Marine insurance

Marine insurance covers the loss or damage of ships, cargo, terminals, and any transport or
cargo by which property is transferred, acquired, or held between the points of origin and final
destination.
Cargo insurancediscussed hereis a sub-branch of marine insurance, though Marine also
includes Onshore and Offshore exposed property (container terminals, ports, oil platforms,
pipelines); Hull; Marine Casualty; and Marine Liability.

[edit] Origins of formal marine insurance

Maritime insurance was the earliest well-developed kind of insurance, with origins in the Greek
and Roman maritime loan. Separate marine insurance contracts were developed in Genoa and
other Italian cities in the fourteenth century and spread to northern Europe. Premiums varied
with intuitive estimates of the variable risk from seasons and pirates.[1]
The modern origins of marine insurance law in English law were in the law merchant, with the
establishment in England in 1601 of a specialized chamber of assurance separate from the other
Courts. Lord Mansfield, Lord Chief Justice in the mid-eighteenth century, began the merging of
law merchant and common law principles. The establishment of Lloyd's of London, competitor
insurance companies, a developing infrastructure of specialists (such as shipbrokers, admiralty
lawyers, and bankers), and the growth of the British Empire gave English law a prominence in
this area which it largely maintains and forms the basis of almost all modern practice. The
growth of the London insurance market led to the standardization of policies and judicial
precedent further developed marine insurance law. In 1906 the Marine Insurance Act was passed
which codified the previous common law; it is both an extremely thorough and concise piece of
work. Although the title of the Act refers to marine insurance, the general principles have been
applied to all non-life insurance.
In the 19th century, Lloyd's and the Institute of London Underwriters (a grouping of London
company insurers) developed between them standardized clauses for the use of marine insurance,
and these have been maintained since. These are known as the Institute Clauses because the
Institute covered the cost of their publication.
Within the overall guidance of the Marine Insurance Act and the Institute Clauses parties retain a
considerable freedom to contract between themselves.
Marine insurance is the oldest type of insurance. Out of it grew non-marine insurance and
reinsurance. It traditionally formed the majority of business underwritten at Lloyd's. Nowadays,

Marine insurance is often grouped with Aviation and Transit (i.e. cargo) risks, and in this form is
known by the acronym 'MAT'.

[edit] Practice
The Marine Insurance Act includes, as a schedule, a standard policy (known as the 'SG form'),
which parties were at liberty to use if they wished. Because each term in the policy had been
tested through at least two centuries of judicial precedent, the policy was extremely thorough.
However, it was also expressed in rather archaic terms. In 1991, the London market produced a
new standard policy wording known as the MAR 91 form and using the Institute Clauses. The
MAR form is simply a general statement of insurance; the Institute Clauses are used to set out
the detail of the insurance cover. In practice, the policy document usually consists of the MAR
form used as a cover, with the Clauses stapled to the inside. Typically each clause will be
stamped, with the stamp overlapping both onto the inside cover and to other clauses; this practice
is used to avoid the substitution or removal of clauses.
Because marine insurance is typically underwritten on a subscription basis, the MAR form
begins: We, the Underwriters, agree to bind ourselves each for his own part and not one for
another [...]. In legal terms, liability under the policy is several and not joint; i.e. The
underwriters are all liable together, but only for their share or proportion of the risk. If one
underwriter should default, the remainder are not liable to pick his share of the claim.
Typically, marine insurance is split between the vessels and the cargo. Insurance of the vessels is
generally known as 'Hull and Machinery' (H&M). A more restricted form of cover is 'Total Loss
Only' (TLO), generally used as a reinsurance, which only covers the total loss of the vessel and
not any partial loss.
Cover may be on either a 'voyage' or 'time' basis. The 'voyage' basis covers transit between the
ports set out in the policy; the 'time' basis covers a period of time, typically one year, and is more
common.

[edit] Protection and indemnity

Main article: Protection and indemnity insurance
A marine policy typically covered only three-quarter of the insured's liabilities towards third
parties. The typical liabilities arise in respect of collision with another ship, known as 'running
down' (collision with a fixed object is an 'allision'), and wreck removal (a wreck may serve to
block a harbour, for example).
In the 19th century, shipowners banded together in mutual underwriting clubs known as
Protection and Indemnity Clubs (P&I), to insure the remaining one-quarter liability amongst
themselves. These Clubs are still in existence today and have become the model for other
specialized and noncommercial marine and non-marine mutuals, for example in relation to oil
pollution and nuclear risks.

Clubs work on the basis of agreeing to accept a shipowner as a member and levying an initial
'call' (premium). With the fund accumulated, reinsurance will be purchased; however, if the loss
experience is unfavourable one or more 'supplementary calls' may be made. Clubs also typically
try to build up reserves, but this puts them at odds with their mutual status.
Because liability regimes vary throughout the world, insurers are usually careful to limit or
exclude American Jones Act liability.

[edit] Actual total loss and constructive total loss

Fire aboard MV Hyundai Fortune resulting in a constructive total loss
These two terms are used to differentiate the degree of proof where a vessel or cargo has been
lost. An actual total loss refers to the situation where the position is clear and a constructive total
loss refers to the situation where a loss is inferred. In practice, a constructive total loss might also
be used to describe a loss where the cost of repair is not economic; i.e. a 'write-off'.
The different terms refer to the difficulties of proving a loss where there might be no evidence of
such a loss. In this respect, marine insurance differs from non-marine insurance, where the
insured is required to prove his loss. Traditionally, in law, marine insurance was seen as an
insurance of 'the adventure', with insurers having a stake and an interest in the vessel and/ or the
cargo rather than, simply, an interest in the financial consequences of the subject-matter's
survival.

[edit] Average
The term 'Average' has two meanings:
(1) In marine insurance, in the case of a partial loss, or emergency repairs to the vessel, average
may be declared. This covers situations, where, for example, a ship in a storm might have to
jettison certain cargo to protect the ship and the remaining cargo. 'General Average' requires all
parties concerned in the venture (Hull/Cargo/Freight/Bunkers) to contribute to compensate the
losses caused to those whose cargo has been lost or damaged. 'Particular Average' is levied on a
group of cargo owners and not all of the cargo owners.
(2) In the situation where an insured has under-insured, i.e. insured an item for less than it is
worth, average will apply to reduce the amount payable. There are different ways of calculating
average, but generally the same proportion of under-insurance will be applied to any payout due.
An average adjuster is a marine claims specialist responsible for adjusting and providing the
general average statement. He is usually appointed by the shipowner or insurer.

