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Newsletters 2013 > November 2013

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In this issue:
1.        Firm and Industry News
2.        Obstructive Sleep Apnea in Transportation
3.        One Year Contractual Limitation Period Upheld
4.        Primary Layer Responsible for All Defence Costs
5.        Aviation Litigation Updates
6.        Warehouse Contracts: A Lesson in the Choice of Language


 

1. Firm and Industry News

  • In September the Who’s Who Legal market analysis had this to say: “Rui Fernandes of Fernandes & Hearn has “all-round expertise” in marine transportation and insurance matters which makes him “brilliantly creative” in his work. Gordon Hearn is a “star” with great cross-border litigation experience.”

  • The Canadian Board of Marine Underwriters annual meeting and dinner will be held December 3rd, 2013 Toronto.

  • The Toronto Transportation Club 100th Anniversary Celebration will be held on December 5th in Toronto.

  • The Grunt Club annual dinner will be held December 6th, 2013 Montreal.

  • The Fernandes Hearn LLP - 14th Annual Maritime and Transportation Conference, will be held on January 16th, 2014 in Toronto.

  • Gordon Hearn will be representing the Firm at the Chicago Regional Seminar of the Transportation Lawyers Association on January 17, 2014.

  • The Marine Club annual dinner will be held January 17th, 2014 in Toronto at the Royal York Hotel.

  • Fernandes Hearn LLP 14th Annual Maritime and Transportation Conference

    Date
    :   Thursday January 16th, 2014
    Location: The Advocates’ Society Education Centre • Toronto
    Cost:   $65.00 - Includes light lunch and materials on USB Drive
    Registration: Sharifa Green, Fernandes Hearn LLP 416-203-9500
    Send cheques to: Fernandes Hearn LLP,
    155 University Ave. Suite 700, ON M5H 3B7
    Limited to 110 attendees    5.5 RIBO Credits (Technical Category)

    Topics and Speakers:

    8:00-8:30

    Registration & Coffee

    Sponsored by Granite Claims

    8:30-8:45

    Welcome

    Rui Fernandes

    8:45-9:15

    Sleep Apnea and the Transportation Industry

    Rui Fernandes

    9:15-9:45

    Transportation Contracts – Pitfalls and Risks in Wordings

    Gordon Hearn

    9:45 – 10:30

    Panel on Cargo Claims – Identity Theft, Proof of Damage, Waiver of Subrogation, Refrigerated Cargo Issues

    Martin Abadi, Kimberly Newton and Richard Swierczynski
    Moderator: Gordon Hearn

    10:30 – 10:45

    Coffee Break

    Sponsored by Zurich Canada

    10:45-11:00

    Rail Update – A review of the recent rail disasters and what it means industry and insurers

    James Lea

    11:00-11:30

    Expert Evidence, Causation and Spoliation of Evidence

    Kim Stoll

    11:30-12:15

    Panel On Marine Issues Facing Charterers on Water & on Land

    Rui Fernandes, Kim Stoll, Michael Delaney

    12:15-1:15

    Lunch

    Conference Centre
    Sponsored by Elliot Special Risks

    1:15-130

    Aviation Update

    Mark Glynn

    1:30-145

    Quebec Transportation Update

    David Huard

    1:45 – 3:45

    Mini Trial and Argument: Personal Injury Claim, Limitation of Liability, Commercial v. Personal Use, Host Liability, Insurance Issues

     

    Rui Fernandes - Judge,  Gordon Hearn – For Claimant Injured
    Kim Stoll – For Vessel Insurer,
    Martin Abadi – For Defendant Vessel Owner /Operator, James Lea for Insurance Broker, Kimberly Newton for Alcohol Server. 



 

2. Obstructive Sleep Apnea in Transportation: Part 1 of 3

Introduction

Obstructive sleep apnea is caused by the obstruction of the upper airway due to a collapse of the soft tissue at the back of the throat during sleep. It is characterized by repetitive pauses in breathing during sleep, despite the effort to breathe, and is usually associated with a reduction in blood oxygen saturation. These pauses during breathing, called "apneas" (literally, "without breath"), typically last 20 to 40 seconds. The most serious consequence of untreated OSA is to the heart. Sleep apnea sufferers have a 30% higher risk of heart attack or death than those unaffected. They have a four times greater risk of stroke. It is a disorder that can cause excessive daytime sleepiness. Falling asleep during the operation of rail locomotives, vessels, aircraft and trucks poses a serious risk to individuals and to the public. The Canadian and American legislators are looking at this emerging issue with a view to increasing the regulatory framework to address the problem. 

Statistics

In trucking, falling asleep most often occurs during driving on empty roads, long distance drives, and those drives requiring low motor activity. The Department of Transportation’s Federal Motor Carrier Safety Administration is the federal watchdog group for commercial trucking in the United States. The recent FMCA estimated figures for large truck accidents are as follows(*1):

• There are close to 5,000 annual driver deaths, with more than 1,400 due to drowsiness and obstructive sleep apnea
• Property costs caused by a large truck crash are more than $75,000 U.S. When it’s a fatal crash or a crash involving serious injuries, costs escalate to almost $3.4 million.

A random study of active commercial truck drivers conducted by the University of Pennsylvania Center for Sleep and Respiratory Neurobiology from 1986 to 1998 revealed the following about the 406 drivers selected to participate in their overnight sleep study (*2):

• 7% had severe sleep apnea
• 8% had moderate sleep apnea
• 21% had mild sleep apnea

There is now a clear link between sleep apnea and cardiovascular problems. It’s possible that the constant fluctuation in blood oxygen levels caused by sleep apnea may contribute to arterial inflammation, blood flow obstruction, insulin resistance, and increased hypertension and cardiovascular-related events.

