Marine Insurance

Marine Insurance
Introduction
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.
Case Summaries
Synopsis of significant developments in 2011-2012
Marine insurance cases of interest include: Feuiltault Solution Systems

Inc. v. Zurich Canada 2012 FCA 215, where the Federal Court of Appeal held that
an insurerer under an all risks cargo policy has the onus of proving a non-fortuitous
cause. The insured need only prove the cargo was damaged while the policy was in
force; Universal Sales Limited v. Edinburgh Assurance Co. Ltd., 2012 FC 418 where
underwriters were required to reimburse the assured for a settlement payment
made in respect of an action for wreck removal costs; Peracomo Inc. v. Société
Telus Communications, 2012 FCA 199, where the Federal Court of Appeal upheld a
denial of coverage on the basis of the wilful misconduct of the assured in
deliberately cutting a submarine cable; and Feuiltault Solution Systems Inc. v.
Zurich Canada, 2011 FC 260, where a defence to a claim under an all risks cargo
policy was upheld on the basis that the cause of the loss was inherent vice or
insufficient packaging and that the assured had not proven a fortuity
Marine insurance cases of interest include: Feuiltault Solution Systems Inc. v.

Zurich Canada, 2011 FC 260, where a defence to a claim under an all risks cargo
policy was upheld on the basis that the cause of the loss was inherent vice or
insufficient packaging and that the assured had not proven a fortuity; Société Telus
Communications v. Peracomo Inc., 2011 FC 494, where the Court upheld a denial
of coverage on the basis of the wilful misconduct of the assured in deliberately
cutting a submarine cable; More Marine Ltd. v. Axa Pacific Insurance Company,
2010 BCSC 88, where the Court upheld an annual aggregate deductible clause and
dismissed a claim against the broker; and Oppenheim v Midnight Marine Ltd., 2010
NLTD 3, reversed 2010 NLCA 64, where there were two different clauses relating to
jurisdiction and arbitration but the Court of Appeal gave effect to the London
arbitration clause.
There were relatively few cases dealing with marine insurance in 2007-
2008. Timberwest Forest Corp. v. Pacific Link Ocean Services Corporation, 2008 FC
801 is a case of particular interest in that it suggests that a waiver of subrogation
clause can be extended beyond the entities named in the clause. McIntosh v Royal
& Sun Alliance,2007 FC 23, is a case that notes that marketing a vessel can be a
breach of a pleasure use warranty and holds that a pleasure use warranty is a true
warranty and not a suspensive condition.
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
Feuiltault Solution Systems Inc. v. Zurich Canada, 2011 FC 260, 2012 FCA
215
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.
Collisions – Cutting of Submarine Cable – Liability – Limitation - Meaning of
"Such Loss" - Insurance – Wilful Misconduct
Peracomo Inc. v. Société Telus Communications, 2011 FC 494, 2012 FCA

199
The plaintiff was the owner of two submarine cables on the bottom of the St.
Lawrence River. The defendants were the corporate owner of a fishing vessel and
the operator of the vessel who was also the principal of the owner. The operator
snagged one of the submarine cables belonging to the plaintiff while fishing. The
operator cut the cables 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 plaintiff
commenced these proceedings alleging negligence and damages of approximately
$1 million to repair the cable. The defendants 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 defendants further disputed the damages and
claimed the right to limit liability. A further issue was whether the defendant’s
insurance coverage was jeopardized by reason of “wilful misconduct” on the part of
the insured/defendants.
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
defendants 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 defendant operator. With respect to damages,
the trial Judge held that the plaintiff 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 plaintiff had to
prove a personal act or omission of the defendant 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 defendants were not entitled to limit liability. The trial Judge said that
the defendant 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
defendant operator intended the very damage but just did not think the cable would
be repaired. The trial Judge further held that the defendant 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. The defendants appealed.
Decision: Appeal dismissed.
Held: The Federal Court of Appeal (2012 FCA 199) agreed with the trial Judge on
the issue of liability finding, among other things, that the defendants 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
individual defendant could be jointly and severally liable with the corporate
defendant. The individual defendant 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 will be held personally liable for 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 defendants intended to physically damage the cable
and that it did not matter whether the defendants 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
defendants 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.
Comment: This decision is somewhat troubling in that the LLMC Convention seems
to require a specific intention to cause the precise loss or damage that results from
the impugned act. The words in Art. 4 of the LLMC Convention are “…with intent to
cause such loss…”. If the defendant truly believed the cable had been abandoned, it
is doubtful he could have intended the loss that resulted. It is understood that this
decision is under appeal to the Supreme Court of Canada.
Marine Insurance - Wreck Removal - Liability of Underwriters for Expenses

- Sue and Labour
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

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., [1990] 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., [1992] 3 SCR 299 and Fraser River Pile & Dredge Ltd. v Can-Dive Services
Ltd., [1999] 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.
Subrogation
Chubb Insurance Co. of Canada v. Cast Line Ltd., [2001] 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.
Unseaworthiness
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
Ocean Fisheries Ltd. v. Pacific Coast Mutual Marine Insurance

Company, 1997 CanLII 6367 (FCA), 30/10/1997
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, [1997] 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.
Late Reporting
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.
Fraud?
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.
Copyright
Christopher J. Giaschi
Giaschi & Margolis
401-815 Hornby Street
Vancouver, B.C., V6Z 2E6, Canada
Tel. 604-681-2866, Fax 604-681-4260

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Marine Insurance

 Outline of the Law of Marine Insurance - 2008

To review the Canadian Hulls Pacific Clauses 2005 click here.

