Continental Insurance Co. v. Almassa International Inc.

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.