[edit] Excess, deductible, retention, co-insurance, and

franchise
An excess is the amount payable by the insured and is usually expressed as the first amount
falling due, up to a ceiling, in the event of a loss. An excess may or may not be applied. It may be
expressed in either monetary or percentage terms. An excess is typically used to discourage
moral hazard and to remove small claims, which are disproportionately expensive to handle. The
equivalent term to 'excess' in marine insurance is 'deductible' or 'retention'.
A co-insurance, which is typically applied in non-proportional treaty reinsurance, is an excess
expressed as a proportion of a claim, e.g. 5%, and applied to the entirety of a claim.
A franchise is a deductible below which nothing is payable and beyond which the entire amount
of the sum insured is payable. It is typically used in reinsurance arbitrage arrangements.

[edit] Tonners and chinamen

These are both obsolete forms of early reinsurance. Both are technically unlawful, as not having
insurable interest, and so were unenforceable in law. Policies were typically marked P.P.I. (Policy
is Proof of Interest). Their use continued into the 1970s before they were banned by Lloyd's, the
main market, by which time, they had become nothing more than crude bets.
A 'tonner' was simply a 'policy' setting out the global gross tonnage loss for a year. If that loss
was reached or exceeded, the policy paid out. A 'chinaman' applied the same principle but in
reverse: thus, if the limit was not reached, the policy paid out.

[edit] Specialist policies

Various types of specialist policy exist, including:
Newbuilding risks: This covers the risk of damage to the hull whilst it is under
construction.
Yacht Insurance: Insurance of pleasure craft is generally known as 'yacht insurance' and
includes liability coverage. Smaller vessels, such as yachts and fishing vessels, are
typically underwritten on a 'binding authority' or 'lineslip' basis.
War risks: Usual Hull insurance does not cover the risks of a vessel sailing into a war
zone. A typical example is the risk to a tanker sailing in the Persian Gulf during the Gulf
War. War risks cover protects, at an additional premium, against the danger of loss in a
war zone. The war risks areas are established by the London-based Joint War Committee,
which has recently moved to include the Malacca Straits as a war risks area due to piracy
[1]. If an attack is classified as a "riot" then it would be covered by war risk insurers.[2]
Increased Value (IV): Increased Value cover protects the shipowner against any
difference between the insured value of the vessel and the market value of the vessel.

Overdue insurance: This is a form of insurance now largely obsolete due to advances in
communications. It was an early form of reinsurance and was bought by an insurer when
a ship was late at arriving at her destination port and there was a risk that she might have
been lost (but, equally, might simply have been delayed). The overdue insurance of the
Titanic was famously underwritten on the doorstep of Lloyd's.
Cargo insurance: Cargo insurance is underwritten on the Institute Cargo Clauses, with
coverage on an A, B, or C basis, A having the widest cover and C the most restricted.
Valuable cargo is known as specie.
Links: Description of cover: [2]
Institute Cargo Clauses: [3]
Pleasurecraft & Commercial marine policy summaries: [4]

[edit] Warranties and conditions

This section may be confusing or unclear to readers. Please help clarify the section;
suggestions may be found on the talk page. (May 2011)
A peculiarity of marine insurance, and insurance law generally, is the use of the terms condition
and warranty. In English law, a condition typically describes a part of the contract that is
fundamental to the performance of that contract, and, if breached, the non-breaching party is
entitled not only to claim damages but to terminate the contract on the basis that it has been
repudiated by the party in breach. By contrast, a warranty is not fundamental to the performance
of the contract and breach of a warranty, whilst giving rise to a claim for damages, does not
entitle the non-breaching party to terminate the contract. The meaning of these terms is reversed
in insurance law. Indeed, a warranty if not strictly complied with will automatically discharge the
insurer from further liability under the contract of insurance. The assured has no defense to his
breach, unless he can prove that the insurer,by his conduct has waived his right to invoke the
breach, possibility provided in section 34(3) of the Marine Insurance Act 1906 (MIA).
Furthermore in the absence of express warranties the MIA will imply them, notably a warranty to
provide a seaworthy vessel at the commencement of the voyage in a voyage policy (section
39(1)) and a warranty of legality of the insured voyage (section 41). .[3]

[edit] Salvage and prizes

The term 'salvage' refers to the practice of rendering aid to a vessel in distress. Apart from the
consideration that the sea is traditionally 'a place of safety', with sailors honour-bound to render
assistance as required, it is obviously in underwriters' interests to encourage assistance to vessels
in danger of being wrecked. A policy will usually include a 'sue and labour' clause which will
cover the reasonable costs incurred by a shipowner in his avoiding a greater loss.
At sea, a ship in distress will typically agree to 'Lloyd's Open Form' with any potential salvor.
The Lloyd's Open Form is the standard contract, although other forms exist. The Lloyd's Open

Form is headed 'No cure - no pay'; the intention being that if the attempted salvage is
unsuccessful, no award will be made. However, this principle has been weakened in recent years,
and awards are now permitted in cases where, although the ship might have sunk, pollution has
been avoided or mitigated. In other circumstances the "salvor" may invoke the SCOPIC terms
(most recent and commonly used rendition is SCOPIC 2000) in contrast to the LOF (Lloyd's
Open Form) these terms mean that the salvor will be paid even if the salvage attempt is
unsuccessful. The amount the salvor receives is limited to cover the costs of the salavage attempt
and 15% above it. One of the main negative factors in invoking SCOPIC (on the salvors behalf)
is if the salvage attempt is successful the amount at which the salvor can claim under article 13
of LOF is discounted.
The Lloyd's Open Form, once agreed, allows salvage attempts to begin immediately. The extent
of any award is determined later; although the standard wording refers to the Chairman of
Lloyd's arbitrating any award, in practice the role of arbitrator is passed to specialist admiralty
QCs.
A ship captured in war is referred to as a prize, and the captors entitled to prize money. Again
this risk is covered by standard policies.

[edit] Marine Insurance Act, 1906

Main article: Marine Insurance Act 1906
The most important sections of this Act include:
s.4: a policy without insurable interest is void.
s.17: imposes a duty on the insured of uberrimae fides (as opposed to caveat emptor); ie.
that questions must be answered honestly and the risk not misrepresented.
s.18: the proposer of the insurer has a duty to disclose all material facts relevant to the
acceptance and rating of the risk. Failure to do so is known as non-disclosure or
concealment (there are minor differences in the two terms) and renders the insurance
voidable by the insurer.
s.33(3): If [a warranty] be not [exactly] complied with, then, subject to any express
provision in the policy, the insurer is discharged from liability as from the date of the
breach of warranty, but without prejudice to any liability incurred by him before that
date.
s.34(2): where a warranty has been broken, it is no defence to the insured that the breach
has been remedied, and the warranty complied with, prior to the loss.
s.34(3): a breach of warranty may be waived (ie. ignored) by the insurer.
s.39(1): implied warranty that the vessel must be seaworthy at the start of her voyage and
for the purpose of it (voyage policy only).
s.39(5): no warranty that a vessel shall be seaworthy during the policy period (time
policy). However if the assured knowingly allows an unseaworthy vessel to set sail the
insurer is not liable for losses caused by unseasworthiness.
s.50: a policy may be assigned. Typically, a shipowner might assign the benefit of a
policy to the ship-mortgagor.

ss.60-63: deals with the issues of a constructive total loss. The insured can, by notice,
claim for a constructive total loss with the insurer becoming entitled to the ship or cargo
if it should later turn up. (By contrast an actual total loss describes the physical
destruction of a vessel or cargo.)
s.79: deals with subrogation; ie. the rights of the insurer to stand in the shoes of an
indemnified insured and recover salvage for his own benefit.
Schedule 1 of the Act contains a list of definitions; schedule 2 contains the model policy
wording.

