In this issue:
1. Firm News
2. Third Parties Benefit from Waiver of Subrogation Clause
3. Summary Judgment in Ontario
4. Reasonable Expectations Test Applied
5. Excess Insurer Required to Contribute to Costs of Defence
1. Firm News
- John Phillips will be speaking on "The
Intricacies of Enforcement of Foreign Judgments in Ontario"
on December 9th, 2008 at the Toronto Lawyers Association Nutshell
- The Fernandes Hearn LLP 9th Annual Maritime
and Transportation Law Conference will be held on Friday January
16th. Mark the day in your calendar. The tentative program includes:
- New Transport Law Convention
- Class Actions in Transportation
- Passenger Carriage and Rights
- Mock Arbitration
- Foreign Market Update
- Review of Legal Cases in 2009
- Load Brokers, Intermediaries and Freight Forwarders and Insurance
The conference commences at 8:30 am and will be held at the Royal
& SunAlliance Lecture Theater.
- Kim Stoll was elected a director of the Canadian Transport Lawyers Association
at the Annual Meeting of the association held at the end of September.
- Rui Fernandes and Gordon Hearn have both been selected to be included in the 2009 edition of The Best Lawyers in Canada in the specialties of Maritime
Law and Transportation Law.
- Gordon Hearn will be representing
the firm at the Transportation Law Institute being held in New
Orleans, Louisiana on November 14th and 15th. The Transportation
Law Institute is a joint venture of the Transportation Lawyers
Association and the University of Denver Sturm College of Law.
The Institute involves seminars and presentations on recent developments
in transportation law.
2. Third Parties Benefit from Waiver of Subrogation
In the recent Federal Court decision of Justice Harrington
in Timberwest Forest Corp. v. Pacific Link Ocean Services Corp.  FC 801 the claimant sued for the loss overboard of most of
its shipment of logs from the barge Ocean Oregon while under tow
of the tug Sea Commander on a voyage from the Fraser River to Eureka
The case dealt with a number of issues including whether
the carriage was governed by the Hague-Visby Rules, whether the
cargo was "goods" as defined by the Hague Visby Rules,
and whether contractual benefits of a marine insurance policy may
be extended to third parties. The claimant, Timberwest, was indemnified
by its insurer St. Paul Fire & Marine Insurance Company. The
claim was a subrogated claim. One of the explicit insuring conditions
was a waiver of subrogation in favour of Pacific Link the contractual
carrier and charterer of the tug and barge. The tug was owned by
Union Tug and Barge Ltd. and the barge by Great Northern Marine
Towing Ltd. The other defendants also claimed the benefit of the
waiver of subrogation clause in the policy of insurance. If the
defendants were correct, then the underwriter who had paid one insured
could not sue other insureds in recovery of a loss covered by the
The court came to the following conclusions:
"a. the contract of carriage is not governed
by the Hague-Visby Rules;
b. the cargo is not "goods" as defined in the Hague-Visby
Rules. Although the shipment was "covered" by a bill
of lading, that bill of lading, if issued, would have stated the
entire shipment was being carried on deck, as indeed was the case;
c. the waiver of subrogation in favour of Pacific Link contained
in Timberwest's insurance policy was not rendered null and void
and of no force or effect by the Hague-Visby Rules. Pacific Link
is a third party beneficiary and entitled to assert the clause
against St. Paul; and
d. the other defendants are all third party beneficiaries of one
or more waiver of insurance clauses, and likewise entitled to
assert them against St. Paul. These defendants were the owners
of the tug and tow, the master of the tug, and either crew or
stevedores servicing the barge. As such, they were all parties
to and given exemptions and immunities under the contract of carriage.
In turn, they are additional insureds with benefit of a waiver
of subrogation granted them by St. Paul."
The court held that Pacific Link was specifically
and individually named in the St. Paul policy and thus could benefit
from the waiver of subrogation found in section 3 of the policy.
