the bill of lading terms and these contained a clear statement as to deck carriage. In result, the Rules did not apply. The second major issue in the case concerned a clause in the plaintiff’s policy of insurance which specifically waived subrogation against the contracting carrier. The contracting carrier had entered into time charters for the tug and barge with two affiliated companies who actually carried out the contract through their employees. The issue was whether these other companies and their employees could take the benefit of the waiver of subrogation clause which did not name them specifically or by class. The motions Judge reviewed the complicated history of the waiver of subrogation clause and concluded that it was intended to waive subrogation against the “carrier” or “tower”, terms that were used indiscriminately. As the other parties fell within the definition of “carrier” in the bill of lading, they were entitled to the benefit of the waiver of subrogation clause. He further held that extending the benefits of the waiver of subrogation to these other entities would be a permissible incremental change in the law. On appeal, the Court of Appeal upheld the decision of the motions Judge but for different reasons. The Court of Appeal enforced the waiver of subrogation clause not on the basis of the intention of the parties but referred to a separate clause in the policy whereby underwriters waived rights of subrogation whenever the assured had waived rights of recovery. The Court of Appeal held that pursuant to the terms of the bill of lading recovery had been waived against all of the defendants and therefore rights of subrogation were also waived.
Marine Insurance - Discovery – Privilege – Coverage Advice
Universal Sales Limited v. Edinburgh Assurance Co. Ltd., 2009 FC 150
The plaintiffs (the insureds) sought indemnity from the defendants (the insurers) for a settlement payment made by the plaintiffs to the federal government related to the sinking and raising of the “Irving Whale”. The insurers denied coverage alleging the settlement was made without their consent contrary to the terms of the policy. In these applications the plaintiffs/insureds sought production of various letters between the defendants/insurers and their counsel relating to coverage advice. The plaintiffs said the documents were relevant in that they might show the decision to deny coverage pre-dated the settlement with the government. The plaintiffs applications were dismissed both at first instance before a Prothonotary and on appeal. It was held that the documents were protected by solicitor-client privilege and that such privilege had not been waived.
Warranty of Legality – Breach of Express Warranties – Disclosure of Material Circumstances – Waiver
Ocean Masters Inc. v. AGF M.A.T. (Allianz AGF MAT Ltd.), 2007 NLCA 35
The Plaintiff's fishing vessel caught fire and sank 40 miles off the coast of Newfoundland. At the time, the vessel was en route to recover its crab gear which was already in the water at a location 170 miles off the coast. However, the vessel's CSI certificate limited the vessel's operation to within 120 miles of the coast and the certificate of the Master of the vessel imposed a similar restriction. A request for coverage under the vessel's hull policy was denied by the Defendant underwriters on the grounds of breach of an express warranty that the vessel would be operated in compliance with its CSI certificate, breach of the warranty of legality and failure to disclose material facts. The Court of Appeal for Newfoundland held that the trip was not illegal in its entirety, as held by the trial Judge, but was only illegal during the time the vessel was beyond the 120 mile limitation contained in its certificate. Accordingly, at the time of the loss there was no breach of this warranty. In reaching this conclusion the Court gave effect to clause 8 of the policy which provided “If any breach of a clause or condition of insurance shall occur prior to a loss under this insurance, such breach shall not avoid the coverage...unless such breach shall exist at the time of such loss.” With respect to the implied warranty of legality, the Court held that when the vessel sank it was not being operated illegally and therefore the warranty did not apply. Finally, the Court noted that the fact the vessel had been operated beyond the limit imposed by its CSI certificate had no bearing on the loss and that any failure by the assured to disclose this could not be relied upon to release the insurer from liability.
Insurance Breach of Pleasure Use Warranty - Liability of Broker
McIntosh v. Royal & Sun Alliance, 2007 FC 23
In 2002 the Plaintiff/assured purchased a high performance power boat and took out insurance with the Defendant/insurer through the co-Defendant broker. The Plaintiff intended at some point to use the boat in a business but obtained a policy that was for pleasure use only. The Plaintiff’s broker knew of the assured’s intended use and attempted to obtain commercial coverage but was unable to do so. The Plaintiff was specifically advised by the broker that commercial coverage was not available and that the boat was only insured for pleasure use. Nevertheless, the Plaintiff set up a company called Offshore Performance Tours, had “Offshore Performance Tours” decals put on the boat and took the boat to a number of meets during the summer of 2002 to promote the business. It was claimed that no paying customers were carried in 2002. The following year the policy was renewed with the pleasure use warranty and the assured continued to market the boat by taking it to meets. Again, the Plaintiff claimed he was unable to attract any paying customers. During the fall of 2003, after having used the boat for pleasure purposes, the vessel was stolen while on a trailer at the Plaintiff’s cottage. Not surprisingly, the insurer denied coverage for the theft on the grounds that the assured had breached the pleasure use warranty. The denial was upheld by the Judge who did not believe the Plaintiff’s claim that there were no paying passengers. The Judge found as a fact that there were paying customers and, therefore, a breach of the pleasure use warranty. The Judge further held that the pleasure use warranty was a true warranty and not a suspensive condition. The Judge then turned to the claim by the Plaintiff against the broker. The Judge found that the broker had not met the required standard of care of a broker in that he failed to sufficiently explore the Plaintiff’s business plans and provided inaccurate information that the pleasure use warranty would only be breached when a paying customer was taken on the boat. The Judge held that the mere act of using the boat to promote a charter business amounted to a commercial use of the boat. However, the Judge held that there was no causal link between the breach of duty by the broker and the Plaintiff’s damages. Specifically, the Plaintiff did not rely upon the broker’s advice and instead chose to deliberately ignore it by taking paying passengers onboard. In result, the action against the broker was also dismissed.