[edit]

General average
The law of general average is a legal principle of maritime law according to which all parties in
a sea venture proportionally share any losses resulting from a voluntary sacrifice of part of the
ship or cargo to save the whole in an emergency. In the exigencies of hazards faced at sea, crew
members often have precious little time in which to determine precisely whose cargo they are
jettisoning. Thus, to avoid quarrelling that could waste valuable time, there arose the equitable
practice whereby all the merchants whose cargo landed safely would be called on to contribute a
portion, based upon a share or percentage, to the merchant or merchants whose goods had been
tossed overboard to avert imminent peril. While general average traces its origins in ancient
maritime law, still it remains part of the admiralty law of most countries.
The first codification of general average was the York Antwerp Rules[1] of 1890. American
companies accepted it in 1949. General average requires three elements which are clearly stated
by Mr. Justice Grier in Barnard v. Adams:
"1st. A common danger: a danger in which vessel, cargo and crew all participate; a
danger imminent and apparently 'inevitable,' except by voluntarily incurring the loss of a
portion of the whole to save the remainder."
"2nd. There must be a voluntary jettison, jactus, or casting away, of some portion of the
joint concern for the purpose of avoiding this imminent peril, periculi imminentis
evitandi causa, or, in other words, a transfer of the peril from the whole to a particular
portion of the whole."
"3rd. This attempt to avoid the imminent common peril must be successful".

[edit]

Moral hazard
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(October 2009)

In economic theory, moral hazard is a situation in which a party insulated from risk behaves
differently from how it would behave if it were fully exposed to the risk.
Moral hazard arises because an individual or institution does not take the full consequences and
responsibilities of its actions, and therefore has a tendency to act less carefully than it otherwise
would, leaving another party to hold some responsibility for the consequences of those actions.
For example, a person with insurance against automobile theft may be less cautious about
locking his or her car, because the negative consequences of vehicle theft are (partially) the
responsibility of the insurance company.
Economists explain moral hazard as a special case of information asymmetry, a situation in
which one party in a transaction has more information than another. In particular, moral hazard
may occur if a party that is insulated from risk has more information about its actions and
intentions than the party paying for the negative consequences of the risk. More broadly, moral
hazard occurs when the party with more information about its actions or intentions has a
tendency or incentive to behave inappropriately from the perspective of the party with less
information.
Moral hazard also arises in a principal-agent problem, where one party, called an agent, acts on
behalf of another party, called the principal. The agent usually has more information about his or
her actions or intentions than the principal does, because the principal usually cannot completely
monitor the agent. The agent may have an incentive to act inappropriately (from the viewpoint of
the principal) if the interests of the agent and the principal are not aligned.
In insurance

In insurance markets, moral hazard occurs when the behavior of the insured party changes in a
way that raises costs for the insurer, since the insured party no longer bears the full costs of that
behavior. Because individuals no longer bear the cost of medical services, they have an added
incentive to ask for pricier and more elaborate medical servicewhich would otherwise not be
necessary. In these instances, individuals have an incentive to over consume, simply because
they no longer bear the full cost of medical services.
Two types of behavior can change. One type is the risky behavior itself, resulting in what is
called ex ante moral hazard. In this case, insured parties behave in a more risky manner, resulting
in more negative consequences that the insurer must pay for. For example, after purchasing
automobile insurance, some may tend to be less careful about locking the automobile or choose
to drive more, thereby increasing the risk of theft or an accident for the insurer. After purchasing
fire insurance, some may tend to be less careful about preventing fires (say, by smoking in bed or
neglecting to replace the batteries in fire alarms).[citation needed]

A second type of behavior that may change is the reaction to the negative consequences of risk,
once they have occurred and once insurance is provided to cover their costs. This may be called
ex post moral hazard. In this case, insured parties do not behave in a more risky manner that
results in more negative consequences, but they do ask an insurer to pay for more of the negative
consequences from risk as insurance coverage increases. For example, without medical
insurance, some may forgo medical treatment due to its costs and simply deal with substandard
health. But after medical insurance becomes available, some may ask an insurance provider to
pay for the cost of medical treatment that would not have occurred otherwise.
Sometimes moral hazard is so severe it makes insurance policies impossible. Coinsurance, copayments, and deductibles reduce the risk of moral hazard by increasing the out-of-pocket
spending of consumers, which decreases their incentive to consume. Thus, the insured have a
financial incentive to avoid making a claim.
Moral hazard has been studied by insurers[4] and academics. See works by Kenneth Arrow,[5][6][7]
Tom Baker,[8] and John Nyman.
John Nyman suggests that two types of moral hazard exist: efficient and inefficient moral hazard.
Efficient moral hazard is the viewpoint that the over consumption of medical care brought forth
by insurance does not always produce a welfare loss to society. Rather, individuals attain better
health through the increased consumption of medial care, making them more productive and
netting an overall benefit to societal welfare. Also, Nyman suggests that individuals purchase
insurance to obtain an income transfer when they become ill, as opposed to the traditionalist
stance that individuals diversify risk via insurance.
Insurance analysts sometimes distinguish moral hazard from a related concept they call morale
hazard.
[edit]
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 2009-2010

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; Socit 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.
Synopsis of significant developments in 2007-2008

