Marine InsuranceIntroductionMarine insurance in Canada is governed by the Marine Insurance Act which is modeled on the English Act. For Frequently Asked Questions relating to Canadian Marine Insurance click here. To review a paper entitled Warranties in Marine Insurance click here. To review a paper entitled Additional Assureds and Co-Assureds click here. To review the Canadian Hulls Pacific Clauses 2005 click here. Case SummariesInsurance – Exceptions – Inchmaree – Liner Negligence Clause – Due Diligence – Onus of Proof Secunda Marine Services Ltd. v Liberty Mutual Insurance Co., 2006 NSCA 82 Affg. 2005 NSSC 180 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. 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., [1990] 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. Warranty of Legality – Breach of Express Warranties – Disclosure of Material Circumstances – Waiver Ocean Masters Inc. v AGF M.A.T. (Allianz AGF MAT Ltd.), 2006 NLTD 140 The Plaintiff's fishing vessel caught fire and sank 40 miles off the coast of Newfoundland. The vessel was en route to recover its crab gear which was already in the water at a location 170 miles off the coast. At the time, 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 the express warranty of legality in the policy and the implied warranty of legality in s. 34 of the Marine Insurance Act and failure to disclose material facts. The Judge reviewed the relevant provisions of the Canada Shipping Act and concluded that the voyage was, in its entirety, in breach of the geographical limitations imposed by the Act and therefore illegal. He then considered whether this illegality was a breach of the express warranty of legality in the insurance policy. He reviewed the relevant authorities and concluded that the express warranty was merely a clause “descriptive of the risk” or a “suspensive condition” which did not render the policy void upon breach. He further concluded that the breach of the express warranty of legality was not causative of the loss and therefore was no defence to underwriters. The Judge next considered whether there had been a failure on the part of the Plaintiff to disclose material facts or to act in utmost good faith which rendered the policy voidable. Based upon the evidence presented that the premiums would be the same for a vessel with CSI certification that allowed it to travel 170 miles off shore, the Judge concluded that the failure to advise underwriters that the vessel travelled this distance off shore was not material to the risk. Finally, the Judge considered whether the breach of the implied warranty of legality in s. 34 of the Marine Insurance Act had been waived by underwriters. This issue arose because clause 8 of the policy provided that “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.” The Judge reviewed the case of F.B.D.B. v Commonwealth Insurance, [1979] 13 B.C.L.R. 376, and noted that the illegality defence was denied where there was not a direct connection between the breach and the loss. He similarly concluded that the breach of the legality warranty was remote from the cause of the loss and that by virtue of clause 8 of the policy the continued illegality was not material. In result, the Plaintiff was awarded the value of the lost vessel. Failure to Report Claim – Relief From Forfeiture Niagara Gorge Jet Boating Ltd. v AXA Canada Inc., 2006 CanLII 4762 (ON S.C.) 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. Subrogation – Builders Risk Policy – Unnamed Insureds – Waiver of Subrogation Secunda Marine Services Limited v Fabco Industries Limited, 2005 FC 1565 The Plaintiff in this matter hired the Defendant to perform welding and other work on its vessel “Burin Sea”. During the course of the work there was a fire that the Plaintiff alleged was caused by the negligence of the Defendant. The Defendant disputed the allegations of negligence and also defended arguing that the action was a subrogated action brought by the Plaintiff's insurers pursuant to a builder's risk policy of insurance and that as a matter of law subrogation under such policies against subcontractors was prohibited. The Defendant brought this application for summary judgment to determine the subrogation issue. The Judge reviewed the construction contract between the parties and noted that it was completely silent with respect to obligations to insure. He then reviewed the builder's risk insurance policy and noted that it contained a clause entitled “Additional Assureds and Waiver of Subrogation” which permitted the assured to name others as additional assureds and to obtain a waiver of subrogation against those parties provided it did so prior to a loss. The Judge noted that the contract between the parties did not require the Plaintiff to name the Defendant as an additional assured or to obtain a waiver of subrogation against it. The Judge then reviewed the various authorities relied upon by the Defendant for the proposition that subrogation under a builder's risk policy was not permitted as a matter of law. The Judge held that these cases did not stand for the proposition alleged. The Judge held that the issue was determined by the language used in the construction contract and the insurance policy. The Judge further held that even if there was such a rule of law in respect of land based construction projects subject to provincial law, such a rule would not form part of marine insurance where rights of subrogation are specifically dealt with in the Marine Insurance Act. Finally, the Judge considered that the decisions of the Supreme Court of Canada in London Drugs Ltd. v Kuehne & Nagel International Ltd., [1992] 3 SCR 299 and Fraser River Pile & Dredge Ltd. v Can-Dive Services Ltd., [1999] 3 SCR 108 established the appropriate principled approach to privity of contract issues and reinforce the holding that there was no rule of maritime law barring subrogation. 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. Marine Insurance – Warranties – Deviation - Waiver & Estoppel – Arbitration Agreement – Right of Appeal McAsphalt Marine Transport Limited v Liberty International Canada, 2005 ONSC 13459 This was an application for leave to appeal the decision of an arbitrator. The Applicant was the owner of the barge “Norman McLeod” which it had purchased in China. Arrangements were made to have the barge towed from Shanghai to Vancouver together with another barge also destined for Canada. Prior to the tow the Applicant arranged with its underwriters for the barge to be included on its existing insurance policy. The Respondent underwriters agreed to hold the barge covered provided: the tug was approved by a surveyor; the surveyor “attend and approve all stages of the towing operation”; the surveyor “approve prevailing weather conditions or stipulate acceptable weather criteria for each stage of the towing operation”; and, the recommendations of the surveyor were complied with. A surveyor did issue a Certificate of Approval which required, inter alia, that the departure from Shanghai or intermediate ports take place in favourable weather and on receipt of a suitable weather forecast. The tug and two barges departed Shanghai on 30 April 2001. The contemplated route was to proceed via Japan where bunkers were to be taken aboard. However, after leaving port the Master decided to take on bunkers at Nakhoda, Russia which was done. Within a few hours of leaving Nakhoda the flotilla encountered rough weather. The two barges collided and both were damaged. The Applicant paid $2.5 million to repair the “Norman McLeod” and suffered an additional $500,000 in losses. Subsequent to the incident the Applicant and Respondent entered into an agreement to submit any dispute to “final and binding” arbitration. At the arbitration, the arbitrator found that the survey warranty and Certificate of Approval constituted true warranties and that they had been breached in that the departure from the intermediate port of Nakhoda did not take place in favourable weather conditions and no surveyor attended at Nakhoda. In addition, the arbitrator found that the change of course was a deviation within the meaning of s. 43(2) of the Marine Insurance Act. (The held covered clause in the policy would have protected the Applicant if it had given the requisite notice.) Finally, the arbitrator held that