In so holding the court referred to two Supreme Court of Canada
"Pacific Link was performing the very
services provided for in the contract of carriage when the loss
occurred. Consequently, it is clearly a third party beneficiary
and is entitled to enforce the waiver of insurance clause in its
own right as per London Drugs and Fraser River, notwithstanding
that it had not required Timberwest to have such a clause inserted
and notwithstanding that it knew nothing of the insurance policy
until after the loss. In Fraser River, the beneficiary,
Can-Dive, likewise was unaware of the policy. Furthermore, it
only fell within a generic class, the class of "charterers".
In this case, Pacific Link is actually named. However, the question
remains whether the other defendants are also entitled to benefit
from Timberwest's policy."
Justice Harrington recognized that on a narrow reading
of London Drugs neither the individual defendants nor the
other corporate defendant were employees of Pacific Link [and therefore
could not benefit as third parties]. However, Justice Harrington
decided to make use of the ITO-International Terminal Operators
v. Miida Electronics Inc. decision of the Supreme Court of Canada
which approved of the use of Himalaya clauses in Canada (if certain
conditions were met). Justice Harrington then took a leap and decided
that since Himalaya clauses have been used to extend benefits to
employees, servants, agents and subcontractors, the court could
use clause 14 in the bill of lading (the Himalaya clause) to extend
the benefits of the contract evidenced by the Pacific Link bill
of lading to include Pacific Link's benefits under the policy of
St. Paul's argument that it specifically only waived
subrogation against Pacific Link failed. The court recognized that
it was making new law. At paragraph 66 Justice Harrington stated:
" The final question is whether these
benefits fall within the existing case law. If not, would an extension
of insurance benefits to the defendants, other than Pacific Link,
be an incremental development which a judge might permit or would
it be a substantial change best left to Parliament? In my opinion,
giving the other defendants benefit of insurance does not offend
against Fraser River. If I am wrong, then in my opinion
an extension of benefits to those defendants would be a permissible
incremental change to the common law not only in line with London
Drugs, but also with such maritime cases as Canadian National
Railway Co. v. Norsk Pacific Steamship Co.,  1 S.C.R.
1021; Bow Valley Husky (Bermuda) v. Saint John Shipbuilding
Ltd.,  3 S.C.R. 1210; and Ordon Estate v. Grail,
 3 S.C.R. 437."
Justice Harrington concluded that this was an appropriate
case to "make an incremental change to the law in compliance
with commercial reality, justice and fairness. The change would
be consistent with the reality that servants, agents and subcontractors,
if the language or circumstances so permit, should benefit from
contractual clauses stipulated for their benefit. Furthermore,
an insurer should not be entitled to pocket premium without risk." This last shot at insurers is amazing and will surely form one of
the grounds of appeal.
We have been advised that a notice of appeal has been
filed and we will keep an eye on this case for our readers.
3. Summary Judgment in Ontario
Summary Judgment is available to parties to an action
when the facts in issue on key points provide that there is no genuine
issue for trial. Seems like a good idea that when facts appear clear
and obvious that a shortened procedure ought to be the right course.
This course is, overall, inexpensive if the moving party is successful.
It is very difficult in this jurisdiction for the
defence to win a summary judgment motion and, even when the defence
does win, the Court of Appeal may not agree. The facts and admissions
have to be just right and persuasive. Consider this next case where
the defence is able to point to "persuasive" evidence
from the plaintiff, himself, at discovery, and also to notes of
the family doctor. A successful order dismissing the claim was granted
at first instance and the action was dismissed only to be overturned
on appeal with costs assessed against the defence.
Grewal et al v. Ivany et al 2008 ONCA 687 (Canlii)
Ontario Court of Appeal
(heard October 1, 2008)
The plaintiff, Grewal, was involved in a motor vehicle
accident on December 11, 1999 and allegedly sustained serious personal
injuries. His daughter, also a plaintiff, was injured. Over two
years later, the plaintiffs commenced an action in negligence on
September 4, 2002 seeking pecuniary and non-pecuniary damages for
their injuries and all plaintiffs claimed FLA damages. The defendants
moved for summary judgment alleging that the plaintiffs' claims
were statute barred (2 years under the Highway Traffic Act). The
trial judge dismissed the action completely holding that there was
no genuine issue for trial because by May 19, 2000 the plaintiff
Grewel knew "material facts that the needed to know to understand
that he had a cause of action". The limitation period, it was
held, then had commenced on May 19, 2000 and had expired before
commencement of the lawsuit.
