1. What is an "Accidental Fire"?
A number of boats were damaged by fire while being
stored at a marina. The cause of the fire was never determined.
The boat owners brought an action against the marina, asserting
that the marina breached it's obligation to safeguard the boats.
The trial judge found that the marina was a bailee for reward as
it was being paid a storage fee. The judge ruled that the marina
accordingly had to show that it exercised the same degree of care
as it would have over its own possessions. The trial judge ruled
that, as there was no evidence as to how the fire started, the marina
was liable because it failed to lead the necessary evidence to disprove
that it was negligent.
The marina appealed on the basis of the Accidental
Fires Act R.S.O. 1990 c. A.4 (since incorporated into the Fire Protection
and Prevention Act, S.O. 1997, c.4) which provides that a person
"in whose house or building or on whose land any fire accidentally
begins" is not liable for damages. The appeal presented an
interesting conflict, requiring reconciliation between the explicit
wording of the statute and the onus placed on a bailee for reward
cited by the trial judge, which is a well established principle
The Court of Appeal confirmed that an accidental fire
is not one that is proved to be accidental, but rather is one that
cannot, on a balance of probabilities, be traced to a particular
cause. There must be a cause identified to be able to assess the
bailee's conduct, relative to its duty of care as a bailee for reward.
Once it is established that the cause is unknown, the bailee has
then established that there is no connection between its conduct
and the loss so as to make it liable as a bailee. The explicit wording
of the Act superceded the common law to benefit the marina.
In its reasons the appeal court noted that in most
cases there would be some suggestion, or some evidence led as to
the cause of loss and that, each case being taken on its own merits,
a party will usually have the opportunity of leading evidence to
suit its own case. The inference is that it will only be in the
exceptional case that a bailee will succeed under the Act on the
basis of a total lack of evidence as to the cause of a fire.
This decision clearly underscores the importance of
timely and effective investigation in a fire claim.
Neff. v. St. Catharines Marina Ltd. (1998) 37 O.R.
(3d) 481 (Ont. C.A.).
2. PUBLIC TRANSIT STANDARDS
Most people who take public transit are familiar with
the stop-and-go jerking motions of buses, subways, and streetcars.
Particularly in winter, those left without a seat will often lose
their footing and fall. The question then becomes whether the carrier
is liable for any damages sustained by passengers. In Wang v.
Horrod, the British Columbia Court of Appeal dealt with an appeal
by a transit company and its driver in_ a decision which placed
75% of liability on them for damages sustained to an elderly woman
traveling on a city bus. The woman had boarded the bus and found
a seat, but got up during a routine stop to take off her coat. When
the bus moved forward, the woman fell and, due to the way she fell
and her age, was rendered quadriplegic. The evidence was that the
driver of the bus did not check his rearview mirror before proceeding.
The trial judge held that there was a greater degree of care required
of the transit company to safeguard its elderly or disabled passengers,
and the majority of the Court of Appeal agreed. They held that the
driver knew or ought to have known that he had elderly passengers
aboard, that they could be standing at a stop, and that he should
therefore check his mirrors before proceeding.
It should be noted that there was a strong dissent
in this case. Justice Southin would have dismissed the case against
the driver, as the driver was merely acting in his capacity as an
employee of B.C. Transit. He would also have dismissed the case
against the company, as there was no evidence that the bus was operated
in an abnormal way or that it had "lurched" forward. Finally,
in reasons which clearly indicated a belief that the desire to compensate
had won out over the law, Justice Southin said, "We are all
experts on proper driving, or so we think. ...But the proper standard
in matters peculiar to public conveyances is quite a different matter.
There are, in this Province, very few judges that spend time as
passengers on motor buses. ...The learned trial judge had a difficult
task in which, in my opinion, she allowed a kind heart to prevail
over legal considerations."
Wang v. Horrod (1997), 36 B.C.L.R. (3d) 71 (C.A.).
Application for leave to appeal to S.C.C. filed July 31, 1998.
3. WHERE AN INSURER RESCINDS AN INSURANCE CONTRACT,
THE CONTRACTUAL LIMITATION PERIOD IS NOT OPERATIVE
The Ontario Court of Appeal has recently determined
a novel issue -- whether an insured is relieved of its obligation
to commence legal proceedings against an insurer within a contractual
limitation period where the insurer has rescinded or repudiated
the insurance contract.
