Commentaries are intended as an introduction or overview of the topic. The commentaries for some topics are more detailed than others but none of them should be taken as a complete and full recitation of the law applicable to the topic.
Marine insurance in Canada is governed by the Marine Insurance Act which is modeled on the English Act of 1906.
Over the years we have prepared various papers relating to marine insurance. Links to these papers are provided below. Readers are cautioned that the papers, though current as of the date prepared, are not updated.
Marine Insurance Act
The database contains 64 case summaries relating to Marine Insurance. The summaries are sorted in reverse date order with 20 summaries per page. If there are more than 20 summaries, use the navigation links at the bottom of the page.
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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.