In terms of Grewal, the Court of Appeal granted the
appeal overturning the decision of the trial judge and permitting
the claim to continue as having a genuine issue for trial.
The Court of Appeal stated that Grewal's claim was
governed by Bill 59, being the motor vehicle scheme in place at
the time of the accident. This scheme included a threshold that
must be met in order for the plaintiff's claim to be advanced. Medical
evidence determining severity and likely duration of injuries was
important in such cases to determine the commencement of the limitation
period given that the threshold required of "permanent serious
disfigurement" or "permanent serious impairment of an
important physical, mental or psychological function". The
Court of Appeal held that the issue of whether Grewel knew was an
issue for trial and rejected the trial judge's view of the evidence.
The trial judge had found that Grewal's own evidence
at discovery was indicative of his knowledge. At discovery, he stated
that he did not know when or if his neck pain would ever end. This
was taken as an admission by the trial judge that as of May 19,
2000 he knew every "material fact that he needed to know to
understand that he had a cause of action". The Court of Appeal
disagreed stating that such statement meant that he was "uncertain
of his prognosis". The Court of Appeal also pointed to the
fact that there were three independent medical assessments (prepared
for the defence) that suggested that Grewal would make full recovery
and that, therefore, this was a live issue.
The trial judge had further relied upon a note in
the family doctor's notes from March 23,2000 that referenced "chronic
pain" again indicating that the plaintiff knew or had known
that he had sustained compensable non-pecuniary damages. The Court
of Appeal again disagreed stating that most of the chart entry was
indecipherable and no explanation of the notation was evident nor
was there mention of disability in the chart entry.
The Court of Appeal held that there was a genuine
issue for trial as to when Grewal learned or through the exercise
of reasonable diligence ought to have learned that he had a cause
of action against the respondents for general injuries under the
threshold and ordered that such issue was one for trial.
It is also of note that the defendants, responding
to the appeal by the plaintiffs, submitted a distinction between
pecuniary and non-pecuniary loss when considering the timebar issue.
The Court of Appeal distinguished the caselaw relied upon as not
dispositive of whether the pecuniary damages would be treated differently
and stated that the trial judge's consideration of the issue was
The Court of Appeal concluded that the issues of whether
timebar applied to claims for pecuniary damages would best be resolved
on a full record and that same would ensure "that any consideration
of this important issue by the court will be informed by a reasonable
analysis in the courts below".
(For those readers who noticed, the claim of the daughter
was also allowed to continue as the parties had so agreed that the
Order of the trial judge should be overturned in that regard. While
not stated in the reasons, I assume that this is because she was
an infant and had two years from the date she reached age of majority
4. Reasonable Expectations Test Applied
The Ontario Superior Court Applies the "Reasonable
Expectations" Test in Interpreting an Insurance Policy: What
are "Occurrences" and "Related Occurrences"?
The recently published decision of Simpson v. Lloyds
Underwriters  Can LII 51771 (Ont. S.C.) features an interesting
analysis on how an "occurrence" is interpreted in an insurance
policy. The question of what is meant by an "occurrence"
is often an issue in the context of determining how to apply a policy
deductible. This case involves an interesting exercise in the Court
finding how a "per occurrence" coverage limit might co-exist
with an aggregate limit for "any one such "occurrence"
or a "series of related occurrences" ". The result
can be very important as in a case of successive insured events
the insurer's indemnity obligations might be limited by an aggregate
limit depending on how the policy is interpreted.