there was no waiver or estoppel on the part of underwriters in sending a surveyor to survey the loss and in approving the continuation of the tow. The first issue the Court had to consider on this application was whether the parties had excluded a right of appeal. The Court noted that if the parties had provided that the arbitration was “final and binding with no right of appeal” there could be no serious argument on the issue. However, the agreement merely provided the arbitration was to be “final and binding” and therefore the Court had to determine the intent of the parties. The only evidence of this outside the agreement was a statement by the lead underwriter that “a judicial resolution would have no value in this case other than to result in heavy costs to the parties, to the benefit only of their lawyers”. The Court held that this statement taken together with the wording of the agreement indicated the parties wished their dispute to be resolved by the arbitrator without any appeals. This was sufficient to dispose of the application but the Court nevertheless continued to consider whether the issues on appeal were questions of law, upon which an appeal could be allowed, or questions of fact for which there could be no appeal. The Court held that the issues as to whether the weather warranty and the warranty requiring surveyor approval at intermediate stages were true warranties were questions of law. The arbitrator's findings with respect to notice and waiver and estoppel were, however, questions of fact upon which no appeal was allowed. Marine Insurance – Bad Faith – Limitation Period - Pleading – Striking – Reasonable Cause of Action Forestex Management Corp. et al. v Underwriters at Lloyds et al., 2004 FC 1303 “Many years ago when small boys wore suspenders and ships had gender...” So begins the Reasons for judgment of Prothonotary Hargrave in this application by the Defendants to strike out the Statement of Claim of the Plaintiff. The facts were that on 4 August 2000 the “Texada” went aground in a passage in the Queen Charlotte Islands and was subsequently declared a constructive total loss. The Plaintiff gave underwriters notice of the casualty on 8 August 2000 and underwriters denied coverage for breach of the trading warranty on 10 August 2000. The Plaintiff subsequently commenced an action against underwriters for coverage under the policy of insurance. That action was, however, dismissed following a status review on 9 January 2003. The dismissal was appealed by the Plaintiff but the appeal was not served. The Plaintiff attempted to bring on a motion ex parte to extend the time to serve the appeal but was ordered to serve the underwriters. This was not done and the Federal Court of Appeal dismissed the appeal for delay on 13 January 2004. The Plaintiff subsequently commenced the present action against underwriters alleging bad faith. The Defendant underwriters filed a Statement of Defence and brought the present motion to dismiss the action on various grounds. However, as they had filed a Statement of Defence the Prothonotary held that they were only entitled to argue that the Statement of Claim failed to disclose a reasonable cause of action. The thrust of the Defendants argument was that there could be no action for bad faith without an initial finding that there was coverage under the policy. The Prothonotary first considered the requirements of an action for bad faith. He reviewed American and Canadian authorities and noted that although a claim under a policy and a claim for bad faith are two distinct causes of action they are related in that a claim for bad faith cannot succeed unless there is a finding that there is coverage under the policy. He next considered the effect of the dismissal of the claim under the policy and held that an order dismissing an action for delay does not set up a res judicata defence and therefore, subject to any time bar defence, does not prevent a Plaintiff from re-commencing an action. The Prothonotary next considered whether there was a limitation period that would bar the Plaintiff from re-commencing an action on the policy. The Court was referred to s. 39 of the Federal Court Act which incorporates provincial limitation periods and was urged to apply the one year limitation period set out in section 22(1) of the British Columbia Insurance Act. However, the Prothonotary questioned whether the British Columbia Insurance Act extended or ought to extend to marine insurance, a federal undertaking. The Prothonotary did, however, apply the two year limitation period in the British Columbia Limitations Act and applying that period held that the action was not time barred. (The denial of coverage occurred on 10 August 2000 and the bad faith action was commenced on 9 August 2002.) Accordingly, the Prothonotary noted that the existing bad faith action could be amended by adding a supporting claim under the policy and held that if this was done it was not plain and obvious and beyond doubt that the Plaintiff's action could not succeed. In result, the motion to strike the claim was dismissed. Marine Insurance – Breach of Warranty Gartsman et al. v Elite Insurance et al., 2004 ONSC 11157 The Plaintiff in this matter purchased a vessel from the Defendant marina and asked the marina about insurance. She was told that the marina could not provide insurance but was given the name of a broker who arranged insurance with the Defendant insurer. A temporary binder was issued for 30 days that was conditional on the vessel being laid up at the dock pending receipt of a completed application and survey. It was also conditional on the vessel not being used except for instructional purposes by the marina. Although the Plaintiff alleged she was not advised of these conditions the Court did not believe her. In breach of the conditions the Plaintiff took the vessel on a cruise during which it was damaged. Predictably, the insurer denied coverage and the Court upheld the insurer's denial. Marine Insurance – Jury Trials Nelson Marketing International v Royal and Sun Alliance Insurance, 2003 BCSC 439 The issue in this appeal was whether the Master had correctly set aside a jury notice. The underlying facts were that a cargo of wooden flooring carried from Malaysia to Long Beach, California was damaged. The cargo was insured by the Plaintiff with the Defendant but the Defendant denied coverage on various grounds. At first instance the Master set aside the jury notice served by the Plaintiff on the grounds that the principal issues in the case were ones of construction of the terms of the insurance policy, a matter not within the purview of a jury. The Plaintiff appealed arguing that there were many factual issues that were within the purview of a jury and that the Master had misconstrued the case. The appeal Judge held, however, that the Master was correct in his analysis, holding that the proper test was whether the construction issues would remain once the factual issues were resolved. If so, the principal issues are ones of construction and the matter should be heard by judge alone. Marine Insurance – Sue and Labour – Proportion payable when insured and uninsured property involved North Coast Sea Products Ltd. v. ING Insurance Company of Canada, 2004 BCCA 95 affirming 2003 BCSC 592 The insured Plaintiffs incurred expenses in recovering trays and the oysters in them from the seabed when the lines of their oyster farm were vandalized. The Plaintiffs were insured for the loss of the trays but not for the oysters themselves. They claimed under the sue and labour provisions of their marine insurance policy for all the expenses incurred in recovering the trays and oysters. Underwriters claimed that only a portion of the expenses could be claimed and that the claim should be in rateable proportion to the value of the insured trays to the uninsured oysters. The policy wording included provisions for reducing recoverable sue and labour expenses where the property was underinsured but was silent with respect to cases where there was both insured and uninsured property. The matter was disposed of by Special Case. The underwriters relied on English case law from 1902 (Cunard Steamship Co. Ltd. v. Marten) that appeared to state that sue and labour expenses should be recoverable ratably where expenses are incurred for