An estimated 50-70 million US adults have sleep or wakefulness disorder (*3). Notably, snoring is a major indicator of obstructive sleep apnea.

In Canada the following statistics arose from a funded survey in 2009 conducted for The Public Health Agency of Canada (*4):

• The prevalence of self-reported sleep apnea was 3% among adults ages 18 years and older; this rose to 5% in individuals 45 years and older.
• Three out of four Canadians reporting sleep apnea (75%) were 45 years and older.
• The prevalence of self-reported sleep apnea in adult men was nearly double that in adult women.
• 25% of adults reporting sleep apnea rated their general health as fair or poor compared to 11% in the general population.

Over one in four Canadian adults (26%) was at high risk for having obstructive sleep apnea based on the presence of three or more of seven risk factors/symptoms for obstructive sleep apnea: snoring loud enough to be heard through closed doors; often feeling tired, fatigued, or sleepy during the daytime; having been observed to stop breathing during their sleep; having been diagnosed with high blood pressure; having a body mass index (BMI) greater than 35 kg/m; being over the age of 50 years; and being male. In addition, a neck size of 17 or larger was an indicative factor.

Symptoms and Analysis

The following chart sets out the nocturnal and daytime symptoms of sleep apnea:

Symptoms of Sleep Apnea
Divided into two groups: Nocturnal symptoms and daytime symptoms

Nocturnal Symptoms

Daytime Symptoms

• loud snoring
• observed episodes of breathing cessation during sleep
• gasping and choking sensations that arouse the patient from sleep
• restless sleep
• awakening with a dry mouth or sore throat
• morning headache

• not feeling refreshed upon awakening
• daytime fatigue / tiredness
• excessive daytime sleepiness
• poor memory, concentration, and cognitive function.

Being overweight does increase the likelihood of obesity, which is a risk factor for sleep apnea. A healthy BMI is between 18.5 and 24.9. A BMI of 25 to 29.9 is considered overweight; obesity is a BMI of 30 or more.

To calculate your BMI the following simple three step test can be done:
1. Weigh yourself without clothing and divide the pounds by 2.2
2. Measure your height in your bare feet and divide the inches by 39.4. Multiply the number you get by itself.
3. Divide the results of step 1 by the results of step 2.

The following survey is a self-administered screening tool for sleep disorders consisting of simple “yes” or “no” questions that was created by sleep expert, David P. White, M.D., Professor of Sleep Medicine at Harvard Medical School. See endnote (*5) for what it means when you have answered yes or no to the following questions.

1.  I feel sleepy during the day, even when I get a good night's sleep.
2.  I get very irritable when I can't sleep.
3.  I often wake up at night and have trouble falling back to sleep.
4.  It usually takes me a long time to fall asleep.
5.  I often wake up very early and can’t fall back to sleep.
6.  I experience an uncomfortable/restless sensation in my legs at night.
7.  My legs often move or jerk during the night.
8.  I sometimes wake up gasping for breath.
9.  My bed partner says my snoring keeps her/him from sleeping.
10.  I have fallen asleep while driving.

The U.S. Department of Transportation Federal Motor Carrier Safety Administration has set out a fact sheet for sleep apnea.(*6)

“What is Sleep Apnea?

Sleep apnea is a breathing-related sleep disorder that causes brief interruptions of breathing during sleep. These pauses in breathing can last at least 10 seconds or more and can occur up to 400 times a night. Sleep apnea is a serious, potentially life-threatening condition that often goes unrecognized and undiagnosed

Risk Factors for Sleep Apnea

Sleep apnea occurs in all age groups and both sexes, but there are a number of factors that may put you at higher risk:

• A family history of sleep apnea
• Having a small upper airway
• Being overweight
• Having a recessed chin, small jaw, or a large overbite
• A large neck size (17 inches or greater for men, 16 inches or greater for women)
• Smoking and alcohol use
• Being age 40 or older
• Ethnicity 

Symptoms of Sleep Apnea

• Loud snoring
• Morning headaches and nausea
• Gasping or choking while sleeping
• Loss of sex drive/impotence
• Excessive daytime sleepiness
• Irritability and/or feelings of depression
• Disturbed sleep
• Concentration and memory problems
• Frequent nighttime urination

Diagnosing Sleep Apnea

In order to diagnose sleep apnea, your doctor may send you to a sleep center for testing. You may be asked to spend a night at the center, where experts will monitor your sleep.

How Can Sleep Apnea Affect Your Driving?

Because sleep apnea affects your sleep, it also affects your daytime alertness and performance. Untreated sleep apnea can make it difficult for you to stay awake, focus your eyes, and react quickly while driving. In general, studies show that people with untreated sleep apnea have an increased risk of being involved in a fatigue-related motor vehicle crash.
Many sleep apnea patients say they never fall asleep while driving. That may be true. But remember, you don’t have to fall asleep to have a crash. You simply have to be inattentive or less alert — and with untreated sleep apnea; you are not as sharp as you should be.”

In Parts 2 and 3 of this article (December 2013 and January 2014 newsletters) the following areas will be covered:
    a) Canadian Legislation and case law
    b) United States Legislation and case law
    c) Upcoming initiatives in Canada and the U.S.