Courtney Wallis Simpson is a convicted criminal. She
was convicted for having defrauded various victims in a real estate
deposit scheme. Ms. Simpson stole twenty-five deposits ranging in
size from $5,000 to $400,000, from twenty-two different victims,
with three of those victims having been defrauded on two separate
The victims of real estate deposit thefts are covered
by consumer real estate deposit insurance, which insurance is taken
out by the Real Estate Council of Ontario. This Council administers
the Real Estate and Business Brokers Act, 2002 S.O. 2002,
c. 30 on behalf of the Ontario government. As a part of its mandate
in regulating trade activity in real estate, and protecting the
public interest, this Council took out the subject insurance policy
with Lloyds Underwriters.
The Relevant Policy Wording
(a) Relevant Coverage Grant
The policy states that the insurer agrees:
To pay on behalf of the Insured the amount
of any Claim for Loss sustained by a Claimant in a trade in real
estate in the Province of Ontario arising out of an Occurrence
discovered during the Policy Period.
(b) Coverage Limit Per "Occurrence"
Each claim is limited to a $100,000 recovery when
it arises out of an "Occurrence". An Occurrence is defined
"Occurrence" means the insolvency of a Registrant
(the said Ms. Simpson and her company who perpetuated the fraud(s)
being such a "Registrant") or the theft, fraud, misappropriation
or wrongful conversion directly or indirectly by a Registrant or
present or former employee, director, officer or manager of a Registrant
of moneys or other property entrusted to or received by the Registrant
in the Registrant's Professional Capacity.
(c) The Policy Aggregate Limit
The policy also provided a $500,000 aggregate limit
for any one "Occurrence" or series of "related Occurrence"s.
The policy states:
The Limit of Liability - aggregate each
Occurrence stated in the DECLARATIONS shall be the maximum liability
of the Insurer and the Named Insured in any one Occurrence or
series of related Occurrences. If the total amount of all Claims
in any one Occurrence exceeds the aggregate Limit of Liability
then all Claims will be settled on a pro-rata basis in the same
proportion that the aggregate Limit of Liability bears to the
total amount of all Claims.
Counsel acting on behalf of the victims of the frauds
trying to access the insurance policy argued that each deposit theft
was a separate unrelated occurrence, that is, each victim could
recover up to $100,000 insurance for each theft. The insurer argued
that all of the twenty-five frauds constituted a single occurrence
(its indemnity obligation thus being limited to the $100,000 per
claim coverage, or $100,000 in total) and, alternatively, if there
was not just one single "occurrence", there was at most
a "series of related Occurrences" such that the $500,000
aggregate limit applied.
Would the insurers be on the hook for $2,500,000 (25
x $100,000), $100,000 or $500,000?
The Court's Analysis
The Court identified two discrete issues:
(i) Do the twenty-five deposit thefts constitute
a single "occurrence" within the meaning of the policy?
(ii) If the twenty-five thefts do not amount to
one single "occurrence", do they, or a subset of them,
constitute a "series of related occurrences", triggering
the aggregate limit of liability?
As is often the case in insurance policy or contract
dispute resolution, both parties argued that the policy wording
was clear as to its meaning in their own favour. The lawyer for
the fraud victims focused on the definition of "Occurrence"
noting that it incorporates the singular use of the word "theft"
as opposed to the plural "thefts". The insurer in turn
relied on the same definition, pointing to the use of the plural
word "moneys" which would indicate that an occurrence
for the purposes of the policy could include a scheme involving
multiple incidents of the theft of money or a single theft encompassing
On this first issue, the Court ruled that the thefts
were not one single "occurrence". They were different
occurrences. In arriving at this result, the Court was concerned
that if it found that the twenty-five different thefts perpetrated
by Ms. Simpson amounted to just one single "occurrence"
that this would stretch the singular use of the word "theft"
into a plural use of the word and which could potentially in certain
cases render the aggregate limit of liability meaningless. (This,
by itself, is an important admonition or reminder that policy terms
will not be considered by a Court in isolation, but that the entire
wording of a policy is to be considered in interpreting insurance
In response to the insurer's submission about the
pluralistic nature of the word "moneys" in the definition
of "Occurrence", the Court noted that the policy itself
defines the word "Loss" as meaning "a loss of
deposit in the form of moneys or other property". The Court
reasoned that the intent behind the policy was not just to insure
deposits in the form of a single amount of money, but also that
deposits could be comprised of more than one, or different accounts.