both insured and uninsured property. However, the trial Judge found for the insureds because the terms of the policy did not specify what would happen when expenses were incurred in respect of insured and uninsured property. On appeal, the Court of Appeal upheld the trial Judge holding that the sue and labour clause of the policy only limited the insurer's obligation in the specific circumstances identified in that clause, none of which applied. Insurance – Direct Action Against Insurers – Interpretation of Policies – Limits of Coverage Solway v Lloyd's Underwriters, 2005 ONSC 10650 In this matter the Plaintiffs arranged for a motor carrier to move and store their personal belongings. The truck was stolen and the Plaintiffs' belongings were never recovered. The Plaintiffs obtained a judgment against the carrier which was not satisfied. The Plaintiffs then commenced this direct action against the carrier's primary and excess liability underwriters. Both underwriters agreed that the Plaintiffs' loss was covered but disagreed as to how the loss should be apportioned between them. The primary underwriter argued that the limit of its policy was $500,000 as provided for in the transportation section of its policy. The excess underwriter argued that the applicable limit was that in the warehouse and storage section of the primary policy of $1,000,000. The issue was then one of interpretation of the primary policy. The Court noted that the normal rule for construction of insurance contracts requires a search for an interpretation which, from the whole of the contract, advances the true intent of the parties at the time the contract was entered into. The Court further noted that the general principles of interpretation of insurance contracts include: 1) the contra proferentum rule; 2) the principle that coverage provisions should be construed broadly and exclusion clauses narrowly; and 3) the desirability, at least where the policy is ambiguous, of giving effect to the reasonable expectations of the parties. The Court then considered in detail the provisions of the primary policy and ultimately concluded that the applicable limit depended on the proper characterization of the claim against the carrier either as breach of a transportation contract or breach of a storage contract. The Court held that since liability was imposed on the carrier at the trial for breach of a term relating to storage of the Plaintiffs' goods, the limitation of $1,000,000 for warehousing or storage was applicable. Insurance – Interpretation – Exclusions – Delay – Deck Cargo – Concurrent Causes – Timber Trade Federation Clauses – Bad Faith – Punitive Damages Continental Insurance Co. v Almassa International Inc., 2003 ONSC 10422 This case concerned a shipment of lumber carried from Canada to Saudi Arabia, some of which was loaded on deck and some of which under deck. During the voyage the vessel suffered engine failure and had to be towed to Piraeus, Greece for repairs. The shipment was insured under an open cargo policy. The assured was concerned about the possibility of the lumber cargo becoming damaged during the repair process by lack of ventilation. In the event, some of the cargo was damaged before the engine problems had been repaired. Believing the cause of the damage was the failure to properly ventilate the holds, a covered peril, underwriters agreed to advance the assured approximately US$350,000. Notwithstanding this agreement, underwriters advanced only approximately US$260,000. After the cargo arrived in Saudi Arabia, it was surveyed by a surveyor appointed by underwriters. The essence of that surveyor's opinion was found to be that the damage to the cargo was caused by delay although other factors contributed. Underwriters denied the claim on the basis of an exclusion for delay in the Timber Trade Federation Clauses. The underwriters argued that this clause excluded all damages caused by delay even if delay was only a contributing cause. At the trial the Judge did not accept the evidence of the underwriter's surveyor because that surveyor had received “input” from counsel and/or another surveyor also retained by underwriters. The trial Judge found as a fact that the damage was caused by lack of ventilation and was therefore not excluded under the policy. In any event, the trial Judge held that the exclusion clause would only be operative if delay was the sole cause of the loss. A secondary issue concerned whether the cargo carried on deck was covered by the policy. This issue arose because the Timber Trade Federation Clauses differentiate between under deck and on deck cargo. Under deck cargo is subject to all risks coverage whereas on deck cargo is subject to specified perils coverage. The damage was not caused by any of the specified perils applicable to on deck cargo and, therefore, it appeared that the deck cargo should not be covered. However, the trial Judge found that there was an ambiguity in the policy when read together with the certificate of insurance in that it was not clear whether an on deck bill of lading was required to have been issued to bring into effect the on deck clauses. She resolved the ambiguity in favour of the assured and held that the on deck cargo was afforded all risks coverage. Finally, the trial Judge considered allegations of bad faith made against underwriters and a claim for punitive damages. In the course of her reasons on this issue the trial Judge was critical of the way in which underwriters handled the file. The criticisms included the following: making an interim payment of only US$260,000 when underwriters had agreed to pay US$350,000; interfering with and attempting to influence the surveyor; failing to list relevant documents and lying about same on discovery; and, raising allegations the damage was caused by inherent vice when underwriters knew there was no basis for this defence. She concluded that there was definite evidence of unfairness and deception. However, and notwithstanding these findings, she declined to order punitive damages on the grounds that the conduct was not so outrageous that punitive damages were required to act as a deterrent. Charters– Bailment – Waiver of Subrogation North King Lodge Ltd. v Gowlland Towing Ltd. et al., 2005 BCCA 557 affg. in part 2004 BCSC 460 This matter concerned liability for the sinking of the barge “Sea Lion VI” and is fully summarized under Miscellaneous Cases - Charter Parties (see here). An issue considerd by the trial Judge but not by the Court of Appeal was whether the hirer/charterer was immune from suit by reason of clauses in the hull insurance policy including charterers as additional assureds and waiving subrogation against charterers. The trial Judge held that these clauses were not effective since the policy also contained an express clause which provided that the benefits of the insurance policy would not automatically extend to third parties but would only be extended if the option was exercised by the owner. The trial Judge found that the owner did not exercise this option. Bad Faith - Punitive Damages Whiten v Pilot Insurance Co., 2002 SCC 18 Although not a marine insurance case, this decision by the Supreme Court of Canada is of significant interest to marine insurers. The facts were that the Plaintiff’s home was destroyed in a fire. The Defendant, the Plaintiff’s insurer, denied the claim made under the insurance policy on the grounds that the fire had been deliberately set even though the local fire chief, the Defendant’s own fire investigator and the Defendant’s initial expert all agreed that there was no evidence of arson. At trial, the jury awarded the Plaintiff $1 million in punitive damages against the Defendant for bad faith denial of coverage. On appeal to the Ontario Court of Appeal the punitive damage award was reduced to $100,000.00. On further appeal, the Supreme Court of Canada stated that although the $1 million award of the jury was higher than the court would have made it was within the high end of the range where juries are free to make their assessment. Accordingly, the Supreme Court reinstated the jury’s punitive damage award of $1 million for failure to act in good faith. Liability Policies - Interpretation - Illegality - Pay to be Paid Conohan v The Cooperators, 2002 FCA 60 This case arose out of a collision between the "Lady Brittany" and "Cape Light II" off Prince Edward Island. At the time of the collision the "Cape Light II" was at anchor. Following the collision, blood alcohol readings were taken from the Master of the "Lady Brittany" which indicated his blood alcohol content was above the legal limit. An action was commenced by the owners of the "Cape Light II" against the "Lady Brittany". The insurers of the "Lady Brittany" refused to defend or participate in that action alleging that the insured was in breach of the terms of the policy in that the vessel was being operated in an illegal manner. The owner of the "Lady Brittany" thereafter admitted liability for the collision, confessed to judgment and assigned all of his rights of claim against his insurers to the owners and underwriters of the "Cape Light II". The owners and underwriters of the "Cape Light II" then brought this action against the Defendant, the insurer of the "Lady Brittany". The Defendant denied it was liable on various grounds. First, it alleged that there was a breach of the implied warranty of legality contained in s. 34 of the Marine Insurance Act. Second, it alleged that the collision was caused by "wilful misconduct", an excluded peril under s. 53 of the Marine Insurance Act. Third, it alleged that the collision was caused by "drunken or impaired operation of the vessel or other wrongful act", an excluded peril under the policy of insurance. Finally, it alleged that it was only liable to pay the insured if the insured has "become liable to pay and shall pay by way of damages to any other person any sum...". As the insured had not actually paid any sum it argued that its liability was not invoked. At trial the Trial Judge held: first, that the implied warranty of illegality did not apply to the third party liability portions of the policy; second, that there was no "wilful misconduct"; third, that on a proper reading of the policy the exclusion of "drunken or impaired operation of the vessel or other wrongful act" did not apply to the third party liability clause of the policy as that clause contained its own separately enumerated exclusions. The Trial Judge did, however, hold that the policy was, in fact, a pay to be paid policy and that the Defendant was, accordingly, not liable. The Plaintiff appealed. The Federal Court of Appeal reviewed the case authorities relating to “pay to be paid” clauses and affirmed the decision of the Trial Judge. Liability Policies - Exclusions - “course of transit” Garfield Container Transport Inc. v Chubb Insurance Co. of Canada, (2002) 114 A.C.W.S. (3d) 1100 The Plaintiff was a transportation company specializing in taking cargo from ships and delivering such cargo to the customs clearance warehouse and, eventually, to the purchaser. The Plaintiff was insured by the Defendant under a policy which provided coverage for goods shipped under a bill of lading and in due course of transit. In this instance the Plaintiff delivered equipment to the customs clearance warehouse as required by the bill of lading. While the equipment was at the warehouse the Plaintiff contacted the purchaser and was instructed to deliver the equipment to another trucking firm. The Plaintiff transported the equipment to another warehouse where it had the specialized loading equipment necessary to do the task. During the course of loading the equipment was damaged. The Defendant insurer denied coverage saying that the carriage under the bill of lading and in the due course of transit came to an end at the customs clearance warehouse. This argument was accepted at first instance. On appeal to the Quebec Court of Appeal, however, the Court of Appeal held that the carriage and course of transit did not come to an end at the customs clearance warehouse despite the fact that the ultimate destination was not specified in the bill of lading. The Court held that the Plaintiff was obliged to deliver the equipment to the ultimate destination and temporary disruptions that were not unreasonable did not break the chain of transit. Service Ex Juris - Stay of Proceedings Continental Insurance Co. v Almassa International Inc., [2002] O.J. No. 202, affirming [2001] O.J. No. 3229 This matter concerned a cargo policy taken out by a Quebec merchant from an Ontario based insurer insuring a cargo of lumber carried from Quebec to Saudi Arabia. During the course of the voyage the ship suffered engine damage and called at an intermediate port for repairs. As a result of the delay, the lumber cargo was damaged and a claim was made under the policy. The insurer initially made a payment on account but later denied coverage. The assured brought an action in Quebec against the insurer and the insurer brought an action in Ontario against the assured to recover the monies paid. The assured brought the present motion to stay the Ontario proceedings. The motion was granted. The motions Judge held that mere residency of the insurer in Ontario was insufficient to create a real and substantial connection with Ontario and that the appropriate forum was Quebec. The judgement was appealed. In a short endorsement the Ontario Court of Appeal affirmed the decision of the motions Judge. Warranties - Authority of Broker Elkhorn Developments Ltd. v Sovereign General Insurance Co. et al., 2001 BCCA 243, [2001] B.C.J. No. 630 This was an application by the Defendants for summary dismissal of the Plaintiff’s claim for coverage under a hull and machinery policy. The policy contained a warranty that any movements of the barge would be subject to underwriters’ prior approval. In breach of this warranty, the barge was moved without any notice to underwriters and sank four days after the move had been completed. A marine surveyor was appointed but he was unable to come to a firm opinion on the cause of the sinking. Subsequent to the sinking, the insurers and the broker agreed to cancel the insurance policies effective the day of the move. The issues in the case were whether the warranty was a true promissory warranty or merely a suspensive condition and was the insurance policy properly cancelled retroactively. At first instance the motions judge held that in order for a clause to constitute a promissory warranty there must be “a substantial relationship between the warranty and the loss incurred”. The motions judge further held that in order to answer this question there was a need for further evidence concerning the cause of the sinking of the barge. The motions judge therefore dismissed the application and ordered that the matter proceed to trial. On appeal, the British Columbia Court of Appeal held that the motions judge erred in requiring that a “substantial relationship” exist between the warranty and the loss incurred. Such a test was retrospective in nature and would be a serious practical impediment to the marine insurance business. The Court of Appeal went on to find that the clause in issue was clearly intended by the parties to be a promissory warranty the breach of which discharged the insurers from any liability. The Court of Appeal further held that the cancellation of the policy by agreement between the insurers and the broker was effective as the broker had the apparent or ostensible authority of the assured. Stay of Proceedings Waterworks Construction Ltd. v Liberty Mutual Insurance Co., 2001 NSSC 125, [2001] N.S.J. No. 355 This action arose out of the sinking of a concrete casing which was determined to be a hazard. The Plaintiff alleged that its liability for the cost of removal of the casing was covered by an insurance policy issued by the Defendant. There was, however, a second action between the Plaintiff and other parties relating to the liability for the sinking. The Defendant insurer brought this application to stay the insurance action pending the outcome of the liability action. The Court declined the stay holding that there were separate issues in the two actions. Subrogation Chubb Insurance Co. of Canada v Cast Line Ltd., [2001] Q.J. No. 2363 This was a subrogated action by a cargo insurer against an ocean carrier for damage occasioned to a container of cheese. The Defendant carrier brought this motion arguing that the Plaintiff insurer had no right to bring the action as it had no rights of subrogation. The Defendant relied upon the terms of the receipt signed by the assured which