Rui M. Fernandes

Endnotes:
(*1) http://www.itamarmedical.com/WatchPAT/Medical_Professional/Truckers/OSA_and_Trucking.html
(*2) Ibid
(*3) Institute of Medicine. Sleep Disorders and Sleep Deprivation: An Unmet Public Health Problem. Washington, DC: The National Academies Press; 2006
(*4) http://www.phac-aspc.gc.ca/cd-mc/sleepapnea-apneesommeil/ff-rr-2009-eng.php
(*5) If you answered "true" to more than two questions you may have symptoms consistent with a sleep disorder.
See: http://healthysleep.med.harvard.edu/healthy/getting/treatment/sleep-disorders-screening-survey
(*6) http://www.fmcsa.dot.gov/safety-security/sleep-apnea/tools/Driving-with-Sleep-Apnea.aspx



3. Enforcement of One Year Contractual Limitation Period Upheld: Supreme Court of Canada Dismisses Application for Leave to Appeal

Boyce v. The Cooperators General Insurance Company 2013 CanLII 65411 (SCC)

In the May 2013 Fernandes Hearn LLP Newsletter, the Ontario Court of Appeal decision in Boyce v. The Cooperators General Insurance Company, above, (“Boyce”) was reviewed (*1). At time of writing of that article, the appeal period had not yet expired. The application for leave to appeal was brought and the Supreme Court of Canada has now weighed in.

On May 8, 2013, the Ontario Court of Appeal held that clearly worded clauses containing a one year limitation period as typically found in property or multi-peril policies will successfully trump the two year limitation period under the Limitations Act, 2002 in matters not concerning personal, household or family purposes.

This was the first time that a court has held that there is legislative intent to allow the shortening of statutory limitation periods via contract, specifically business agreements, thus clarifying when such provisions will be enforced. In this case, the contract was a first party multi peril insurance policy.

The Trial Judge found at the summary judgment application that the one-year limitation period to commence an action against the defendant insurer in this first party loss situation was unenforceable. The statutory two-year limitation period was applied and the plaintiffs’ claim was, therefore, not time-barred.

The defendant insurer appealed and the Court of Appeal reversed.

The Court of Appeal found that the contractual provision in question provided “for a one year limitation on claims in clear and unambiguous language” (*2). The Court quoted Cronk J.A. in International Movie Conversions v. ITT Hartford Canada (2002) 57 O.R. 3d 652 (C.A.), “Indeed, in my view, it is difficult to conceive how it could have been made more explicit.” Such clear language was key.

The Court of Appeal found that the policy was a “business agreement” despite being a “peace of mind” contract, which definition did not include agreements made by “consumers”. The only role that the Consumer Protection Act 2002 played was to supply the definition. Therefore, as consumers were those individuals acting “for personal, family or household purposes”, the policy in this case was a “business agreement” as the policy insured a business.  Therefore, the limitation period could be altered from the statutory provision.

The Court of Appeal allowed the appeal and reversed the decision of the motions judge. The plaintiffs’ claim was time barred.

In its reasons, the Court of Appeal provided guidance in this area and stated that policies containing “clear language” ought to be able to require a shortened limitation period. Such policies must also be considered “business agreements” to successfully do so. Insurers with policies containing shorter than statutory limitation periods and involving consumers acting for personal, family or household purposes may not be able to enforce such provisions.

On October 17, 2013, the Supreme Court of Canada dismissed the plaintiff’s application for leave to appeal. By doing so, the Supreme Court of Canada has indicated tacit approval in that there was no requirement to hear the appeal.

 Kim E. Stoll

Endnotes
(*1) See “Ontario Court of Appeal Enforces Insurance Policy 1 Year Contractual Limitation Period: Boyce v. The Cooperators General Insurance Company 2013 ONCA 298(CanLII)” by Kim E. Stoll, Fernandes Hearn LLP Newsletter May 2013


 

4. Primary Layer Responsible for All Defence Costs

ACE INA Insurance v. Associated Electric & Gas Insurance Services Limited
2013 ONCA 685

When an insured has sought to protect itself with more than one layer of insurance, equitable contribution or an obligation to contribute as between insurers may come into play regarding defence costs and/or indemnity.

Facts

An explosion occurred in the electrical vault of a high-rise building in Toronto. Toronto Hydro Corporation (“Hydro”) owned and operated the two transformers contained in the concrete vault. The explosion and associated fire resulted in four civil actions and one class action claiming damages in excess of $50 million for both property damage and personal injuries.

Hydro was insured at the first layer by ACE INA Insurance (the “primary insurer”) and, on the excess, by Associated Electric & Gas Insurance Services Limited (the “excess insurer”).  The primary insurer provided a comprehensive general liability policy (“CGL”), with a limit of $1 million per occurrence. The excess insurer provided an umbrella policy with a $45 million limit in excess of the primary insurer’s limit.

Both policies provided coverage for defence costs, but their terms were different. The CGL contained a “duty to defend” clause and covered unlimited defence costs without wasting the policy limits. Under the umbrella policy, while it contained no duty to defend, the excess insurer was liable for defence costs only where such costs were not included in other valid and collectible insurance. Unlike the CGL, any defence costs paid pursuant to the umbrella policy eroded that policy’s limits.

The damages ultimately are expected to far exceed the $1 million limit of liability of the primary policy if Hydro is found liable. Therefore, the umbrella policy would be triggered.

 By the hearing of the application, the primary policy had defended Hydro against all of the lawsuits and had paid all defence costs net of the self-insured retention of $100,000. The costs as of September 2012 exceeded $1 million and counsel had budgeted for over $1 million more, without consideration of the cost of experts and trial.

The primary insurer accordingly brought a motion for a declaration that the excess insurer had a duty to contribute to the substantial defence costs incurred and to be incurred on behalf of their common insured, Hydro.