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.
Collisions Cutting of Submarine Cable Liability Limitation - Insurance Wilfull
Misconduct
Socit Telus Communications v. Peracomo Inc., 2011 FC 494
The plaintiff was the owner of two submarine cables on the bottom of the St. Lawrence River.
The defendants were the 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 defendants insurance coverage was jeopardized by reason of wilful misconduct on the part
of the insured/defendants. On liability the Court 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 Court 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 Court held that the plaintiff was entitled to damages in the nature of
superintendence and overhead and allowed 10% for this. The Court 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 Court held, for the first time in Canada,
that this test had been met and the defendants were not entitled to limit liability. The Court 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 Court said the defendant operator intended the very
damage but just did not think the cable would be repaired. The Court further held that the
defendant operator was reckless in the extreme and that the loss was a certainty. Turning to the
insurance issue, the Court 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 Court had little difficulty in
concluding this test had been met and the insurance coverage void.
Marine Insurance Cargo All Risks - Burden of Proof Sufficiency of Packing
Feuiltault Solution Systems Inc. v. Zurich Canada, 2011 FC 260
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 inherent vice or insufficiency of packaging. 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, the Court 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 Court accepted that an all risks policy requires that there be a fortuity and
that the burden was on the plaintiff to prove such fortuity.
Marine Insurance Interpretation of Policy - Annual Aggregate Deductible - Liability of Broker
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 WaiverAppeals Standard of Review Interpretation of Contracts
Oppenheim v Midnight Marine Ltd., 2010 NLTD 3, reversed 2010 NLCA 64
The plaintiffs barge sank at sea while carrying cargo and while being towed by one of the
plaintiffs 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.
Marine Insurance - Subrogation - Control of Action - Admiralty Practice - Striking Pleadings
Hodder Tugboat Co. Ltd. v JJM Construction Ltd. et al., 2010 FCA 279, affirming 2009 FC 161
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.
Carriage of Goods - Deck Carriage - Marine Insurance - Waiver of Subrogation - 3rd parties
Timberwest Forest Corp. v. Pacific Link Ocean Services Corporation, 2009 FCA 119 affirming
2008 FC 801
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 plaintiffs 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 plaintiffs 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

Universal Sales Limited v. Edinburgh Assurance Co. Ltd., 2009 FC 150
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, affirming 2006
NLTD 140
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 Plaintiffs
broker knew of the assureds 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 Plaintiffs 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 Plaintiffs 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 Plaintiffs 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 Plaintiffs damages.
Specifically, the Plaintiff did not rely upon the brokers advice and instead chose to deliberately
ignore it by taking paying passengers onboard. In result, the action against the broker was also
dismissed.
Insurance Exceptions Inchmaree Liner Negligence Clause Due Diligence Onus of Proof

Secunda Marine Services Ltd. v Liberty Mutual Insurance Co., 2006 NSCA 82 Affg. 2005 NSSC
180
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.
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.
Warranty of Legality Breach of Express Warranties Disclosure of Material Circumstances
Waiver Failure to Report Claim Relief From Forfeiture
Niagara Gorge Jet Boating Ltd. v AXA Canada Inc., 2006 CanLII 4762 (ON S.C.)
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.
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.
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.
Marine Insurance Warranties Deviation - Waiver & Estoppel Arbitration Agreement Right
of Appeal
McAsphalt Marine Transport Limited v Liberty International Canada, 2005 ONSC 13459
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.
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 recommencing 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 ONSC 11157
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 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.
Marine Insurance Sue and Labour Proportion payable when insured and uninsured property
involved
North Coast Sea Products Ltd. v. ING Insurance Company of Canada, 2004 BCCA 95 affirming
2003 BCSC 592
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.
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.
Insurance Interpretation Exclusions Delay Deck Cargo Concurrent Causes Timber
Trade Federation Clauses Bad Faith Punitive Damages
Continental Insurance Co. v Almassa International Inc., 2003 ONSC 10422
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.
Charters Bailment Waiver of Subrogation
North King Lodge Ltd. v Gowlland Towing Ltd. et al., 2005 BCCA 557 affg. in part 2004 BCSC
460
This matter concerned liability for the sinking of the barge Sea Lion VI and is fully
summarized under Miscellaneous Cases - Charter Parties (see here). An issue considerd by the
trial Judge but not by the Court of Appeal was whether the hirer/charterer was immune from suit
by reason of clauses in the hull insurance policy including charterers as additional assureds and
waiving subrogation against charterers. The trial Judge held that these clauses were not effective
since the policy also contained an express clause which provided that the benefits of the
insurance policy would not automatically extend to third parties but would only be extended if
the option was exercised by the owner. The trial Judge found that the owner did not exercise this
option.
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 Plaintiffs home was destroyed in a
fire. The Defendant, the Plaintiffs 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
Defendants own fire investigator and the Defendants 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 jurys 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.
Liability Policies - Exclusions - course of transit

Garfield Container Transport Inc. v Chubb Insurance Co. of Canada, (2002) 114 A.C.W.S. (3d)
1100
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.
Service Ex Juris - Stay of Proceedings
Continental Insurance Co. v Almassa International Inc., [2002] O.J. No. 202, affirming [2001]
O.J. No. 3229
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.
Warranties - Authority of Broker
Elkhorn Developments Ltd. v Sovereign General Insurance Co. et al., 2001 BCCA 243, [2001]
B.C.J. No. 630

This was an application by the Defendants for summary dismissal of the Plaintiffs 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.
Stay of Proceedings
Waterworks Construction Ltd. v Liberty Mutual Insurance Co., 2001 NSSC 125, [2001] N.S.J.
No. 355
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.
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 Defendants motion was
dismissed.
Cargo Insurance - Cancellation - Misrepresentation
Nuvo Electronics Inc. v London Assurance et al., (2000) 49 O.R. (3d) 374(Ont. S.C.)
This matter arose out of the loss of 15 cartons of integrated circuits valued at US$1,403,000.00
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. (That part of
the judgment dealing with the claim against the carrier is considered below under "Carriage of
Goods".) 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 underwriters 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
assureds failure to disclose at the time it applied for the policy that it had suffered prior losses.
The evidence disclosed that the assureds 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 nondisclosure 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".)
Liability of Agents and Brokers - Material Facts - Onus of Proof
1013799 Ontario Ltd. v Kent Line International Ltd., [2000] O.J. No. 3074, (2000) 22 C.C.L.I.
(3d) 312 (Ont. S.C.)
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 nondisclosure 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.
Cargo Insurance - Insufficiency of Packing
Rainbow Technicoloured Wood Veneer Ltd. v The "Canmar Conquest" et al., (June 28, 2000) No.
T-2580-97 (F.C.T.D.), [2000] F.C.J. No. 1032
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.
Unseaworthiness
Laing v Boreal Pacific, (October 13, 2000) No. A-166-99 (F.C.A.), [2000] F.C.J. No. 1665
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.
All Risks Coverage - Wear and Tear

Bevan v Gartside Marine Engines Ltd. et al., [2000] B.C.J. No. 528 (B.C. Prov. Ct.)
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., [1999] 3 S.C.R. 108 (S.C.C.).
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
charterers rights and that the waiver of subrogation clause could thereafter not be amended
without the agreement of the charterer.
Contribution Among Insurers
Trenton Cold Storage Ltd. v St. Paul Fire & Marine Insurance Co., (1999), 11 C.C.L.I. (3d) 127,
(Ont. Ct. Gen. Div.).
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.
Discovery - Privilege
Commercial Union Assurance Company PLC. v M.T. Fishing Co. Ltd., (1999), 162 F.T.R. 74,
(F.C.T.D.), affirmed (1999) 244 N.R. 372, (F.C.A.).
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.,(1999), 11 C.C.L.I. (3d) 284, (Ont. Ct. Gen. Div.).
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., (October 1, 1998) No.CA022988
(B.C.C.A.)
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, (April 24, 1998) 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,(January 7, 1998)
Vancouver Registry No. C946385 (B.C.S.C.)
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.