Hull Insurance – Perils of the Sea – Wear and Tear – Vermin
566935 B.C. Ltd d.b.a West Coast Resorts v. Allianz Insurance Co. of Canada, 2006 BCCA 469
The issue in this case was whether the sinking of a barge was due to perils of the sea. The barge had been built in 1933 and had been used as a floating sport fishing lodge since 1995. She had been laid up for the winter in September 1999 and sank in March 2000. At the time of her sinking ordinary wear and tear had opened her seams allowing the continuous ingress of substantial amounts of sea water and requiring continual pumping to keep her afloat. A PVC “diaper” had been previously fitted to control the ingress of water but this was in shreds at the time she was laid up in September of 1999. After the barge was raised it was discovered that the pump which had been keeping her afloat was working properly. The Plaintiff, the assured, alleged that the shore power to the pump must have been interrupted and that the loss was, accordingly, fortuitous and due to a peril of the sea. The Defendant underwriters alleged that the cause of the sinking was a failure in the planking of the barge due to worm infestation which allowed water to enter at a rate that overwhelmed the pump. The trial Judge agreed with the underwriters and held that the cause of the sinking was chronic leakage and the failure of a plank. As a consequence, the trial Judge held the loss was caused by ordinary wear and tear or the actions of vermin, excluded perils, and not by a peril of the sea and the case was dismissed. An appeal by the Plaintiff was dismissed by the British Columbia Court of Appeal. The British Columbia Court of Appeal noted that Anglo-Canadian law required that for a loss to be considered a peril of the sea, the actual entry of sea water must have been caused by a fortuity. Here, the fortuity alleged by the Plaintiff, the failure of the pump, was not such an antecedent fortuity and the loss was therefore not caused by a peril of the sea. It is important to note that in reaching this conclusion the British Columbia Court of Appeal referred to the leading decision of the Supreme Court of Canada in C.C.R. Fishing Ltd. v British Reserve Insurance Co.,  1 S.C.R. 814, wherein it was held that where several factors combine to cause a loss, the loss will be considered to be caused by a peril of the sea if one of the causes was fortuitous. The British Columbia Court of Appeal read this case as requiring that the competing causes which combine to produce the loss must all have been operative in relation to allowing the ingress of water. The CCR Fishing case was held not to be applicable as the failure of the pump, even if a fortuity, did not cause the entry of seawater into the vessel.
Insurance – Exceptions – Inchmaree – Liner Negligence Clause – Due Diligence – Onus of Proof
Secunda Marine Services Ltd. v. Liberty Mutual Insurance Co., 2006 NSCA 82
The Plaintiff's vessel lost its propeller when its tail shaft broke while towing a barge. The cost of salvage and repairs was approximately $700,000. The vessel was insured at the material times by the Defendant pursuant to a policy that incorporated the Institute Time Clauses (Hulls) amended to include a Liner Negligence clause in place of the standard Inchmaree clause. The policy covered, inter alia, damage caused by “breakage of shafts” provided there was no “want of due diligence by the Assured”. The underwriters denied the claim alleging there had been a lack of due diligence. The issues in the case were first, who had the burden of proving want of due diligence and, second, was the loss caused by want of due diligence. The Nova Scotia Court of Appeal first considered the nature of the Liner Negligence clause and held that it was essentially an “all risks clause” covering all damage to the vessel by accidents unless caused by want of due diligence. The Nova Scotia Court of Appeal then extensively reviewed the authorities and held that want of due diligence was an affirmative defence, the burden of which was on the underwriters to prove. The Nova Scotia Court of Appeal then turned to the question of whether want of due diligence had been proven. The Nova Scotia Court of Appeal noted that the trial Judge had found that all statutory requirements had been met and that reasonable care had been exercised in the maintenance of the vessel and further noted that an appellate court will exercise a high degree of deference to findings of fact at trial. The Nova Scotia Court of Appeal found no reason to interfere with these findings of the trial Judge and dismissed the appeal.