Application for Declaration

The issue considered was whether the principle of equitable contribution, explained and applied by the Ontario Court of Appeal in Alie v. Bertrand & Frère Construction Co. (2002), 62 O.R. (3d) 345 (C.A) (*1), extended where the excess policy contained no duty to defend and, where paid, the defence costs eroded the policy limit.

At the application, Madam Justice Brown held that the primary policy was responsible for all defence costs. The Court of Appeal for Ontario agreed and dismissed the primary insurer’s appeal.

On Appeal to the Court of Appeal for Ontario

The primary insurer argued that the excess insurer should share in the defence costs given that it would have the majority of any ultimate liability. The primary insurer had asked the excess insurer to do so at a rate of fifty (50) percent, without prejudice and subject to reapportionment after any resolution of the associated actions. Further the excess insurer was offered control over the defence. The excess insurer declined, taking the position that it was only liable for defence costs once the primary policy limits were exhausted though it was entitled to updates on the progress of the litigation as well as counsel’s assessments of liability and damages.

(a) The Primary Policy

The insuring agreement in the primary policy provided that the insurer:

...will pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages because of ... [amongst other things, bodily injury or property damage.]

The primary insurer had a right and duty to defend Hydro against any action seeking damages falling within the policy coverage. The primary policy required the insurer to pay all defence costs, in excess of the policy limits, until such time as those policy limits were exhausted. The insurer,

… shall have the right and duty to defend any suit against the Insured seeking damages falling within the Coverages outlined in the Coverages above, even if any of the allegations of the suit are groundless, false or fraudulent, and may make such investigation and settlement of any claim or suit as it deems expedient, but the Company shall not be obligated to pay any claim or judgement or to defend any suit after the applicable limit of the Company’s liability has been exhausted by payment of judgements or settlements.

... III. Supplementary Payments

The Company will pay, in addition to the applicable limit of liability:

(a) all expenses incurred by the Company, all costs taxed against the Insured in any suit defended by the Company and all interest on the entire amount of any judgment therein which accrues before or after entry of the judgment and before the Company has paid or tendered or deposited in court that part of the judgment which does not exceed the limit of the Company’s liability thereon. (emphasis added)

(b) The Excess Policy

The excess insurer issued an Excess Liability Insurance Policy to Hydro for the same period covered by the primary policy. As an umbrella policy, it “goes up” to cover Hydro’s liability above the primary layer, but also “drops down”, when necessary, to cover liabilities that are not insured under the primary policy.

The insuring agreement in the excess policy provides for indemnity for amounts that Hydro is legally obliged to pay.

The COMPANY shall indemnify the INSURED for any and all sums which the INSURED shall become legally obligated to pay as ULTIMATE NET LOSS by reason of liability imposed upon the INSURED by law or liability assumed by the INSURED under CONTRACT...

The excess policy did not contain a duty to defend clause and there was no obligation to indemnify for defence costs, unless those costs were not covered by other insurance, at which time the excess policy would “drop down” to cover defence costs per the definition of “Defense Costs” :

...all expenses incurred by the INSURED in the investigation, negotiation, settlement and defense of any CLAIM or in the investigation of any OCCURRENCE or circumstances of which NOTICE OF CIRCUMSTANCES has been given, excluding all salaries, wages and benefit expenses of employees and office expenses of the INSURED; however the COMPANY shall not be liable for expenses as aforesaid when such expenses are included in other valid and collectible insurance, except where that insurance is subject to at least one hundred percent (100%) reimbursement by the INSURED. (emphasis added)

The excess policy also provided that, even though there is no duty to defend Hydro, the excess insurer had the right to input in the defence and control of any civil proceeding against Hydro:

The COMPANY shall not be called upon to assume charge of the settlement or defense of any CLAIM made against the INSURED, but the COMPANY shall have the right and shall be given the opportunity to associate with the INSURED, or the INSURED’S underlying insurer(s), or both, in the defense and control of any CLAIM where the CLAIM involves or may involve the COMPANY in which event the INSURED and the COMPANY shall cooperate in all things in the defense of such CLAIM.

The policy also placed the obligation to defend claims on the insured and its underlying primary policy:

The INSURED and its underlying insurer(s) shall, at all times, use diligence and prudence in the investigation, settlement and defense of all demands, suits and other proceedings.

Indemnification of defence costs under the excess policy eroded or wasted the limit of liability via the definition of “Ultimate Net Loss” being “the total INDEMNITY and DEFENSE COSTS with respect to each OCCURRENCE to which this POLICY applies”.

The Position of the Parties

The primary policy insurer took the position that there was no real difference between a liability policy such as the primary policy and an indemnity policy as provided by the excess insurer. As the insurers shared the exposure, it was argued, so too should they, on an equitable contribution basis, share the defence costs. Otherwise, unfairness would result as the excess insurer would get a “free ride” re the substantial defence costs which, in fact, would be expended primarily in support of the excess insurer’s lion’s share of the possible indemnity (being forty-five times that of the primary policy).  In fact, it was argued, the primary policy’s limits could never satisfy any settlement of the third party claims and it was unfair to force the primary insurer to continue to pay defence costs in this situation.  On the public policy side, the excess insurer, once contributing, would then be at the table for settlement purposes.

Conversely, the excess policy insurer contended that the doctrine of equitable contribution did not apply unless both policies covered the same risk. The express terms of the excess policy excluded coverage for defence costs and were in keeping with the decisions of the Supreme Court of Canada in Family Insurance Corp. v. Lombard Canada Ltd., 2002 SCC 48, [2002] 2 S.C.R. 695, and of the Court of Appeal of Ontario in Trenton Cold Storage Ltd. v. St. Paul Fire and Marine Insurance Co. (2001), 199 D.L.R. (4th) 654 (Ont. C.A.).