referred to the payment by the insurer as a loan. Notwithstanding the language of the receipt, the court held that the payment by the insurer was a true insurance indemnity as it was reimbursable by the assured only in the event that it should obtain indemnification from another source. In result, the Defendant’s motion was dismissed. Cargo Insurance - Cancellation - Misrepresentation Nuvo Electronics Inc. v London Assurance et al., (2000) 49 O.R. (3d) 374(Ont. S.C.) This matter arose out of the loss of 15 cartons of integrated circuits valued at US$1,403,000.00 and carried by air from San Francisco to Toronto. The shipment left San Franciso on August 10, 1996, and arrived at Toronto on the morning of August 11, 1996. It was then placed in the Air Canada cargo warehouse but was never seen again. The Plaintiff consignee commenced this action for the value of the lost cargo against its cargo underwriter and the air carrier. (That part of the judgment dealing with the claim against the carrier is considered below under "Carriage of Goods".) The cargo underwriter denied coverage on the basis that it had cancelled the policy of insurance prior to the loss and also on the basis that the assured had failed to disclose prior losses. The shipment was insured under an open cargo policy that provided that it could be cancelled upon 30 days written notice "but such cancellation shall not affect any risks which have already attached hereunder". The policy further provided that notices mailed to the broker were deemed to have been received by the assured. On July 10, 1996, the underwriter faxed a notice of cancellation to the broker giving 30 days notice of cancellation and stating that the cancellation would be effective on August 10, 1996. The underwriter took the position that the policy was cancelled as of 12:01 a.m. on August 10, 1996. The Court, however, held that there were three problems with the underwriter’s notice of cancellation. First, the notice of cancellation was vague and imprecise in that it did not say how the 30 days was to be calculated and did not specify the exact time on August 10, 1996, the cancellation would be effective. The Court held that the notice of cancellation could be interpreted to mean that coverage would be in force for the entire day of August 10, 1996. Second, the policy required that the notice of cancellation be mailed to the broker. Third, the policy also contained statutory conditions which contained clauses dealing with termination that were different from those in the body of the policy and which the underwriter made no attempt to comply with. The Court therefore held that the policy was ambiguous and the underwriter had failed to give proper notice of cancellation. The Court next turned to the issue of whether the policy was void ab initio by reason of the assured’s failure to disclose at the time it applied for the policy that it had suffered prior losses. The evidence disclosed that the assured’s broker had advised the underwriter that there had been no losses except for one lost package (value $300.00) three years earlier. This information was not accurate. In fact, the assured had suffered a series of losses in the hands of its courier totalling $18,000.00. This information did not come to the attention of the underwriter until after the loss in issue. The underwriter submitted that these facts were material to the risk and should have been disclosed. The underwriter led the evidence of an expert independent underwriter to the effect that the courier losses would have caused him to either increase the premium or modify the conditions of carriage. The Court, however, found as a fact that the Defendant underwriter would have written the risk even if it had been advised of the prior losses. Under these circumstances it was irrelevant what an independent underwriter would have done. The Court held that a successful defence on the basis of material non-disclosure requires proof that, if the facts had been disclosed, the underwriter who wrote the risk would have declined the risk or required a higher premium and evidence from an independent "prudent" underwriter to the same effect. Accordingly, the Court held that the underwriter had failed to prove material non-disclosure and the underwriter was held liable for the insured value of the lost cargo. (Note: The underwriter was not without a remedy as there was a recovery from the air carrier which is detailed below under "Carriage of Goods".) Liability of Agents and Brokers - Material Facts - Onus of Proof 1013799 Ontario Ltd. v Kent Line International Ltd., [2000] O.J. No. 3074, (2000) 22 C.C.L.I. (3d) 312 (Ont. S.C.) This was an action against a freight forwarder and insurance broker for breach of contract and negligence arising out of damage to a cargo of chocolate bars shipped to Trinidad. The cargo was insured subject to the Institute Frozen Food Clauses which only provided coverage in the event of mechanical breakdown of the reefer units for a period longer than 24 hours and such coverage ceased 5 days after discharge from the ship. The Plaintiff was unable to meet these conditions and, hence, there was no insurance coverage. The claim against the freight forwarder and insurance broker for breach of contract was based on an alleged contractual agreement that the Defendants were to procure "all risks, warehouse to warehouse" insurance coverage for the shipment. The Court found, however, that although the Plaintiff had initially requested "all risks, warehouse to warehouse" coverage it later instructed the freight forwarder to procure coverage subject to the Institute Frozen Food Clauses. Accordingly, the Court found that there was no breach of contract. The Court next considered the question of negligence. The Court reviewed the authorities on the duties owed by insurance agents and brokers to their customers. These authorities established that the duty included: to review the needs of the customer; to provide information about available coverage and advice about which forms of coverage are appropriate; to exercise reasonable skill and care to obtain policies in the terms bargained for and to service those policies as required; to advise the customer if they are unable to obtain the policies bargained for; and to point out gaps in the coverage and advise the customer how to protect against those gaps. The Court held that although the Plaintiff had been advised of the limiting conditions of the Institute Frozen Food Clauses, the Defendants had a duty to do more. Specifically, the Court found that extended coverage was available and that the Defendants should have advised the Plaintiff of this coverage. The Court rejected the Defendants’ argument that the Plaintiff had not proven that it would have been granted the extended coverage if it had so requested. The Court held that there was no onus on the Plaintiff to prove this. An additional argument advanced by the Defendants was that there had been material non-disclosure on the part of the Plaintiff. The Court rejected this argument saying that even if there had been material non-disclosure the effect would be to make the contract of insurance voidable and not void ab initio. As the underwriter never exercised the right to void the policy the Defendants could not rely upon the voidability of the policy as proof that the Plaintiff suffered no loss. Further, the Court held that there was insufficient evidence that the facts not disclosed were material. The Court noted that the onus was on the Defendants to lead evidence from the underwriter that it, in fact, regarded the non-disclosure as material and also to lead expert evidence of an independent underwriter that a prudent underwriter would be of the same view. In the result, the Defendants were liable for failing to obtain the proper insurance coverage. Cargo Insurance - Insufficiency of Packing Rainbow Technicoloured Wood Veneer Ltd. v The "Canmar Conquest" et al., (June 28, 2000) No. T-2580-97 (F.C.T.D.), [2000] F.C.J. No. 1032 This was an action by the Plaintiff against its cargo insurer for damage to a guillotine press in an amount in excess of $100,000.00. The Defendant insurer argued that coverage was excluded by clause 4.3 of the Institute Cargo Clauses (A) in that the press was insufficiently packed and prepared for shipment. The Court reviewed