Ocean Masters Inc. v. AGF M.A.T. (Allianz AGF MAT Ltd.)

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.