Equitable Contribution

The Court of Appeal, in its reasons, stated bluntly that the doctrine of equitable contribution “is not a free-standing method of apportioning losses between different levels of insurance according to a court’s view of what would be fair in the circumstances.” (*2)

The Court went on to state the principle is that an insured should not be able to recover twice where it has taken out more than one insurance policy for reasons of public policy. It is inequitable that one insurer should pay all while the other pays nothing so the law requires each to contribute. The insurer who overpays then can sue the other insurer, in its own name, to recover a pro rata proportion of the loss where the policies cover the same risk.

The Court of Appeal listed the general principles concerning the right of contribution among insurers (*3) as follows:

1. All the policies concerned must comprise the same subject-matter.
2. All the policies must be effected against the same peril.
3. All the policies must be effected by or on behalf of the same assured.
4. All the policies must be in force at the time of the loss.
5. All the policies must be legal contracts of insurance.
6.No policy must contain any stipulation by which it is excluded from contribution.

The Court of Appeal went on to quote extensively from a decision of the Supreme Court of Canada in Family Insurance Corp. v. Lombard Canada Ltd. (*4) indicating that the insurer may express its intention to limit its liability in the provisions of the policy. Thus the proper instrument to determine the liability of each insurer is the policy itself.  Further, the liability of insurers under overlapping coverage policies is to be governed by the intent of the insurers as manifested by the terms of the policies that they have issued. The intention of the parties, which the court seeks to determine, is found by looking at how each insurer sought to limit its liability to the insured when the insured has purchased other policies covering the same risk.

Further, the Court of Appeal stated that the mere possibility that the claims will penetrate the excess layer does not, of itself, give rise to a duty to defend and the court noted that in insurance contracts not governed by statute, the obligation of an excess insurer to contribute to defence costs must either flow from a duty to defend or must be found in the express language of the policy.

Quoting from Alie v. Bertrand & Frère Construction Co., above, (*5), the Court stated that the principle that excess insurers may be required to contribute to defence costs “is premised on the existence of a duty to defend on the part of the excess insurer. Without that duty, one does not reach the ‘equities of the matter’ as among various insurers with a duty to defend.”
 
The Decision of the Court of Appeal

The Court found that contribution only arises when insurance policies cover the same risk. In this case, the policies did not cover the same risk. Accordingly, the doctrine of equitable contribution did not apply, as there was no duty to defend under the excess insurer’s policy. The express terms of the excess policy excluded liability for defence costs to the extent they are covered by the primary policy. The liability for defence costs, therefore, did not overlap in any way and the policies complemented each other. Each insurer had insured different risks in relation to the defence of the insured and defence costs.

The Court further noted that the insurance policies were purchased by a sophisticated insured through a sophisticated insurance broker and noted that Hydro presumably wanted to be fully insured, but did not want to pay for more insurance than necessary and did not want to purchase two policies of insurance covering the exact same risks.

The primary policy’s insurer was the only insurer with a duty to defend and there was no overlap in responsibility for defence costs. The primary insurer was to be held to its bargain with the insured, which was not unfair, but it would be if the bargain were to be re-written.

The Court further noted that, not only was there no duty to defend in the excess policy, but payment of any defence costs pursuant thereto would, in fact, erode the policy limits to the prejudice of Hydro. Also, the Court, while acknowledging that participation of the excess insurer in settlement discussions would be valuable, declined to use this ground as a basis for equitable contribution.

The judgment was released on November 14, 2013. The appeal period in this regard has not expired at time of writing.

Conclusion

It would appear that, unless the terms are exactly the same, equitable contribution will not be applied and, “fair” or not, the primary layer will shoulder the burden of defence costs on its own. Underwriters of primary policies should revisit their wordings to ensure that the bargain struck with the insured regarding defence costs actually conveys the desired intention, as policy wording will be applied to determine the intentions of the parties on the plain reading of the document.

 Kim E. Stoll

Endnotes
(*1) Leave to appeal to S.C.C. refused, [2003] S.C.C.A. No. 48
(*2) at para. 21
(*3) at para 22 quoting Family Insurance Corp. v. Lombard Canada Ltd., infra, citing Ivamy's General Principles of Insurance Law (6th ed. 1993) at p. 518
(*4) at para 23, Family Insurance Corp. v. Lombard Canada Ltd., 2002 SCC 48, [2002] 2 S.C.R. 695
(*5) at para 28 quoting the Court of Appeal for Ontario in and Broadhurst & Ball v. American Home Assurance Co. (1990), 1 O.R. (3d) 225 (C.A) leave to appeal to S.C.C. refused, [1991] S.C.C.A. No. 55


 

5. Aviation Litigation Updates

1. Chabot v. WestJet (*1)

On October 29, 2013, Martin Castonguay J.C.S. certified a class action to proceed against Canada’s second largest airline, WestJet. The action concerns the airline’s policies on charging for a second seat when required either by reason of a passenger’s obesity or a passenger’s requirement to be accompanied by an attendant owing to a handicap.

This action is a logical sequel to the decision in Picard v. Air Canada (*2) of October 3, 2011, wherein Judge La Rosa for the Quebec Superior Court authorized a class action on similar premises against Air Canada. In Picard, however, the claim was dismissed against Air Canada on the basis that the proposed representative of the class for the action against Air Canada had failed to prove that he was handicapped such as to require an accompanying attendant. Both of the cases follow on from the high profile decision of the Canadian Transportation Agency (“CTA”) on January 10, 2008, which ordered both Air Canada and WestJet to amend their domestic carriage tariffs so as to comply with the principle of “One Passenger, One Fare”(*3).