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.
Negligence of Broker
Percy v West Bay Boat Builders and Shipyards Ltd. et.al., (October 28, 1997) No. CA021807
Vancouver Registry (B.C.C.A.).
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.
Late Reporting
Demitri v. General Accident Indemnity Co., (November 26, 1996) No. S031296 New
Westminster Registry (B.C.S.C.).
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, (October 3, 1996) 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.,(July 17, 1996) Vancouver
Registry No.CA019997 (B.C.C.A.)
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, (April 23, 1996)Vancouver Registry
No.CA019659 (B.C.C.A.)
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.
Exclusion for Household Resident - Estoppel
Snair v Halifax Insurance, (1995), 145 N.S.R. (2d) 132, (N.S.S.C.)
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, (July 20, 1995), 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.
Fraud?
Poirier v Laurentian Casualty Co.,(November 8, 1995), 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.

Cargo Insurance Guide

What is cargo insurance?

Cargo insurance is an insurance policy taken up to protect against loss of or damage to your
goods while they are being transported.
The policy is meant to indemnify you if there is any loss or damage to your cargo. Cargo
insurance would cover the goods while they are being transported over sea, air and land (includes
parcel post and carryings by courier service).
Although the term "marine cargo insurance" is sometimes used, it actually includes cover for the
land transit commencing from the moment the goods leave the storage until they arrive at the
final warehouse.
Why should I buy Ocean Cargo Insurance?

While physical damage on transit claims may not be a problem, importers and exporters should
be aware that over 50 voyages a year encounter heavy weather where shipping containers are lost
overboard.
Due to the international policy of all shippers with safe-landed cargo contributing to the loss will
require that the owner of the goods either put up a cash security, post a bond or will be unable to
have the goods released from the carrier until a financial guarantee is given to respond for the
contribution.
With an open cargo policy, the insurance company will post the bond and ensure the speedy
release on owners' cargo.
How much insurance do I need to buy?

The standard practice is to cover the invoice cost plus freight plus a percentage to cover the
anticipated profit (normally 10% to 20% is adequate).
The largest shipment anticipated with the added freight and the percentage of advance added is
normally the policy limit.
The shipments can be reported monthly to the Company and billed at the end of each month, so
unlike property policies, the cargo policy can be issued on a "pay-as-you-go" basis.
What is the difference between a single voyage policy and open cover?

Single Voyage Policy

This is the most popular form of cargo insurance cover. A voyage policy, as its name implies,
offers coverage for a particular voyage for which is is taken up.
It offers coverage from the time the cargo leaves the seller, while it is in transit and until it
reaches the buyer.
Often, the port of loading, transhipment and discharge are also required to be disclosed in the
proposal form.
Open Cover
An open cover is not an insurance policy. It is actually an agreement between the insured and the
insurance company to insure all the shipments which fall within the terms and conditions agreed
by both parties.
These terms and conditions which are agreed in advance include details of voyages, maximum
value of cargoes carried in any one shipment, nature of cargo and packaging and rates applicable.
The insured would then have to declare his shipments to the insurer on an individual or monthly
basis.
As long as the details of the shipment comes within the terms and conditions of the open cover
agreement, the shipment is automatically covered.
The insurer is also obliged to accept all declarations made by the insured under the open policy if
they come under the terms and conditions of the open cover.
The open cover is especially beneficial to those who ship goods frequently as it saves them the
need to apply for cargo insurance for each of their shipments.
There would also be no need to wait for these individual policies to tbe approved because, as
mentioned, all shipments are automatically approved if they come within the terms of the open
cover and a declaration is made for the shipment.

If I buy on terms of sale where I am not responsible to insure the goods, how can I insure the
goods?

If you are the buyer and are importing goods from overseas on terms of sales such as C.I.F.
(Invoice Cost, Insurance plus Freight), where you are not required to insure the goods, you may
still have a "contingent" exposure that you could cover if the seller placed coverage that was
"limited" and not offering the broad terms available in the insurance marketplace in your country.
Why isn't this "cargo" exposure covered by my other policies?

Cargo insurance is much different than other liability or property policies, the scope is
international and the extensions of coverage available are specific to the industry and broader
than other lines of insurance.
An example of an extension that is unobtainable in other lines of business is War Risk Coverage.
The "cargo insurance" is international and all coverages have been created to give the innocent
shipper or importer the broadest protection available from most external causes of loss.
Institute Marine Cargo Clauses
A Clauses

RISKS COVERED
1. - Risks Clause
2. - General Average Clause
3. - "Both to Blame Collision" Clause
EXCLUSIONS
4. - General Exclusion Clause
5. - Unseaworthiness and Unfitness Exclusion Clause
6. - War Exclusion Clause
7. - Strikes Exclusion Clause
DURATION
8. - Transit Clause
9. - Termination of Contract of Carriage Clause
10. - Change of Voyage Clause
CLAIMS
11. - Insurable Interest Clause
12. - Forwarding Charges Clause
13. - Constructive Total Loss Clause
14. - Increased Value Clause
BENEFIT OF INSURANCE

15. - Not to Inure Clause

MINIMISING LOSSES
16. - Duty of Assured Clause
17. - Waiver Clause
AVOIDANCE OF DELAY
18. - Reasonable Despatch Clause
LAW AND PRACTICE
19 - English Law and Practice Clause
1
Institute Marine Cargo Clauses
2
A Clauses
3
RISKS COVERED
4
1. - Risks Clause
5

1 This insurance covers all risks of loss of or damage to the subject-matter insured except as
provided in Clauses 4, 5, 6 and 7 below.
6
2. - General Average Clause
7

2 This insurance covers general average and salvage charges, adjusted or determined according
to the contract of affreightment and/or the governing law and practice, incurred to avoid or in
connection with the avoidance of loss from any cause except those excluded in Clauses 4, 5, 6
and 7 or elsewhere in this insurance.
8