Synopsis of significant developments in 2011-2012

Marine insurance cases of interest include: Feuiltault Solution Systems

Synopsis of significant developments in 2009-2010

Marine insurance cases of interest include: Feuiltault Solution Systems Inc. v.

Synopsis of significant developments in 2007-2008

Marine Insurance - Wreck Removal - Damages - Interest - Costs

Universal Sales Limited v. Edinburgh Assurance Co. Ltd., 2012 FC 1192,

Marine Insurance – Cargo All Risks - Fortuity - Burden of Proof –

Decision: Appeal dismissed (2012 FCA 215).

Peracomo Inc. v. Société Telus Communications, 2011 FC 494, 2012 FCA

Decision: Appeal dismissed.

Marine Insurance - Wreck Removal - Liability of Underwriters for Expenses

Universal Sales Limited v. Edinburgh Assurance Co. Ltd., 2012 FC 418,

Decision: Plaintiff awarded judgment, in part.

Charters - Agreement to Insure -

Lafarge Canada Inc. v. JJM Construction Ltd., 2011 BCCA 453,

Marine Insurance - Subrogation - Control of Action - Admiralty Practice -

Marine Insurance – Interpretation of Policy - Annual Aggregate Deductible

More Marine Ltd. v. Axa Pacific Insurance Company, 2010 BCSC 88 ,

Marine Insurance – Stay of Proceedings - Arbitration Clause- Inconsistent

Oppenheim v. Midnight Marine Ltd., 2010 NLTD 3 ,

Timberwest Forest Corp. v. Pacific Link Ocean Services Corporation, 2009

Marine Insurance - Discovery – Privilege – Coverage Advice

Universal Sales Limited v. Edinburgh Assurance Co. Ltd., 2009 FC 150,

Warranty of Legality – Breach of Express Warranties – Disclosure of

Insurance Breach of Pleasure Use Warranty - Liability of Broker

McIntosh v. Royal & Sun Alliance, 2007 FC 23,

Hull Insurance – Perils of the Sea – Wear and Tear – Vermin

Insurance – Exceptions – Inchmaree – Liner Negligence Clause – Due

Nelson Marketing International Inc. v. Royal & Sun Alliance Insurance

This matter concerned damage to three separate shipments of laminated wood

Warranty of Legality – Breach of Express Warranties – Disclosure of

Floating Homes – Moorage Warranty – Failure to Disclose Material Facts

Abell v. Lloyd's, 2005 BCSC 1715,

Charters– Bailment – Waiver of Subrogation

Subrogation – Builders Risk Policy – Unnamed Insureds – Waiver of

Secunda Marine Services Limited v. Fabco Industries Limited, 2005 FC

Marine Insurance – Warranties – Deviation - Waiver & Estoppel –

McAsphalt Marine Transport Ltd. v. Liberty International Canada, 2005

Solway v. Lloyd's Underwriters, 2005 ONSC 10650,

Marine Insurance – Bad Faith – Limitation Period - Pleading – Striking –

Forestex Management Corp. et al. v. Underwriters at Lloyds et al., 2004 FC

Marine Insurance – Breach of Warranty

Gartsman et al. v. Elite Insurance et al., 2004 CanLII 11683,

North Coast Sea Products Ltd. v. NG Insurance Company of Canada, 2004

Marine Insurance – Jury Trials

Nelson Marketing International v. Royal and Sun Alliance Insurance, 2003

Insurance – Interpretation – Exclusions – Delay – Deck Cargo – Concurrent

Continental Insurance Co. v. Almassa International Inc., 2003 CanLII

Liability Policies - Exclusions - “course of transit”

Garfield Container Transport Inc. v. Chubb Insurance Co. of Canada, 2002

Bad Faith - Punitive Damages

Whiten v. Pilot Insurance Co., 2002 SCC 18,

Liability Policies - Interpretation - Illegality - Pay to be Paid

Conohan v. The Cooperators, 2002 FCA 60,

Service Ex Juris - Stay of Proceedings

Continental Insurance Co. v. Almassa International Inc., 111 ACWS (3d)

Waterworks Construction Ltd. v. Liberty Mutual Insurance Co., 2001 NSSC

Contribution Among Insurers

Warranties - Authority of Broker

Elkhorn Developments Ltd. v. Sovereign General Insurance Co. et al., 2001