The present action was brought by Nicole Chabot as mother of a minor requiring an inflight attendant care owing to the conditions of Development Coordination Disorder, Specific Language Impairment and Dysarthia. In each of 2009 and 2010, Ms. Chabot and the minor traveled to Fort Lauderdale, Florida. Therein is a significant development as compared with the Picard action. The scope of the CTA decision was only in regard to domestic passengers, and, as the airlines have been compliant with respect to domestic tariffs since the ruling, the Picard claim was only relevant for domestic passengers who paid for additional seats in the three years preceding the CTA decision. In this claim, Ms. Chabot sued on behalf of domestic passengers for three years prior to the CTA ruling but also for transborder passengers since 2008.

The certifying court was sensitive to a further significant difference between the claim against Air Canada, which was certified on a national basis, and that against WestJet, which Judge Castonguay limited to Quebec residents. Unlike Air Canada, WestJet is domiciled outside of Quebec, having headquarters in Edmonton and the Quebec court refused to find that the presence of Westjet ticket counters in airports in Quebec amounted to Westjet operating an establishment in Quebec.

In applying the four criteria contained at Art. 1003 of the Quebec Code of Civil Procedure which governs the certification of class actions, and in response to argument advanced by WestJet, Judge Castonguay did highlight certain issues which the class will face, in particular the question of whether claims on behalf of passengers who departed prior to the first flight taken by Ms. Chabot and her daughter were prescribed. However, the judge found that this was ultimately an issue of the merits of the case, which ought not to be delved into on a certification application.

2. Allianz Global Risks US Insurance Company et al, Plaintiffs v. The Attorney General of Canada et al (*4)

On November 18, 2013, Hackland R.S.J. gave his reasons for the refusal of the Attorney General’s motion to strike portions of the plaintiff’s Statement of Claim in relation to their claim of negligence on the part of Transport Canada.
This claim flows from damage suffered by an Embraer 145 aircraft at Ottawa International Airport when the aircraft was unable to decelerate and stop on a wet runway 07.
The insurer that covered the loss initiated an action against Transport Canada on the basis of negligence. The three components of the negligence claim were:

  1. Transport Canada negligently designed and constructed Runway 07;
  2. Transport Canada, qua owner of the airport at the time of completion of Runway 07, negligently allowed the airport to be used in an unsafe manner; and
  3. Transport Canada, qua regulator, after the transfer of Ottawa International Airport to its owner at the time of the incident, Ottawa International Airport Authority, was negligent in certifying the airport as safe when it knew or ought to have known that Runway 07 was unsafe.

Transport Canada moved to strike the third component of the negligence claim, advocating that, in its regulatory capacity, the government agency did not owe a duty of care to private citizens such as the plaintiff. The motions judge however sided with the plaintiff who argued that there was a single basis of its claim – negligence – and that the three subcomponents thereof were interwoven in a manner that should not be undone on a motion.
Hackland R.S.J. opined that it should be open to the trial judge to determine whether there were special circumstances in this case which would justify imposing a duty of care on to Transport Canada. Moreover, as a subsidiary basis for the refusal of the motion, the judge found there was also a live issue for trial to decide whether the issuance of Airport Certificates is a policy or operational decision.
On a subsidiary issue, the court also refused the moving party’s efforts to strike reference to three previous incidents of aircraft overrunning the same runway. Applying the principle that any uncertainty as to whether a statement is a properly pleaded material fact or improperly pleaded evidence should be resolved in favour of the pleading party, the judge found that these statements were relevent facts going to the issue of foreseeability which would be central to the outcome of the litigation.

Mark Andrew Glynn

Endnotes:
(*1) Chabot v. West Jet 2013 QCCS 5297.
(*2) Picard v. Air Canada 2011 QCCS 5186; this litigation is now continued as P.A. v. Air Canada given that Mr. Picard was in fact the proposed representative with a claim against WestJet which was dismissed at the certification stage. Judge La Rosa also recently rendered, on November 7, 2013 a decision in that litigation authorizing the plaintiff to produce the CTA decision at trial. See P.A. v. Air Canada, 2013 QCCS 5594. 
(*3) Canadian Transportation Agency Decision 6-AT-A-2008 (January 10, 2008).
(*4) Allianz Global Risks US Insurance Company et al, Plaintiffs v. The Attorney General of Canada et al 2013 ONSC 7005.

 



6. Warehouse Contracts: A Lesson in the Choice of Language

The recently issued decision of the British Columbia Superior Court in Howard Lam v. The University of British Columbia and Arpel Industries Ltd. and Others 2013 BCSC 2094 (CanLII) offers an important lesson in contract drafting for the warehouseman. There may be a practical difference in the enforceability of a clause seeking to relieve the warehouseman from any liability for loss or damage to goods compared to that seeking to limit liability for loss or damage to “zero”. 

The Factual History

This matter involves a class proceeding commenced following damage to or the destruction of sperm of the representative plaintiff, Howard Lam and “Class members”, when the supply of electricity was interrupted to a freezer in which it was stored.  The freezer was a cryptopreservation unit, storing the cells at temperatures below 130 degrees Celsius which was operated by the University of British Columbia Andrology Lab.   The Andrology Lab received, tested, froze and stored specimens of sperm provided by all Class members.   Each Class member provided to the Andrology Lab one or more specimens of his own sperm for storage.  The Lab drafted a certain “Sperm Bank Facility Agreement” (the “Agreement”) that was signed by each class member at the time that the sperm was placed into storage.  The Agreement contained the following exclusion clause, which the University of British Columbia (“UBC”) relied upon in its defence to this claim: 

7. LIMITATION OF OUR LIABILITY

By signing this Agreement you agree that neither we nor our successors or assigns nor any of our governors, directors, officers, employees or agents will be liable to you or anyone else for any destruction of, damage or alteration to or misuse of your Specimen for any reason whatsoever, including:

  1. the improper testing of your Specimen;
  2. improper freezing of your Specimen;
  3. improper maintenance and/or storage of your Specimen in a frozen state, or
  4. improper withdrawal and/or delivery of your Specimen.

