Marine insurance in Canada is governed by the Marine Insurance Act which is modeled on the English Act.
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.
- Outline of the Law of Marine Insurance - 2008
- Miscellaneous Marine Insurance Issues - 2007
- Provincial Regulation of Marine Insurance - 2007
- Frequently Asked Questions Relating to Marine Insurance - 2000
- Additional Assureds and Co-Assureds - 2000
- Warranties in Marine Insurance - 1999
To review the Canadian Hulls Pacific Clauses 2005 click here.
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,
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.
Note: This case is regrettably reported only in French. The editor acknowledges with thanks the work of Mr. Robert Wilkins in providing an English summary from which the above is based.
Collisions – Cutting of Submarine Cable – Liability – Limitation - Meaning of "Such Loss" - Insurance – Wilful Misconduct
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 (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 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, the Federal Court of Appeal (2012 FCA 199) 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
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,
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.
Charters– Bailment – Waiver of Subrogation
North King Lodge Ltd. v. Gowlland Towing Ltd. et al., 2005 BCCA 557,
This matter concerned liability for the sinking of the barge “Sea Lion VI”. The barge had been hired by the Plaintiff, the owner of the barge, to the first Defendant, a logging company, for use as an accommodation barge at a remote logging camp. One of the terms of the agreement was that the owner would provide a watchman. When the logging operations had ceased the second Defendant, the towing company, was retained to remove the log booms. In doing so the crew of the tug untied the port side mooring lines of the “Sea Lion VI” which had been tied to the log booms. Shortly thereafter the “Sea Lion VI” went aground and sank. The trial Judge found as a fact that the removal of the port lines caused the sinking. The trial Judge held that the contract between the owner and the logging company was one of bailment and that the logging company was liable for failing to promptly advise the owner when it became apparent that the barge was in danger. The trial Judge further held, however, that because the owner was required by the contract to provide a watchman it had the primary responsibility for the safe moorage of the barge. With respect to the liability of the towing company, the trial Judge held that the owner had committed a trespass by tying the barge to the log booms and that the duty owed by the towing company to a trespasser was to not intentionally harm the Plaintiff, act recklessly or without common humanity. He held that although the towing company did not act with reasonable care it did not breach these duties. In the result, the action against the towing company was dismissed and the liability for the sinking was apportioned 80% to the Plaintiff and 20% to the logging company. The owner appealed the dismissal of the action against the towing company and the logging company appealed the finding that it was 20% liable. The British Columbia Court of Appeal dismissed the appeal by the owner and allowed the appeal by the logging company. The Court of Appeal rejected the argument that there was an implied permission to moor to log booms, agreed that the tying of the barge to the boom sticks was an act of trespass and agreed that the duty owed to a trespasser was to act with common humanity. The Court of Appeal held that this duty had not been breached by the towing company. With respect to the appeal by the logging company, the Court of Appeal disagreed with the trial Judge that there was a contract of bailment. The Court of Appeal held that there was no transfer of possession of the barge, that the logging company had a mere licence to use the barge and that the contract between the owner and the logging company was a time charter. The Court of Appeal further held that there was no implied term in the charter that the logging company was to inform the owner of any dangers to the barge. Such a term was inconsistent with the requirement that the towing company keep a watchman on the vessel and was neither reasonable, in the circumstances, nor required to make the contract effective.
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.,  3 SCR 299 and Fraser River Pile & Dredge Ltd. v Can-Dive Services Ltd.,  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.
Marine Insurance – Warranties – Deviation - Waiver & Estoppel – Arbitration Agreement – Right of Appeal
McAsphalt Marine Transport Ltd. v. Liberty International Canada, 2005 CanLII 11794,
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.
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.
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 CanLII 11683,
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 – Sue and Labour – Proportion payable when insured and uninsured property involved
North Coast Sea Products Ltd. v. NG Insurance Company of Canada, 2004 BCCA 95,
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.
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.
Insurance – Interpretation – Exclusions – Delay – Deck Cargo – Concurrent Causes – Timber Trade Federation Clauses – Bad Faith – Punitive Damages
Continental Insurance Co. v. Almassa International Inc., 2003 CanLII 45611,
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.
Liability Policies - Exclusions - “course of transit”
Garfield Container Transport Inc. v. Chubb Insurance Co. of Canada, 2002 CanLII 41106,
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.
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.
Service Ex Juris - Stay of Proceedings
Continental Insurance Co. v. Almassa International Inc., 111 ACWS (3d) 470 ,
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.
Stay of Proceedings
Waterworks Construction Ltd. v. Liberty Mutual Insurance Co., 2001 NSSC 125,
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.
Contribution Among Insurers
Trenton Cold Storage Ltd. v. St. Paul Fire & Marine Insurance Co., CanLII 20561,
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.
Chubb Insurance Co. of Canada v. Cast Line Ltd.,  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.
Warranties - Authority of Broker
Elkhorn Developments Ltd. v. Sovereign General Insurance Co. et al., 2001 BCCA 243,
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.
