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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.