3. - "Both to Blame Collision" Clause

9

3 This insurance is extended to indemnify the Assured against such proportion of liability under
the contract of affreightment "Both to Blame Collision" Clause as is in respect of a loss
recoverable hereunder. In the event of any claim by shipowners under the said Clause the
Assured agree to notify the Underwriters who shall have the right, at their own cost and expense,
to defend the Assured against such claim.
10
EXCLUSIONS
11
4. - General Exclusion Clause
12

4 In no case shall this insurance cover

13

4.1 loss damage or expense attributable to wilful misconduct of the Assured

14

4.2 ordinary leakage, ordinary loss in weight or volume, or ordinary wear and tear of the subjectmatter insured
15

4.3 loss damage or expense caused by insufficiency or unsuitability of packing or preparation of

the subject-matter insured (for the purpose of this Clause 4.3 "packing" shall be deemed to
include stowage in a container or liftvan but only when such stowage is carried out prior to
attachment of this insurance or by the Assured or their servants)
16

4.4 loss damage or expense caused by inherent vice or nature of the subject-matter insured
17

4.5 loss damage or expense proximately caused by delay, even though the delay be caused by a
risk insured against (except expenses payable under Clause 2 above)
18

4.6 loss damage or expense arising from insolvency or financial default of the owners managers
charterers or operators of the vessel
19

4.7 loss damage or expense arising from the use of any weapon of war employing atomic or
nuclear fission and/or fusion or other like reaction or radioactive force or matter.
20
5. - Unseaworthiness and Unfitness Exclusion Clause
21

5
22

5.1 In no case shall this insurance cover loss damage or expense arising from unseaworthiness of
vessel or craft, unfitness of vessel craft conveyance container or liftvan for the safe carriage of
the subject-matter insured, where the Assured or their servants are privy to such unseaworthiness
or unfitness, at the time the subject-matter insured is loaded therein.
23

5.2 The Underwriters waive any breach of the implied warranties of seaworthiness of the ship
and fitness of the ship to carry the subject-matter insured to destination, unless the Assured or
their servants are privy to such unseaworthiness or unfitness.
24
6. - War Exclusion Clause
25

6 In no case shall this insurance cover loss damage or expense caused by

26

6.1 war civil war revolution rebellion insurrection, or civil strife arising therefrom, or any hostile
act by or against a belligerent power
27

6.2 capture seizure arrest restraint or detainment (piracy excepted), and the consequences thereof
or any attempt thereat
28

6.3 derelict mines torpedoes bombs or other derelict weapons of war.

29
7. - Strikes Exclusion Clause
30

7 In no case shall this insurance cover loss damage or expense

31

7.1 caused by strikers, locked-out workmen, or persons taking part in labour disturbances, riots
or civil commotions
32

7.2 resulting from strikes, lock-outs, labour disturbances, riots or civil commotions
33

7.3 caused by any terrorist or any person acting from a political motive.
34
DURATION
35
8. - Transit Clause
36

8.1 This insurance attaches from the time the goods leave the warehouse or place of storage at
the place named herein for the commencement of the transit, continues during the ordinary
course of transit and terminates either
37

8.1.1 on delivery to the Consignees' or other final warehouse or place of storage at the
destination named herein,
38

8.1.2 on delivery to any other warehouse or place of storage, whether prior to or at the
destination named herein, which the Assured elect to use either
39

8.1.2.1 for storage other than in the ordinary course of transit or

40

8.1.2.2 for allocation or distribution, or

41

8.1.3 on the expiry of 60 days after completion of discharge overside of the goods hereby insured
from the oversea vessel at the final port of discharge, whichever shall first occur.
42

8.2 If, after discharge overside from the oversea vessel at the final port of discharge, but prior to
termination of this insurance, the goods are to be forwarded to a destination other than that to
which they are insured hereunder, this insurance, whilst remaining subject to termination as
provided for above, shall not extend beyond the commencement of transit to such other
destination.
43

8.3 This insurance shall remain in force (subject to termination as provided for above and to the
provisions of Clause 9 below) during delay beyond the control of the Assured, any deviation,
forced discharge, reshipment or transhipment and during any variation of the adventure arising
from the exercise of a liberty granted to shipowners or charterers under the contract of
affreightment.
44
9. - Termination of Contract of Carriage Clause
45

9 If owing to circumstances beyond the control of the Assured either the contract of carriage is
terminated at a port or place other than the destination named therein or the transit is otherwise
terminated before delivery of the goods as provided for in Clause 8 above, then this insurance
shall also terminate unless prompt notice is given to the Underwriters and continuation of cover
is requested when the insurance shall remain in force, subject to an additional premium if
required by the Underwriters, either
46

9.1 until the goods are sold and delivered at such port or place, or unless otherwise specially
agreed, until the expiry of 60 days after arrival of the goods hereby insured at such port or place,
whichever shall first occur, or
47

9.2 if the goods are forwarded within the said period of 60 days (or any agreed extension thereof)
to the destination named herein or to any other destination, until terminated in accordance with
the provisions of Clause 8 above.
48
10. - Change of Voyage Clause
49

10 Where, after attachment of this insurance, the destination is changed by the Assured, held
covered at a premium and on conditions to be arranged subject to prompt notice being given to
the Underwriters.
50
CLAIMS
51
11. - Insurable Interest Clause
52

11.1 In order to recover under this insurance the Assured must have an insurable interest in the
subject-matter insured at the time of the loss.
53

11.2 Subject to 11.1 above, the Assured shall be entitled to recover for insured loss occurring
during the period covered by this insurance, notwithstanding that the loss occurred before the
contract of insurance was concluded, unless the Assured were aware of the loss and the
Underwriters were not.
54
12. - Forwarding Charges Clause
55

12 Where, as a result of the operation of a risk covered by this insurance, the insured transit is
terminated at a port or place other than that to which the subject-matter is covered under this
insurance, the Underwriters will reimburse the Assured for any extra charges properly and
reasonably incurred in unloading storing and forwarding the subject-matter to the destination to
which it is insured hereunder. This Clause 12, which does not apply to general average or salvage
charges, shall be subject to the exclusions contained in Clauses 4, 5, 6 and 7 above, and shall not
include charges arising from the fault negligence insolvency or financial default of the Assured
or their servants.