Liability of Agents and Brokers - Material Facts - Onus of Proof
1013799 Ontario Ltd. v. Kent Line International Ltd., 2000 CanLII 16926 ,
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.
Laing v. Boreal Pacific, 2000 CanLII 16313,
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.
Cargo Insurance - Insufficiency of Packing
Rainbow Technicoloured Wood Veneer Ltd. v. The "Canmar Conquest" et al., 2000 CanLII 15770,
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.
Air Carriage - Theft - Limitation - Cargo Insurance - Cancellation - Misrepresentation
Nuvo Electronics Inc. v. London Assurance et al., 2000 CanLII 22388,
This matter arose out of the loss of 15 cartons of integrated circuits valued at US$1,403,000 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.
The air carrier defended the action arguing that the Plaintiff had not proven the value or the contents of the cargo, that it had delivered the goods to a courier for delivery to the Plaintiff and that it was, in any event, entitled to limit its liability pursuant to the Warsaw Convention. The only evidence adduced at trial as to the value and content of the shipment was the air waybill, the packing list and the commercial invoice. The carrier objected to the admission of these documents on the basis that they were hearsay and not properly admissible. The Court, however, held that these documents were business records within the meaning of the Canada Evidence Act and were admissible to prove both the content and value of the shipment. The carrier’s second argument, that it had delivered the cargo to a courier, was also rejected by the Court. The Court found as a fact that although the courier driver had signed for the cargo he did not in fact receive the cargo as it could not be located by the air carrier. The Court next considered whether the air carrier could limit its liability under the Warsaw Convention and held that it could not. There were two reasons advanced by the Court for this decision. First, the Court found that the air waybill was not in conformity with Article 8 of the Convention in that it did not contain the name of the airport departure, the name of the first carrier, whether the weight was in pounds or kilograms and the nature and quantity of the goods. Relying upon American case law, the Court held that if an air carrier fails to include the particulars required by Article 8 of the Convention in the air waybill then, pursuant to Article 9, the carrier is not entitled to limit liability. Second, the Court held that the Plaintiff had proven that it was more probable than not that the cargo was stolen by an employee of the carrier or with the complicity of an employee of the carrier and that there was an irresistible inference that such employee was in the course and scope of his employment when the theft occurred. Accordingly, the Court held that there was "wilful misconduct" and that the carrier was not entitled to limit its liability.
With respect to the insurance issues, 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".)
All Risks Coverage - Wear and Tear - Repairer's Negligence
Bevan v. Gartside Marine Engines Ltd. et al., 2000 BCPC 31,
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., 2000 BCCA 4 ,
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.
Discovery - Privilege
Commercial Union Assurance Company PLC. v. M.T. Fishing Co. Ltd., 1999 CanLII 7472,
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., 11 C.C.L.I. (3d) 284,
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., 1998 CanLII 5882,
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, 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, 1998 CanLII 6552 ,
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.
Stays of Proceedings - Marine Insurance - Interpretation of Arbitration Provision in Policy
This was an appeal from an order of Mr. Justice Teitelbaum of the Trial Division. A motion for a stay was initially brought before the Prothonotary who ordered a stay on the basis of an arbitration provision contained in the by-laws of the Defendant, a mutual insurance company, and incorporated by reference into the terms of an insurance policy. The Plaintiff argued that the arbitration provisions should be read contra proferentem against the Defendant and, that when so read they did not apply. The Prothonotary held that there was no ambiguity in the provisions and that they did apply. Further, the Prothonotary disagreed that the doctrine of contra proferentem should apply to an insurance policy issued by a mutual insurance company such as the Defendant. On appeal, Mr. Justice Teitelbaum held that the Prothonotary erred in failing to read the insurance policy contra proferentem. Further, he held that when the policy was so read the arbitration provision applied only if the Defendant had made an offer of settlement. As the Defendant had not made an offer of settlement, the Plaintiff was not obliged to arbitrate. On further appeal to the Court of Appeal the Court affirmed the result of Mr. Justice Teitelbaum. The Court held that a contract of insurance was to be interpreted like any other cont ract,i.e.. to discover and give effect to the intention of the parties as disclosed by the words used, the context and the purpose. The Court held that when and the bylaws of the Defendant were so interpreted the dispute did not come within the arbitration clause.
Negligence of Broker
Percy v. West Bay Boat Builders and Shipyards Ltd. et.al., 1997 CanLII 4139,
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.
Liability Insurance - Coverage
Strangemore's Electrical Limited v. Insurance Corporation of Newfoundland Limited,  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.
Demitri v. General Accident Indemnity Co., 1996 CanLII 1624,
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, 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., 1996 CanLII 2064,
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, 1996 CanLII 1919 (BC CA),
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.
Poirier v. Laurentian Casualty Co, 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.
Exclusion for Household Resident - Estoppel
Snair v. Halifax Insurance, 1995 CanLII 4400,
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, 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.