This exclusion of our liability extends to any damage, misuse or impropriety caused by or resulting from any malfunction of our freezing equipment (whether for causes within our control or not) or from any failure of utilities, strike, cessation of services or other labour disturbances or any failure or similar occurrence in our any other laboratory or from any fire, earthquake or other acts of nature beyond our control, or caused by or resulting from any act, omission or negligent conduct on the part of us or our successors or assigns or any of our governors, directors, officers employees or agents.

The parties to the dispute determined that the following threshold issues should be determined in the action:

  1. Is the defendant, UBC, entitled to rely on the exclusion clause against any or all of the proposed class members?
  2. Is the exclusion clause in the contract unenforceable by being contrary to public policy?

In lining up the argument on the above issues, the parties came to identify a further ‘sub-issue’ that was implicit in the above statement of the issues: 

Is the defendant, UBC, precluded from relying upon the exclusion clause in the Agreement as against the class members by virtue of the Warehouse Receipt Act, R.S.B.C. 1996, c 481 (the “WRA”)?

The Issues Presented to the Court

Based on the agreement of the parties of the issues to be considered, the Court reduced the dispute to the following two discrete issues to be considered:

  1. is the WRA applicable to the Agreement?
  2. If the WRA applies, does it preclude the enforceability of the exclusion clause in the Agreement?

Things get really interesting at this point.  Never underestimate the creativity of or the resourcefulness of parties arguing for the application of, or seeking to oust an exclusion of liability clause.

The Plaintiff’s Position: The Clause Should not Apply

The plaintiff asserted that the WRA does apply: on its plain reading, sperm samples are “goods” coming within the application of that statute as sperm is property and it is not excluded by the definition of “goods”.  While conceding that the Assisted Human Reproduction Act S.C. 2004, c.2 forbids the sale of sperm – thereby limiting the application of certain provisions in the WRA (e.g. concerning the ability of the warehouser to sell sperm following the non-payment of its charges) – the plaintiff argued that that legislative feature was not relevant to the interpretation of or the applicability of the WRA itself.  The plaintiff argued that UBC, as an operator of the Andrology Lab, was fulfilling the role of a warehouseman: all Class members were required to pay an annual fee for the storage of the sperm, and accordingly the Lab was performing the storage service “for reward”, being a trigger for the application of the WRA.  The plaintiff also argued that the Agreement served as the requisite “warehouse receipt”.

In setting up the application of the WRA, the plaintiff was asserting that, by its terms, UBC was not entitled to rely on the exclusion of liability clause in the Agreement as being contrary to the following provisions of the WRA:

2(4)  A warehouser may insert in a receipt issued by the warehouser any other term or condition that:

  1. is not contrary to any provision of this Act, and
  2. does not impair the warehouser’s obligation to exercise the care and diligence in regard to the goods as a careful and vigilant owner of similar goods would exercise in the custody of them in similar circumstances.

.
.
.
13.  A warehouser is liable for loss or injury to goods caused by the warehouser’s failure to exercise the care and diligence in regard to them as a careful and vigilant owner of similar goods would exercise in the custody of them in similar circumstances.

The plaintiff argued that the exclusion clause is thus contrary to the foregoing provisions of the WRA.  As a consequence of the statutory language, while a warehouser might limit its liability to a predetermined amount, it cannot insert a clause that excludes liability.  The exclusion clause in the Agreement purports to exclude liability and accordingly the same should be considered to be null and void.

UBC’s Position

UBC raised clever arguments that the WRA does not apply to the storage of sperm by the Andrology Lab.  First, it argued that the WRA exists in concert with another related statute in the Warehouse Liens Act R.S.B.C. 1996, c. 480 (the “WLA”) and that they are to be interpreted and applied as a uniform regime in the regulation of property, which is the object of “trade and commerce”.  These statutes are intended to be commercial legislation to facilitate inter-jurisdictional trade in the standardization of the law of warehouse liens and receipts.  While the definition of “goods” in the WRA may be broad enough to encompass the storage of sperm, its definition should be restricted to property of a merchantable nature. 

UBC also stressed the effect of the Assisted Human Reproduction Act of prohibiting the sale, purchase or advertisement for purchase of sperm or ova.  If the WRA and WLA are found to apply to the storage of sperm, then many sections of those statutes would be inapplicable, suggesting that the Legislature could not have intended those statutes to apply to the storage of sperm or other human tissue.  Otherwise, it would be impossible for a warehouser to exercise its statutory rights under the WRA or WLA as then being in breach of the Assisted Human Reproduction Act.

Finally, UBC argued that if the WRA is found to apply, that it was not precluded from relying on its exclusion clause in the Agreement as the parties are entitled to agree to a limitation of damages and that the exclusion clause in the Agreement does not exclude liability, but rather limits damages to zero.  As such, it argued that the exclusion clause did not offend sections 2(4)(a) and (b) and 13 of the WRA.

Issue 1): Is the WRA Applicable to the Agreement?