the evidence of the surveyors, all of whom gave the opinion that the securing of the press in the container was inadequate, and dismissed the action. Unseaworthiness Laing v Boreal Pacific, (October 13, 2000) No. A-166-99 (F.C.A.), [2000] F.C.J. No. 1665 This was an appeal from a judgment of the Trial Division dismissing a claim under a marine insurance policy for the loss of an excavator. The excavator was loaded on the self-propelled barge, "Palaquin", and was being carried across the Strait of Georgia. During the crossing the seas became rough and the excavator shifted and ultimately fell overboard. The Plaintiff settled an action brought by the owner of the excavator and brought proceedings for indemnity pursuant to the terms of his insurance policy. The Defendant insurer denied the claim on the basis that the vessel was unseaworthy at the commencement of the journey. The Trial Judge found that the barge was unseaworthy in that it was too heavily laden for the sea conditions that could reasonably be expected and the excavator was not properly secured. She further found that the Plaintiff had knowledge of the facts that made the vessel unseaworthy. In result, the Plaintiff's action was dismissed. On appeal, the Court of Appeal held that the Trial Judge correctly applied the test of privity, ie. whether the shipowner had knowledge of the facts constituting the unseaworthiness and knowledge that those facts rendered the ship unseaworthy or turned a blind eye to the facts giving rise to the unseaworthiness. In the result, the appeal was dismissed. All Risks Coverage - Wear and Tear Bevan v Gartside Marine Engines Ltd. et al., [2000] B.C.J. No. 528 (B.C. Prov. Ct.) This was an action against a repairer and an insurer under an all risks policy for damage caused when a transmission overheated. The Plaintiff alleged that the repairer had been negligent in performing prior repairs to the trolling valve control linkage. The Plaintiff further alleged that the damage was covered by his all risks policy. The repairer denied negligence and the insurer defended on the basis of an exclusion in the policy excluding liability for damage caused by wear and tear and mechanical breakdown. The Court found that there could have been multiple causes of the transmission failure including pre-existing damage, wear and tear and improper use of the trolling gear by the Plaintiff or previous owners. As a result, the Court held that negligence on the part of the repairer had not been proven. With respect to the claim against the insurer, the Court noted that there are limits to the coverage afforded by an all risks policy and that the Plaintiff was required to prove that the cause of the transmission failure "was due to a casualty". The Court held that the Plaintiff had not proven that the loss was due to a casualty and coverage was denied. Waiver of Subrogation - Additional Assureds - Privity of Contract Fraser River Pile & Dredge Ltd. v Can-Dive Services Ltd., [1999] 3 S.C.R. 108 (S.C.C.). This was an action by the owners and underwriters of the derrick barge "Sceptre Squamish" against the charterer of the barge. The "Sceptre Squamish" was lost in the Strait of Georgia when it was left by the charterer unattended in heavy weather. The charterer defended the action alleging that the loss of the barge was due to the negligence of the owner, that there was an agreement that the owner would insure the barge for the benefit of the charter, and that the action, which was a subrogated action by hull underwriters, was barred by reason of a waiver of subrogation and "additional insureds" clause in the hull policy. The waiver of subrogation clause waived subrogation against charterers. The "additional insureds" clause gave the owner permission to charter and made the charterer an additional insured under the policy. The owners and underwriters argued that the charterer was not entitled to rely on these terms because it was not a party to the policy and because the owners and underwriters had executed an agreement following the loss in which they agreed to proceed with legal action against the charterer and in which the owner waived any rights it had under the waiver of subrogation clause. At trial (reported at (1995), 9 B.C.L.R. (3d) 260), the court held that the loss of the barge was due to the negligence of the charter, that there was not sufficient evidence of an agreement to insure, and that the doctrine of privity applied to prevent the charterer from relying upon the waiver of subrogation and "additional insureds" clauses. On appeal (reported at (1997), 39 B.C.L.R. (3d) 187), the British Columbia Court of Appeal upheld that part of the trial judgement holding that there was no agreement to insure. The Court of Appeal then embarked on a lengthy analysis of the doctrine of privity and concluded that the doctrine of privity no longer applied to prevent a third party from taking the benefit of a waiver of subrogation clause. The Court of Appeal further held that the agreement entered into between underwriters and owners following the loss was ineffective as the charterers rights had crystallized upon the happening of the loss. On further appeal to the Supreme Court of Canada, the Supreme Court upheld the decision of the Court of Appeal. The Supreme Court held that new exceptions to the doctrine of privity must meet a two part test: 1. the parties to the contract must intend to extend the benefit to the third party seeking to rely on the contractual provision; and 2. the activities performed by the third party must be the very activities contemplated as coming within the scope of the contract in general, or the provision in particular, as determined by reference to the intentions of the parties. Applying this two part test, the court found that there could be no question that owners and underwriters intended to extend the benefit of the waiver of subrogation clause to a class of third parties (charterers) that included the charterer and that the relevant activities arose in the context of the charter relationship, the very activity anticipated in the waiver of subrogation clause. With respect to the agreement entered into between underwriters and owners following the loss, the Supreme Court agreed with the Court of Appeal that the happening of the loss crystallized the charterer’s rights and that the waiver of subrogation clause could thereafter not be amended without the agreement of the charterer. Contribution Among Insurers Trenton Cold Storage Ltd. v St. Paul Fire & Marine Insurance Co., (1999), 11 C.C.L.I. (3d) 127, (Ont. Ct. Gen. Div.). Although not a marine insurance case this decision relates to an issue that marine underwriters are often called upon to deal with. The case concerned a fire at the assured's warehouse which resulted in damage to goods belonging to one of its customers. The assured had two liability policies; a warehouseman's legal liability policy and an umbrella excess policy that also provided comprehensive general liability coverage. The insurer under the warehouseman's legal liability policy settled the claim with the assured's customer and sought a 50% contribution from the insurer under the second policy. The court first considered whether the second policy was a true umbrella policy and held that it was not. The court next considered the "Other Insurance" clauses in the two policies. The clauses were virtually identical, each providing that their own insurance was excess. The court held that the two clauses were mutually repugnant and cancelled each other out. In result, both underwriters were required to share equally in the settlement. The insurer under the second policy was not, however, required to contribute to the defence costs as these costs were excluded in its policy. Discovery - Privilege Commercial Union Assurance Company PLC. v M.T. Fishing Co. Ltd., (1999), 162 F.T.R. 74, (F.C.T.D.), affirmed (1999) 244 N.R. 372, (F.C.A.). In this matter the Plaintiff insurers paid out a fire damage claim. Subsequently, it was learned that the fire may have been intentionally set. The insurers then instituted a fresh investigation into these allegations which ultimately resulted in commencement of the present action to recover the insurance moneys paid. At issue in this motion was whether the reports and information subsequent to the