56
13. - Constructive Total Loss Clause
57

13 No claim for Constructive Total Loss shall be recoverable hereunder unless the subject-matter
insured is reasonably abandoned either on account of its actual total loss appearing to be
unavoidable or because the cost of recovering, reconditioning and forwarding the subject-matter
to the destination to which it is insured would exceed its value on arrival.
58
14. - Increased Value Clause
59

14.1 If any Increased Value insurance is effected by the Assured on the cargo insured herein the
agreed value of the cargo shall be deemed to be increased to the total amount insured under this
insurance and all Increased Value insurances covering the loss, and liability under this insurance
shall be in such proportion as the sum insured herein bears to such total amount insured. In the
event of claim the Assured shall provide the Underwriters with evidence of the amounts insured
under all other insurances.
60

14.2 Where this insurance is on Increased Value the following clause shall apply: The agreed
value of the cargo shall be deemed to be equal to the total amount insured under the primary
insurance and all Increased Value insurances covering the loss and effected on the cargo by the
Assured, and liability under this insurance shall be in such proportion as the sum insured herein
bears to such total amount insured. In the event of claim the Assured shall provide the
Underwriters with evidence of the amounts insured under all other insurances.
61
BENEFIT OF INSURANCE
62
15. - Not to Inure Clause
63

15 This insurance shall not inure to the benefit of the carrier or other bailee.
64
MINIMISING LOSSES
65

16. - Duty of Assured Clause

66

16 It is the duty of the Assured and their servants and agents in respect of loss recoverable
hereunder
67

16.1 to take such measures as may be reasonable for the purpose of averting or minimising such
loss, and
68

16.2 to ensure that all rights against carriers, bailees or other third parties are properly preserved
and exercised and the Underwriters will, in addition to any loss recoverable hereunder, reimburse
the Assured for any charges properly and reasonably incurred in pursuance of these duties.
69
17. - Waiver Clause
70

17 Measures taken by the Assured or the Underwriters with the object of saving, protecting or
recovering the subject-matter insured shall not be considered as a waiver or acceptance of
abandonment or otherwise prejudice the rights of either party.
71
AVOIDANCE OF DELAY
72
18. - Reasonable Despatch Clause
73

18 It is a condition of this insurance that the Assured shall act with reasonable despatch in all
circumstances within their control.
74
LAW AND PRACTICE
75
19 - English Law and Practice Clause
76

This insurance is subject to English law and practic

nstitute Marine Cargo Clauses

2
B Clauses
3
RISKS COVERED
4
1. - Risks Clause
5

1 This insurance covers, except as provided in Clauses 4, 5, 6 and 7 below,

6

1.1 loss of or damage to the subject-matter insured reasonably attributable to

7

1.1.1 fire or explosion

8

1.1.2 vessel or craft being stranded grounded sunk or capsized

9

1.1.3 overturning or derailment of land conveyance

10

1.1.4 collision or contact of vessel craft or conveyance with any external object other than water
11

1.1.5 discharge of cargo at a port of distress

12

1.1.6 earthquake volcanic eruption or lightning,

13

1.2 loss of or damage to the subject-matter insured caused by

14

1.2.1 general average sacrifice

15

1.2.2 jettison or washing overboard

16

1.2.3 entry of sea lake or river water into vessel craft hold conveyance container liftvan or place
of storage,
17

1.3 total loss of any package lost overboard or dropped whilst loading on to, or unloading from,
vessel or craft.
18
2. - General Average Clause
19

2 This insurance covers general average and salvage charges, adjusted or determined according
to the contract of affreightment and/or the governing law and practice, incurred to avoid or in
connection with the avoidance of loss from any cause except those excluded in Clauses 4,5, 6
and 7 or elsewhere in this insurance.
20
3. - "Both to Blame Collision" Clause
21

3 This insurance is extended to indemnify the Assured against such proportion of liability under
the contract of affreightment "Both to Blame Collision" Clause as is in respect of a loss
recoverable hereunder. In the event of any claim by shipowners under the said Clause the
Assured agree to notify the Underwriters who shall have the right, at their own cost and expense,
to defend the Assured against such claim.
22
EXCLUSIONS
23
4. - General Exclusion Clause
24

4 In no case shall this insurance cover

25

4.1 loss damage or expense attributable to wilful misconduct of the Assured

26

4.2 ordinary leakage, ordinary loss in weight or volume, or ordinary wear and tear of the subjectmatter insured
27

4.3 loss damage or expense caused by insufficiency or unsuitability of packing or preparation of

the subject-matter insured (for the purpose of this Clause 4.3 "packing" shall be deemed to
include stowage in a container or liftvan but only when such stowage is carried out prior to
attachment of this insurance or by the Assured or their servants)
28

4.4 loss damage or expense caused by inherent vice or nature of the subject-matter insured
29

4.5 loss damage or expense proximately caused by delay, even though the delay be caused by a
risk insured against (except expenses payable under Clause 2 above)
30

4.6 loss damage or expense arising from insolvency or financial default of the owners managers
charterers or operators of the vessel
31

4.7 deliberate damage to or deliberate destruction of the subject-matter insured or any part
thereof by the wrongful act of any person or persons
32

4.8 loss damage or expense arising from the use of any weapon of war employing atomic or
nuclear fission and/or fusion or other like reaction or radioactive force or matter.
33
5. - Unseaworthiness and Unfitness Exclusion Clause
34

5.1 In no case shall this insurance cover loss damage or expense arising from unseaworthiness of
vessel or craft, unfitness of vessel craft conveyance container or liftvan for the safe carriage of
the subject-matter insured, where the Assured or their servants are privy to such unseaworthiness
or unfitness, at the time the subject-matter insured is loaded therein.
35

5.2 The Underwriters waive any breach of the implied warranties of seaworthiness of the ship
and fitness of the ship to carry the subject-matter insured to destination, unless the Assured or
their servants are privy to such unseaworthiness or unfitness.
36
6. - War Exclusion Clause
37

6 In no case shall this insurance cover loss damage or expense caused by

38

6.1 war civil war revolution rebellion insurrection, or civil strife arising therefrom, or any hostile
act by or against a belligerent power
39

6.2 capture seizure arrest restraint or detainment, and the consequences thereof or any attempt
thereat
40

6.3 derelict mines torpedoes bombs or other derelict weapons of war.