The judge hearing this argument took into consideration the fact that the parties did not turn their minds to whether the WRA would apply or not at the time that the Agreement was entered into.  The judge inferred that this was the case as the issue of the application of the WRA did not surface until several years after the commencement of the litigation.   The Court embarked on an interesting analysis of the statutory interpretation of the WRA and policy arguments for and against its application, noting that the legislation came into being well before the technology for the storage of sperm.   On the one hand, the WRA definition of “goods” was broad enough to capture sperm, and the Agreement met the WRA definition of a “warehouse receipt”.  There was no question that the Lab agreed to store the sperm as a bailee for reward and the WRA was intended to codify the common law with respect to bailment for reward in the case of non-negotiable receipts.  Accordingly, there was a principled basis for the application of the WRA to this bailment. 

On the other hand, at the time of the original enactment of the WRA, the Legislature would not have considered that sperm was property and there was no technology available for the effective storage of sperm, and for that matter the common law did not recognize property in body parts or products. In its analysis, the Court noted that broad statutory categories can be held to include things unknown when the legislation was passed, also noting that “property” is a broad concept capable of changing over time as the ability to “use and possess external or determine things changes”.  The Court noted in its analysis that “property” is without question a general concept. Accordingly, stored sperm could be considered to be “goods” for the purposes of the application of the WRA.  The Court noted the purpose of the WRA was to codify the common law of bailment, and that under the common law, a bailee is required to exercise the same care and diligence with respect to the bailed goods as a careful and vigilant person would exercise over his own similar goods in like circumstances.  Sections 2(4) and 13 of the WRA effectively accomplish this.  Accordingly the Court held that there was no reason why these provisions could not apply to property that can be stored for reward, which was not contemplated at the time that the legislation was enacted.

As to the argument by UBC that a conflict would arise between the WRA and the prohibition in the Assisted Human Reproduction Act against selling sperm, the Court noted that the Agreement does not purport to be a negotiable receipt.   It is a non-negotiable receipt.  There being no requirement that UBC as a warehouser issue a negotiable receipt – the WRA also regulating the issuance of non-negotiable receipts – there was no irreconcilable conflict between the WRA and the Assisted Human Reproduction Act.  In short, the fact that sperm cannot be purchased does not prevent it from falling within the definition of “goods” in the WRA.  This simply reflects the fact that sperm, like other classes of property, is subject to control or regulation by other statutory provisions. 

Finally, adopting a “purposive” analysis into the purpose and intent of the WRA (in light of the “commercial intent” argument raised by UBC), the Court noted that there is no basis to restrict the definition of “goods” in the WRA to goods that could be sold by the warehouser to enforce its lien rights.   Accordingly, the Court held that the definition of “goods” in the WRA includes sperm, that the Lab was a warehouseman, and that the Agreement met the requirements for a warehouse receipt for the purposes of the WRA.

Issue 2: Does the WRA Preclude the Enforceability of the Exclusion Clause in the Agreement?

Read together, ss. 2(4) and 13 preclude a warehouser from including in its receipt a term or a condition that would release it from liability for failing to meet the requisite standard of care.  Taken as a whole, these sections ensure that warehousers cannot by contract, cancel or modify the standard of care imposed on them by the WRA.

The plaintiff argues that the Agreement language on point contravenes the WRA as it seeks to exclude the Lab from all liability. 

In turn, UBC asserts that the Agreement does not exclude liability – it merely reflects an agreement between the parties to limit damages to zero in the event of loss or injury to the stored sperm.

The courts have held that a provision in a warehouse receipt that limits the amount payable by the warehouser for the loss or damage of goods does not contravene the legislation because such a limitation, in and of itself, does not permit the warehouser to escape its obligations. Rather, such a clause does no more than establish by agreement the maximum amount of damage payable by the warehouser to the storer in the event of loss or damage to his goods”. In a similar vein, the courts have held that such a contractual provision would not contravene the legislation by “impairing” the warehouser’s obligation to exercise the requisite degree of care, concluding that “even though a limitation of liability may have the effect of “inducing carelessness” it could not negate a statutory provision to take care”. [See:  Evans Products Co. v. Crest Warehousing Co. [1980] 1 S.C.R. 83 for an interesting discussion, and a ruling on all these points].

The above said, the Court ultimately held that UBC could not rely on the subject limitation of liability clause in the Agreement.   UBC contended that the limitation of liability clause merely limits damages to “zero”, and as such was not contrary to the WRA.  UBC’s language, by its very terms, was seen to offend the WRA, seeking to absolve the Lab of any and all liability for the storage or use of sperm in their lab.  The Court drew a distinction between a clause stating that “the liability of the warehouseman … shall be limited…” from the subject UBC wording (produced above) which stated:

By signing this Agreement you agree that neither we nor our successorswill be liable to you ... this exclusion of liability extends to any damage…[emphasis added]

The Court found that this was not a merely semantic difference between a clause that limits liability if loss or damage occurs – the UBC language rather being a direct affront to the WRA provision about contracting out of the warehouser’s basic standard of care. Holding that “if the Lab meant to limit amount payable for lost or damaged sperm, rather than to exclude liability, it would have been a simple matter to state that in the Agreement”.

Conclusion

The Court, accordingly, held that the provisions of the WRA applied to the storage of the sperm specimens of the plaintiff and the Class members and that the Agreement was a warehouse receipt.  As the purported Exclusion of Liability clause was directly contrary to s. 13 of the WRA, UBC was precluded from being able to rely on the same.

This case stands as an interesting study in the form and content of contractual language, and the need for drafting precision, especially in matters of clauses seeking to limit or exclude liability.  Apparently – at least in the warehouse context – there is a difference between stating that the “warehouse will not be liable” from stating that “any liability will be limited to zero”.  

Gordon Hearn



 


 

 

 


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