commencement of the second investigation were privileged from production. The court at first instance reviewed the law of privilege and ultimately held that the dominant purpose of that investigation was to commence an action to recover the insurance moneys paid out. Indeed, the court could see no other reason for such investigation. On appeal to the Federal Court of Appeal, it was noted that the motions Judge did not determine if litigation was in reasonable prospect when the reports were prepared or whether litigation was the dominant purpose for the creation of the reports. The Court of Appeal noted that this was because counsel had agreed that they could determine what documents and information had to be disclosed if the Judge merely determined whether the dominant purpose of the investigation was to commence an action to recover the insurance moneys paid. In light of this agreement, the Court of Appeal found no error in the finding of the motion Judge and dismissed the appeal. Marine Insurance - All Risks Policy Russell v Canadian General Insurance Co.,(1999), 11 C.C.L.I. (3d) 284, (Ont. Ct. Gen. Div.). In this matter the Plaintiff claimed under an all risks marine policy for damage caused to a sailboat by the accumulation of water in the interior of the vessel. The damage to the sailboat occurred during the period from 1990 to 1993. The assured put the vessel into storage at the end of the summer in 1990 and left it in storage until October 1993 when it was discovered to be full of water. The accumulation of water had rendered the vessel a constructive total loss. The insurer denied coverage on the basis that there was wilful misconduct on the part of the assured, that the Plaintiff "courted the risk" and that the damage was caused by wear and tear, an excepted peril under the policy. There was conflicting evidence as to whether the assured periodically inspected the vessel while it was in storage. The assured testified that he did periodically inspect the vessel. The insurer led expert evidence to the effect that the assured could not have possibly inspected the vessel given the amount of water that had accumulated. The court, however, held that there was no requirement that the assured inspect the vessel. The court also held that there was no "wilful misconduct" on the part of the assured as he did not intend to damage the vessel and there was no deliberate courting of the risk as the damage was not foreseen. Additionally, the court found the damage was not caused by wear and tear as the damage was highly unusual and not the result of an occurrence ordinarily to be expected. Breach of Warranty of Inspection Shearwater Marine Ltd. v. Guardian Insurance Co. et.al., (October 1, 1998) No.CA022988 (B.C.C.A.) The Plaintiff claimed under a marine insurance policy for the constructive total loss of a 93 year old converted wooden fish packer. The vessel sank while moored to a log boom breakwater. The Defendant insurers denied coverage arguing that the assured had breached a warranty that provided: "Vessel inspected daily basis and pumped as necessary." The vessel was not boarded on a daily basis for the purpose of "inspection". It was, however, observed from a distance (often of 300 yards) and pumped as necessary. The trial judge held that compliance with the warranty did not require daily boarding of the vessel but, rather, that daily observation by a knowledgeable observer was sufficient. The trial judge further went on to consider whether the warranty was a "true warranty", the breach of which would void the policy, or merely a suspensive condition, the breach of which merely suspends the policy while the breach continues. The trial judge held that the warranty was a suspensive condition. This was relevant as the vessel had been boarded and pumped the day before the sinking. A final issue concerned whether the vessel was truly a constructive total loss, i.e.. whether the cost of repair exceeded the insured value. This, in turn, depended on whether the assured's normal labour charge-out rate was used to calculate the repair cost or whether the actual cost to the assured (i.e.. without a profit element) was used. The trial judge held that the normal charge-out rate should be used. The insurer appealed. The British Columbia Court of Appeal stated that "the trial judge reached the right conclusions for the right reasons" and dismissed the appeal. Insurance - Extent of insurer's obligation to repair Lockwood v Moreira, (April 24, 1998) No. C21444 (Ont. C.A.) In this matter the insured's pleasure craft was broken into by vandals who used citronella candles in the interior of the vessel. As a consequence, a thick sooty substance covered the interior of the vessel. The assured made a claim under the insurance policy and the insurers responded by having the interior of the vessel cleaned. The assured was not satisfied with the first cleaning so the insurers authorized a second cleaning. The assured was still not satisfied and took the position that the only way the vessel could be restored to its original condition was by removing the deck and replacing the interior at a cost of $100,000. The trial judge held that the insurer's obligation under the policy was to restore the boat to substantially the same condition it was in before the vandalism, which had been done. The insurer was not required to restore the boat to the exact condition it was in before the vandalism. The trial judge further rejected a claim of bad faith against the insurer, holding the insurer had responded promptly to the claim and without malice. The insured appealed. The Ontario Court of Appeal in a brief endorsement noted that they agreed with the trial judge that the boat "was substantially repaired" and dismissed the appeal. Cargo Insurance - Exclusions - Institute Frozen Meat Clauses Queen Charlotte Lodge Ltd. v Hiway Refrigeration Ltd. and Royal Insurance,(January 7, 1998) Vancouver Registry No. C946385 (B.C.S.C.) In this matter the Plaintiff had purchased a used refrigeration unit from one of the defendants for use in transporting meat and vegetables to the Plaintiff's fishing lodge in the Queen Charlotte islands. The goods were insured under a policy of insurance that included the Institute Frozen Meat Clauses A-24. These clauses contained an exclusion excluding any loss arising from "unfitness of container... where loading therein is carried out prior to attachment of this insurance or by the assured or their servants". While in transit the refrigeration unit ceased functioning and the goods within were spoiled. The Plaintiff sued both the vendor of the refrigeration unit and the insurer. The Court found that the cause of the failure of the refrigeration unit was a defective part. With respect to the liability of the vendor of the refrigeration unit, the Plaintiff argued the vendor was liable for breach of the implied warranties of fitness and merchantability in the Sale of Goods Act. The vendor argued that it had contracted out of the implied terms by the use of the words "No Warranty" in a quotation given to the Plaintiff. The Court held, however, that these words were not sufficiently clear to exclude the implied terms. With respect to the liability of the insurer, the Court held that the loss was excluded by the terms of the policy and the insurer was not liable. In reaching this conclusion the Court noted that the insurer did stipulate for the inclusion of the Institute Frozen Meat clauses in its negotiations with the broker and that the broker was, as a matter of law, the agent for the assured. Liability Insurance - Coverage Strangemore's Electrical Limited v Insurance Corporation of Newfoundland Limited, [1997] I.L.R. I-3475 (Nfld. S.C.) This was an action under a policy of commercial insurance. The Plaintiff was in the business of servicing and repairing vessels. One such vessel (which incidentally was owned by the President of the Plaintiff company) was destroyed by fire while in the possession of the Plaintiff for servicing. The boat owner brought an action against the Plaintiff who, in turn, requested coverage under the liability provisions of the insurance policy. The Defendant insurer denied coverage, relying on an exclusion in the policy that excluded coverage for "personal property in your care custody or control". However the policy also