Insurance – “All Risks” Cargo Insurance – Fortuity – Inherent Vice
Nelson Marketing International Inc. v. Royal & Sun Alliance Insurance Company of Canada, 2006 BCCA 327
This matter concerned damage to three separate shipments of laminated wood flooring carried on three different vessels from Singapore to Long Beach. Upon arrival all three shipments were found to be damaged by moisture. The major issue in the case was whether the damage was due to a fortuity, and therefore covered by the all risks cargo policy, or whether it was due to “ inherent vice or nature of the subject matter”, an excluded peril. At the trial the Plaintiff led expert evidence that the moisture was from exposure to rainfall during transshipment and storage and the Defendant underwriters led expert evidence that the moisture had been absorbed by the cargo while at the mills awaiting shipment and that the absorbed moisture was released in the holds of the vessels and subsequently condensed onto the cargo. The trial Judge agreed with the underwriter's expert and found as a fact that the moisture came from the cargo in the holds of the vessels. However, he further found that “the environments the cargoes interacted with were abnormally and unnaturally amplified in the hold by conditions, the causes of which, although not addressed by evidence, manifestly had nothing to do with the inherent characteristics of the cargoes”. The trial Judge therefore held that “the damage leading to the loss claim was not due to the inherent vice or nature of the cargoes, as pleaded by the defendants, but rather was caused by the fortuity of being put in holds which substantially altered the normal environment”. The underwriters appealed. On appeal, the British Columbia Court of Appeal stated that in order for the loss to be considered fortuitous the Plaintiff was required to prove that the conditions in the holds of the three vessels was other than what might have been expected as part of the ordinary incidents of carriage. The British Columbia Court of Appeal reviewed the evidence and found that there was no evidence that the conditions in the holds were exceptional such as to constitute a fortuity. The loss was accordingly held to be “attributable to the nature of the subject matter of the insurance”. The appeal was allowed and the claim against the underwriters was dismissed.
Warranty of Legality – Breach of Express Warranties – Disclosure of Material Circumstances – Waiver Failure to Report Claim – Relief From Forf
Niagara Gorge Jet Boating Ltd. v. AXA Canada Inc., 2006 CanLII 4762
The Plaintiff operated jet boats on the Niagara River and had protection and indemnity insurance through the Defendant on the SP23 form. On 6 July 1995 the Plaintiff received a letter from a third party putting it on notice of a claim for damages and injuries sustained as a result of the manner in which the Defendant's vessels had been operated a few days earlier. In the letter the third party suggested the Defendant should forward the letter to its insurer. There had been no collision between the Defendant's boats and the third party's boats. The principal of the Defendant considered that the letter was merely a wake complaint and did not forward it or otherwise advise its insurer. Nothing further happened until 23 February 2000 when the Defendant was served with a Statement of Claim for $2.1 million in damages. The Defendant was advised on 28 February and subsequently denied coverage on the basis of the failure of the Plaintiff to give prompt notice of any claim as required by SP23. The Court had little difficulty in finding that the Plaintiff had, in fact, failed to give the required notice. The significant issues in the case were whether the Plaintiff was entitled to relief from forfeiture on the basis of s. 129 of the Insurance Act of Ontario, s. 98 of the Courts of Justice Act of Ontario or pursuant to the common law of equity. The Court held that the relief from forfeiture provision in the Insurance Act had no application to a contract of marine insurance which was expressly excluded from the Act by s.122. With respect to s.98 of the Courts of Justice Act, the Court noted that there was a constitutional issue as to applicability of that act to a contract of marine insurance but did not find it necessary to deal with that issue as the Plaintiff would not in any event have been entitled to relief having failed to act reasonably in the circumstances. Finally, the Court turned to the general law of equity and, although the point was conceded by the Defendant, held that in appropriate circumstances the court could provide equitable relief from forfeiture in marine insurance cases. The key to determining whether relief should be granted is whether the insurer had suffered or is likely to suffer prejudice as a result of the late reporting. In the circumstances of the case the Court held that the insurer had suffered prejudice in that it did not have the opportunity to retain its own counsel, conduct its own investigation or negotiate with the third party. Moreover, even though the witnesses were all still available the Court noted that memories fade over time. Additionally, the Court noted that the insurer not having been notified of the claim could not make the necessary business decisions as establishing reserves, modifying premiums or estimating its loss ratios. In result, the Plaintiff's request for coverage was dismissed.
Floating Homes – Moorage Warranty – Failure to Disclose Material Facts
Abell v. Lloyd's, 2005 BCSC 1715
The Plaintiff in this matter purchased a floating home which burned to the waterline six months after the purchase. The home was originally moored at Cowichan Bay and insurance was taken out which contained a warranty that it would be permanently moored at that location. The Plaintiff then entered into a contract to purchase a water lot in a new development and moved the home to the new development. The insurer was advised and the warranty was changed to reflect the new location. In the event, the Plaintiff's contract to purchase the lot did not complete and the home was temporarily moored at the new location. The developer of the facility advised the Plaintiff that he was trespassing and requested that he move his home. The Plaintiff failed to do so and the developer eventually had the home moved and tied to off-shore pilings. The home was at this location when it burned. The underwriters denied coverage for breach of the moorage warranty and for failure to disclose the location of the home, a material fact. The trial Judge agreed with the underwriters that there had been a clear breach of the warranty and that the change in location to the off-shore pilings was a material fact which ought to have been brought to the attention of the underwriters. It is interesting to note that although the insurance policy was said to be a marine insurance policy the Court referred to various general provisions of the Insurance Act of British Columbia, including a relief from forfeiture provision. The Court seems to have accepted that these general provisions apply to contracts of marine insurance, which is debatable.