The twenty-five deposit thefts thereby being a separate
occurrence from the others, the Court then had to reconcile the
$500,000 aggregate clause in the policy with the twenty-five claims.
In short, would underwriters be obliged to indemnify for an amount
of $2,500,000 or was their liability capped under the policy at
$500,000? If the twenty-five deposit thefts were to be interpreted
as a "series of related thefts," then all twenty-two victims
would have to share pro-rata in the $500,000 limit. The lawyer for
the victims argued that the deposit thefts were all separate and
unrelated occurrences. Counsel cited the fact that the deposit thefts
were not related because the modus operandi was different
in each case - there being different purchase and sale agreements,
different warranties and representations, different properties involved
each to secure a deposit from different victims. The victims argued
in particular that the identity of the victims is important in categorizing
any of the frauds as "related". As the thefts were (with
the exception of three victims) perpetrated against different victims
they were accordingly "unrelated".
In turn, the insurer argued that the plain dictionary
meaning of the word "related" includes "associated
or connected" and "of the same type" which would
catch all of the deposit thefts at issue. Pointing to the fact that
Ms. Simpson was the sole thief, all of the thefts must thereby be
considered to be "related".
In its analysis, the Court noted that if one works
with the dictionary approach advanced by the insurer - that then
any two or more acts of theft might easily be related by any measure,
for example, by simply being related by a criminal design. This
would work an injustice and all too readily require victims of a
large fraud to share pro rata in the $500,000 aggregate.
As such, there is the further need for more of a connection in time,
place or person. The Court expressed concern that by the insurer's
definition, the aggregate limit would apply to any and all thefts
of deposits by any one registrant for the duration of the policy.
Displeased with this potential result, the Court set about determining
what degree of relationship is necessary between the different theft
occurrences so as to fit within the intention of the parties to
the insurance contract, so that meaningful insurance be provided
to depositors with real estate agents. What would be realistic,
workable and not frustrate the intention of the policy?
Note: It is interesting to note that the Court
thus embarks on an analysis as to what the expectations or intentions
of the parties to this insurance contract were, in light of the
apparent purpose of the contract as well as the facts surrounding
its generation, rather than attempting to define or determine such
expectations or intentions from the use of the words in the contract.
Conventionally, Courts would look to outside factors such as the
intentions of the parties to the contract and outside extrinsic
factual factors only upon finding an ambiguity in the key word(s)
being considered. In this case, the Court did not find an ambiguity
in the meaning of the word "related" - the dictionary
definitions cited by the insurer being clear, as involving any type
of association or connection - but the Court was concerned with
how broad this could be, and, in effect refused to apply the literal
meaning of the policy use of the word "related", rather
taking a step back to consider what the general intentions of the
parties to the contract would be. This seems to be consistent with
an emerging trend of the Courts to consider reasonable expectations
of the parties to an insurance contract.
Another way of looking at it is that the word "related"
in the aggregate limit clause was necessarily being "read down"
or limited in its scope by the Court, and noting that in light of
the reasonable expectations of the parties the word "related"
would require a close or tangential relationship rather than a broad
Noting the clear intention of the parties to the contract
of insurance as providing protection for consumers that provide
deposits to a registered real estate agent or broker, the Court
reached the conclusion that the identity of the consumer claimant
would be an important and essential "connecting factor"
or common denominator in interpreting whether "Occurrences"
were in fact "related". Given the goal of protecting consumers,
the Court reasoned that the proper way to interpret the wording
of the policy was that the identity of the victim would be the key
factor in determining whether or not there were related occurrences
and, as such, the Court held that where different fraud deposit
victims were involved amongst the twenty-five subject frauds that
the occurrences should be regarded as unrelated. Accordingly, it
followed that twenty-two of the twenty-five transactions were found
to be unrelated from each other as involving different victims and
different properties. Cases of multiple fraud against a single victim
would however be captured by the aggregate limit. In those cases,
the thief was the same, the victim was the same and the type of
occurrence causing the loss was the same.