41
7. - Strikes Exclusion Clause
42

7 In no case shall this insurance cover loss damage or expense

43

7.1 caused by strikers, locked-out workmen, or persons taking part in labour disturbances, riots
or civil commotions
44

7.2 resulting from strikes, lock-outs, labour disturbances, riots or civil commotions
45

7.3 caused by any terrorist or any person acting from a political motive.
46
DURATION
47
8. - Transit Clause
48

8.1 This insurance attaches from the time the goods leave the warehouse or place of storage at
the place named herein for the commencement of the transit, continues during the ordinary
course of transit and terminates either
49

8.1.1 on delivery to the Consignees' or other final warehouse or place of storage at the
destination named herein,
50

8.1.2 on delivery to any other warehouse or place of storage, whether prior to or at the
destination named herein, which the Assured elect to use either
51

8.1.2.1 for storage other than in the ordinary course of transit or

52

8.1.2.2 for allocation or distribution, or

53

8.1.3 on the expiry of 60 days after completion of discharge overside of the goods hereby insured
from the oversea vessel at the final port of discharge, whichever shall first occur.
54

8.2 If, after discharge overside from the oversea vessel at the final port of discharge, but prior to
termination of this insurance, the goods are to be forwarded to a destination other than that to
which they are insured hereunder, this insurance, whilst remaining subject to termination as

provided for above, shall not extend beyond the commencement of transit to such other
destination.
55

8.3 This insurance shall remain in force (subject to termination as provided for above and to the
provisions of Clause 9 below) during delay beyond the control of the Assured, any deviation,
forced discharge, reshipment or transhipment and during any variation of the adventure arising
from the exercise of a liberty granted to shipowners or charterers under the contract of
affreightment.
56
9. - Termination of Contract of Carriage Clause
57

9 If owing to circumstances beyond the control of the Assured either the contract of carriage is
terminated at a port or place other than the destination named therein or the transit is otherwise
terminated before delivery of the goods as provided for in Clause 8 above, then this insurance
shall also terminate unless prompt notice is given to the Underwriters and continuation of cover
is requested when the insurance shall remain in force, subject to an additional premium if
required by the Underwriters, either
58

9.1 until the goods are sold and delivered at such port or place, or, unless otherwise specially
agreed, until the expiry of 60 days after arrival of the goods hereby insured at such port or place,
whichever shall first occur, or
59

9.2 if the goods are forwarded within the said period of 60 days (or any agreed extension thereof)
to the destination named herein or to any other destination, until terminated in accordance with
the provisions of Clause 8 above.
60
10. - Change of Voyage Clause
61

10 Where, after attachment of this insurance, the destination is changed by the Assured, held
covered at a premium and on conditions to be arranged subject to prompt notice being given to
the Underwriters.
62

CLAIMS
63
11. - Insurable Interest Clause
64

11.1 In order to recover under this insurance the Assured must have an insurable interest in the
subject-matter insured at the time of the loss
65

11.2 Subject tot 11.1 above, the Assured shall be entitled to recover for insured loss occurring
during the period covered by this insurance, notwithstanding that the loss occurred before the
contract of insurance was concluded, unless the Assured were aware of the loss and the
Underwriters were not.
66
12. - Forwarding Charges Clause
67

12 Where, as a result of the operation of a risk covered by this insurance, the insured transit is
terminated at a port or place other than that to which the subject-matter is covered under this
insurance, the Underwriters will reimburse the Assured for any extra charges properly and
reasonably incurred in unloading storing and forwarding the subject-matter to the destination to
which it is insured hereunder. This Clause 12, which does not apply to general average or salvage
charges, shall be subject to the exclusions contained in Clauses 4, 5, 6 and 7 above, and shall not
include charges arising from the fault negligence insolvency or financial default of the Assured
or their servants.
68
13. - Constructive Total Loss Clause
69

13 No claim for Constructive Total Loss shall be recoverable hereunder unless the subject-matter
insured is reasonably abandoned either on account of its actual total loss appearing to be
unavoidable or because the cost of recovering, reconditioning and forwarding the subject-matter
to the destination to which it is insured would exceed its value on arrival.
70
14. - Increased Value Clause
71

14
72

14.1 If any Increased Value insurance is effected by the Assured on the cargo insured herein the
agreed value of the cargo shall be deemed to be increased to the total amount insured under this
insurance and all Increased Value insurances covering the loss, and liability under this insurance
shall be in such proportion as the sum insured herein bears to such total amount insured. In the
event of claim the Assured shall provide the Underwriters with evidence of the amounts insured
under all other insurances.
73

14.2 Where this insurance is on Increased Value the following clause shall apply:
74

The agreed value of the cargo shall be deemed to be equal to the total amount insured under the
primary insurance and all Increased Value insurances covering the loss and effected on the cargo
by the Assured, and liability under this insurance shall be in such proportion as the sum insured
herein bears to such total amount insured.
75

In the event of claim the Assured shall provide the Underwriters with evidence of the amounts
insured under all other insurances.
76
BENEFIT OF INSURANCE
77
15. - Not to Inure Clause
78

15 This insurance shall not inure to the benefit of the carrier or other bailee.
79
MINIMISING LOSSES
80
16. - Duty of Assured Clause
81

16 It is the duty of the Assured and their servants and agents in respect of loss recoverable
hereunder
82

16.1 to take such measures as may be reasonable for the purpose of averting or minimising such
loss, and
83

16.2 to ensure that all rights against carriers, bailees or other third parties are properly preserved
and exercised and the Underwriters will, in addition to any loss recoverable hereunder, reimburse
the Assured for any charges properly and reasonably incurred in pursuance of these duties.
84
17. - Waiver Clause
85

17 Measures taken by the Assured or the Underwriters with the object of saving, protecting or
recovering the subject-matter insured shall not be considered as a waiver or acceptance of
abandonment or otherwise prejudice the rights of either party.
86
AVOIDANCE OF DELAY
87
18. - Reasonable Despatch Clause
88

18 It is a condition of this insurance that the Assured shall act with reasonable despatch in all
circumstances within their control.
89
LAW AND PRACTICE
90
19. - English Law and Practice Clause
91

19 This insurance is subject to English law and practice.

Although the Institute Cargo Clauses exclude War and Strikes risks, the normal practice is
that this cover is bought back in the terms of the Institute War and Strikes Clauses which
define precisely the extent and duration of cover provided against these risks.
Following the non-marine underwriters, the Marine market introduced what became known as
the Waterborne Agreement in 1938. There was universal agreement by underwriters not to
cover war risks on land except in a very limited form during transshipment between vessels at
the same port or during transit by post. Generally, however, cargo is covered against war risks
only whilst waterborne.
Because of the nature of agreements governing this area of cover, it is not permissible to extend
the war cover in any way beyond that provided in the Institute Clauses. In addition, rules
governing cancellation clauses in open covers and annual policies must be strictly observed (see
Section 4.2 Cargo Open Cover).
Strikes cover, (physical loss or damage to the goods by strikers etc. not delay caused by
strikes), is provided for the whole duration of the insured transit, on the same basis as the
Institute Cargo Clauses cover. It can also be included in Inland Transit cover. Again, however,
cancellation clause requirements must be observed.
A separate premium rate, which is subject to a market scale, is charged for War and Strikes cover
(see Section 11.2) and this can vary from time to time.
War and Strikes cover is part of the standard cover normally provided under Cargo policies and
it is very unusual for this cover not to be purchased along with the marine risks cover.
Needless to say, Marine underwriters are not prepared to be selected against and if a client
elects not to purchase the cover on all his insured sending, we should not subsequently provide
cover when trouble flares up in a particular area where he is involved.