November 2005

Case Comment: Loss of Household Goods Covered under Warehouse Cover

Rui Fernandes and Ramon Andal of Fernandes Hearn LLP successfully obtained a dismissal of a claim against Allianz Insurance in the case of Solway v. Lloyd's Underwriters, 2005 CanLII 10650. The plaintiffs sued Kennedy Movers after their household goods were stolen while they were kept in a trailer that was parked on the street by the moving company. In the underlying claim, the mover's liability insurer, Lloyds Underwriters, argued unsuccessfully that the carrier's liability under the bill of lading was limited to $0.60 per pound. The court found that the movers had entered into a transportation contract and a storage contract with the plaintiffs. The court found that the liability for the theft resulted from the mover's breach of the contract for storage and security which required the mover to keep the trailer in their secured premises. By leaving the trailer with the goods on the street, the movers breached the contract of storage, and thus it was liable to the applicants for the full amount of the loss without any limitation of liability that would have applied in the transportation contract.

The plaintiffs sued Lloyds Underwriters for payment of the unsatisfied judgment against the mover in the amount of approximately $760,000. Lloyds paid $500,000 into court in partial satisfaction of the judgment which Lloyds claimed to be the limit of liability under the transportation cover. The Lloyds policy provided, in addition, liability insurance to the movers under a warehouse coverage with a limit of $1,000,000. Lloyds took the position that the judgment was covered by the transportation cover and not the warehouse cover. The plaintiffs sued Allianz claiming that Allianz should pay the excess over Lloyds' $500,000 limit under its umbrella policy. The plaintiffs also sued the owners of other household goods (the Bertrands) that were kept in, and stolen from, the same trailer, seeking a declaration that the plaintiffs are entitled to the entire $500,000 paid into court without pro-ration with the other claimants.

Justice Stinson found that the loss fell within the warehouse coverage with $1,000,000 limits. Because there was no declared value in the bill of lading, the coverage for "property under a Bill of Lading" did not apply to the loss nor did its $500,000 limit. The only coverage that applied was for "all sums which the Insured shall become obligated to pay by reason of the liability imposed by law upon, or assumed under agreement by, the Insured as a private or common carrier or warehouseman". The judge concluded that the liability imposed on the mover in the underlying claim was for breach of the contract of storage, and that the policy limit for warehouse cover in the amount of $1,000,000 applied.

Another issue was whether the Lloyds policy limit included post-judgment interest and costs awarded against the mover in the underlying action. The court ruled that these were in addition to the limit:

"In the absence of any express contractual provision, I can see no good reason for post-judgment interest to be included within the policy limit. This can be illustrated by positing the situation where a judgment is granted against an insured for an amount equal to or greater than the policy limit. In such a situation, if post-judgment interest was included in the policy limit the insurer could (theoretically) delay payment with virtual impunity by, for example, prosecuting an unmeritorious appeal, since its exposure to its insured would be capped at the policy limit."

With respect to the costs award the court examined the following provision of the Lloyds policy:

". . . as respects claims under C of Scope Of Insurance the Insurer hereby reserves the right to compromise or contest at its option, on behalf of and in the name of, but with no expense to the Insured, any and all claims made against the Insured in respect of liability covered by this Policy."

Applying the principles of broad construction of coverage provisions, narrow construction of exclusion clauses and the contra proferentum rule, the court concluded that the correct interpretation of the words "with no expense to the Insured" in General Condition 3 is that the insured is not to be called upon to bear any expense arising from the defence of a claim, whether payable to its own solicitors or to the opposite party. It is well known that, almost invariably, one of the expenses involved in litigation is that incurred by an unsuccessful party who is ordered to pay costs to a successful adversary.

With respect to the pro-ration issue, the court held that there was nothing in the Ontario Insurance Act which would require a deviation from the "first past the post principle", and concluded that the plaintiffs were entitled to all of the money paid into court, since the other claimants did not yet have a judgment against the mover.

Because the limit of liability in the Lloyds policy was sufficient to pay the entire claim, the court did not consider it necessary to decide if Allianz was liable under the umbrella coverage.