contained a specific exclusion for watercraft which provided that the exclusion did not apply to "watercraft while ashore on premises you own or rent". The Court held that clearly the boat in issue was on the premises of the assured and therefore the policy applied. Negligence of Broker Percy v West Bay Boat Builders and Shipyards Ltd. et.al., (October 28, 1997) No. CA021807 Vancouver Registry (B.C.C.A.). This was an appeal of a decision in which an insurance broker was found liable for not obtaining the proper coverage for its client, a yacht builder. The issue arose when the builder was sued by a customer after the customer's yacht caught fire. The customer alleged that the boat was negligently manufactured by the builder. The action by the customer was settled out of court for a substantial sum. The builder sought reimbursement of the settlement funds and of its full legal costs from the broker. The builder alleged that the broker had enticed it away from another broker/insurer by promising "full coverage" at better rates. As it turned out, the policy obtained for the builder by the broker did not provide the same coverage as was provided by the prior policy. Specifically, it did not cover the product liability claim of the builder's customer. If the prior policy had been in place, the builder would have been covered for this claim. The broker was found liable both at trial and on appeal for failing to properly review its client's prior policies and for failing to properly advise the client of the exclusions to coverage. Late Reporting Demitri v. General Accident Indemnity Co., (November 26, 1996) No. S031296 New Westminster Registry (B.C.S.C.). This is not a recent case but it is one which we have only recently become aware of. The Plaintiff was injured and his vessel was damaged when it was rammed by a vessel insured by the Defendant. The Plaintiff obtained judgement against the assured but was unable to recover from the assured and was therefore attempting to recover direct from the insurer pursuant to statute. The insurer denied liability on the grounds that its assured had failed to give it prompt notice of the claim as required by the terms of the policy. The accident occurred in September of 1991 but the assured did not give notice until November of 1992. The Court held that the assured had failed to give prompt notice and declined to give relief from forfeiture. In result, the Plaintiff was not able to recover from the insurer. Breach of Lay Up Warranty Marler v Royal Insurance Company et.al, (October 3, 1996) No. C12405/93(Ont. Ct. Gen. Div.) This was an action by a vessel owner against his underwriter and insurance broker. The underwriter provided the broker with a quotation for insurance which contemplated issuance of an All Risk policy upon compliance with all survey recommendations and a re-survey. It also included a warranty: "Warranted laid-up and out of commission". The quotation was provide to the assured who instructed the broker to procure the insurance. The assured subsequently put the vessel in the water. When the broker learned of this she advised the assured that the warranty did not permit the boat to be in the water. The insurer later advised the assured that the policy was cancelled. Nine days later the vessel sank. The Court held that the assured, an experienced sailor, boat owner and marine lawyer, was aware of the meaning of the warranty and had breached the warranty by putting the vessel in the water. Accordingly, the action was dismissed. Tower's Legal Liability Catherwood Towing Ltd. v. Commercial Union Assurance Co. et.al.,(July 17, 1996) Vancouver Registry No.CA019997 (B.C.C.A.) The issue in this case was whether the tug owner's P&I policy offered coverage in respect of loss of or damage to cargo on board a barge. The barge and cargo were owned by the same person and were being towed by the tug owner pursuant to a contract of towage at the time of the loss. The insurer denied coverage on the basis of a clause in the policy that excluded "all liability in respect of cargo". The tug owner relied on the wording of a Tower's Liability endorsement which extended coverage to the "tow or the freight thereof or to the property on board". Both the trial Judge and the Court of Appeal held that the cargo exclusion in the policy applied only to cargo on board the insured vessel (i.e.. the tug) and not to cargo on board the barge which was owned by the cargo owner and not insured under the policy. Further, it was held that the word "freight" in the endorsement meant goods transported in a vessel. In result, there was coverage under the policy. Tower's Legal Liability Burrard Towing Co. v Reed Stenhouse Limited, (April 23, 1996)Vancouver Registry No.CA019659 (B.C.C.A.) This case involved the interpretation of a Tower's Legal Liability Policy. The facts were that a barge under demise charter to a tug company capsized while under tow and the cargo was lost. The barge was an insured vessel under the tug company's policy. The issue in the case was whether the tug company had legal liability coverage for the lost cargo. The policy contained an express exclusion for "liability in respect of cargo on board vessels insured herein". It also, however, contained an endorsement which provided: "coverage is extended to include Legal Liability of the Assured...in respect of loss of, or damage to...her tow...or the property thereon...". The Tug company argued that this endorsement extended the coverage to cargo on the barge notwithstanding the exclusion. The Court of Appeal held, however, that in interpreting the insurance policy it was necessary to distinguish between liabilities arising out of contracts of towage and those arising out of contracts of carriage. The Court held that the endorsement applied only to contracts of towage and not to contracts of carriage. It further held that, as the tug and barge were both supplied by the tug owner, the contract was one of carriage. Accordingly, the cargo exclusion applied and the Underwriters were not liable under the policy. Exclusion for Household Resident - Estoppel Snair v Halifax Insurance, (1995), 145 N.S.R. (2d) 132, (N.S.S.C.) In this matter the Plaintiff sought a declaration of coverage. The Plaintiff had earlier been found 100% liable for a very serious boating accident that rendered his former housemate a quadriplegic. The insurer denied coverage on the grounds of an exclusion in the policy excluding coverage to " any person residing in your household" . The Court held that by the time of the accident the assured and the injured party " were no longer a unit that possessed the elements of intimacy and community" such that the exclusion could apply. In any event, the Court held that the insurer was estopped from denying coverage on the grounds that it had defended the assured in the liability action for over four years. During this period, no denial of coverage was ever issued, no reservation of rights letter was sent and the assured was never asked to sign a non-waiver agreement. Breach of Warranty Lewis v Canada, (July 20, 1995), No. T-1028-93, (F.C.T.D.) This case concerned a total loss of a vessel due to fire. At the time of the fire the vessel was under the command of someone other than the assured. The policy, however, contained a provision that prohibited anyone other than the named insured from operating the vessel without the prior approval of the insurer in writing. The Plaintiff, assured, claimed he had sought and obtained verbal approval to substitute another as master. The insurer denied that any approval had been sought or given. The Court found in favour of the insurer and held that there had been a breach of warranty and, accordingly, there was no coverage under the policy. Fraud? Poirier v Laurentian Casualty Co.,(November 8, 1995), No. 65F, (Ont.Ct. Gen.Div.). This case concerned a claim under an insurance policy for theft of a boat and trailer allegedly left on the side of a road when the trailer tire became flat. The Court held that the assured and his witnesses were not credible and concluded the assured had failed to prove his case. In reaching its conclusion the Court took into account that the assured had serious financial problems and the vessel was for sale at the time of the alleged theft.
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