The Court accordingly ruled that each of the deposit
thefts in respect of the twenty-two victims made by Simpson were
separate occurrences except for the multiple deposit thefts on three
of the victims. As such, the various victims did not have to share pro rata in the aggregate "fund".
The foregoing reminds us that a Court will not interpret
an insurance policy to frustrate what it may regard as being the
clear intention from the standpoint of the insured.
As this case amply points out, the word "related"
is indeed very "relative".
5. Excess Insurer Required to Contribute to Costs of Defence
Re: St. Mary's Cement Company Inc. and ACE INA
Insurance  CanLii 32307
St. Mary's Cement applied to the court for an interpretation
of the insurance policy issued to it by ACE INA. St. Mary's sought
a declaration that ACE had a legal obligation to contribute to St.
Mary's defence costs in some 18 court actions arising from the supply
of allegedly defective concrete which resulted in extensive property
damage to residential premises and claimed damages in excess of
Liberty International Underwriters Canada provided
CGL primary policies to a limit of $4 million to St. Mary's. The
CGL policy included a duty to defend. ACE provided an umbrella liability
policy to a limit of $25 million. ACE took the position that it
should not be required to contribute to St. Mary's defence costs.
The Court found that the absent a statutory obligation
to defend (an none was suggested in this case) an insurer's obligation,
if any, to contribute to defence costs must be found within the
terms of the policy. The court added that a duty to indemnify does
not automatically impose a duty to defend. That duty is a separate
duty from the duty to indemnify. The court further held that a where
an excess insurer has a duty to defend as provided by the policy
(as it did in this case by ACE) and is put at risk by the claim
then the excess insurer should properly contribute to defence costs.
That is, the possibility that an excess insurer will be required
to indemnify the insured if the claim is successful may be suffice
to trigger a duty to defend. It is not necessary to prove that
an obligation to indemnify will in fact arise in order to trigger
the duty to defend. The obligation will be determined prospectively
by reference to the allegations made in the claim.
Where an excess insurance policy includes a duty to
defend, the insurer may be called upon to provide that defence or
to contribute to that defence before it is known whether the
primary policy will be exhausted. The court stated:
If it can be said that St. Marys is plainly
at risk to be within ACE's coverage then the obligation to defend
under ACE's policy becomes concurrent to the obligation to defend
under Liberty's policy. That is, once it is established that that
there is a realistic risk of St. Marys requiring the indemnity
coverage afforded by the ACE policy, then the duty to defend coverage
of the ACE policy 'drops down' to be the equivalent of primary
coverage together with the primary coverage to defend of the Liberty
policy. This qualifies the normative requirement that underlying
coverages have to be exhausted before utilizing excess coverages.
(It is emphasized that the indemnity coverage of ACE in respect
of St. Marys' liability for property damage remains excess coverage
to the Liberty primary coverage to indemnify for liability in
respect of property damage.)
The judge made an assessment "based upon the
record before me as to whether there is a realistic chance that
ACE's policy obligation to indemnify would be reached by the claims
against St. Marys. This includes a review of material which is properly
sealed so as to remain confidential (as consented to by each of
St. Marys, ACE and Liberty)."
The judge held that considering the evidence there
was a plain and realistic risk to St. Mary's that it may be liable
for damages in excess of $4 million and there was a realistic chance
that the policy of ACE would be called upon by St. Mary's for indemnity
in respect of the claims advanced in the underlying actions. The
court recognized that the precise indemnity obligations of Liberty
and ACE would not be clear until the determination of all the underlying
actions. The court found that the equitable way of dividing costs
on an interim basis was to apportion them equally between Liberty
and ACE. This disposition was subject to re-allocation of defence
costs following the trial(s) of the underlying claims and the resolution
of the various policy coverage issues.
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