The Court determined that where an insurer repudiates
the contract, the insured is excused from affirmative future obligations
contained within the contract including the contractual obligation
to commence an action within a prescribed limitation period.
Gordon Capital purchased a fidelity bond from Guarantee
Company of North America. Excess coverage was provided by CHUBB
Insurance and Laurentian General Insurance. During the coverage
period, one of Gordon Capital's employees was involved in fraud.
Gordon Capital filed a Proof of Loss to which it appended
the report of forensic investigators Lindquist Avery. Lindquist
had been contracted by Gordon Capital to investigate the fraud.
Lindquist had determined that the fraud had gone undetected
over a period of time because the employee who had committed the
fraud had sole authority to review various customer accounts which
he managed. The practice was contrary to representations Gordon
Capital had made to Guarantee at the time of its purchase of the
policy that there was always separate and independent monthly review
of customer accounts activity.
Guarantee rescinded the policy based on this material
misrepresentation and returned the premium to Gordon Capital. Gordon
Capital refused to accept the premium refund and disputed that Guarantee
had any justification to repudiate the contract and deny the claim.
Guarantee brought a declaratory action against Gordon
Capital based on the failure by Gordon Capital to commence any action
against it within the two year contractual limitation period. Therefore,
the issue arose whether the limitation period could be relied upon
by Guarantee in the circumstances.
Decisions in other cases, by the Supreme Court of
Canada and other provincial Courts, addressed either circumstances
where the insured had failed to meet terms of the contract with
perfection or where an insurer had repudiated the contract and the
insured had subsequently failed to file Proofs of Loss with perfection.
There was no authority on point where an insurer repudiated the
contract and the insured had failed to comply with the contractual
time limit for institution of legal proceedings.
Older English authorities establish the proposition
that there may be effective differences in provisions in a policy.
Some can be likened to an "executive obligation" or "operative
term" that is inserted for the benefit of one of the parties.
Such are distinct from provisions which are "neutral features"
of the insurance contract. For example, an arbitration provision
is a neutral feature of the insurance policy as it is inserted for
the benefit of both parties to prescribe the means by which disputes
will be resolved. Such a provision operates even in the context
of complete repudiation of the insurance contract.
The obligation to institute legal proceedings within
a prescribed time period is inserted for the benefit of the insurer.
It serves to eliminate uncertainty as to future claims obligations.
It was classified as an "operative term". Such a provision
does not survive purported repudiation of the insurance contract
by the insurer.
In the end result, the insured was not required to
commence legal proceedings within the contractual limitation period
of two years.
The implications of this decision are significant
-- Insurers who contemplate rescission of the insurance contract
must be very careful to do so properly and must recognize that by
attempting to do so they will not be able to rely upon contract
provisions which the Court categorizes as operative terms in the
event the rescission is not later upheld by the Court. Operative
terms include the requirements to file a Proof of Loss and to commence
any legal action against the insurer within the prescribed time
Guarantee Co. of North America v. Gordon Capital
et al (1998) 157 D.L.R. (4th) 644 (Ont. C.A.).
4. Fellow Air Passenger Causing Harm Is Considered
Have you ever been caught next to a smoker on an airplane?
In Naval-Torres v. Northwest Airlines Inc., the Ontario Court dealt
with a plaintiff's claim for bodily injury allegedly arising from
exposure to second-hand smoke while on board a Northwest Airlines
flight from Toronto to the Philippines. The Claim alleged breach
of contract, negligence, misrepresentation and misleading advertising
on the part of Northwest. The airline brought a motion to restrict
the claims to only those that fell within the Warsaw Convention,
enacted in Canada by the Carriage by Air Act. It argued that the
smoking passenger constituted an "accident" for the purposes
of Article 17 of the Convention. The judge agreed, stating that
"accident" was an unexpected or external event, and included
intentional wrongdoing on the part of another passenger. The Convention
therefore applied, and all claims external to it were struck. Further,
as the Convention did not allow claims for anything other than direct
damages, the plaintiff could not claim punitive damages against
the airline. Finally, the two year limitation period was not affected
by the allegation of willful misconduct. The plaintiff was given
leave to file a fresh claim within 30 days.
Naval-Torres v. Northwest Airlines Inc. (1998),
159 D.L.R. (4th) 67 (Ont. Gen. Div.).
5. Privilege Is Waived When Information Is Given
to Crime Prevention Bureau
An Ontario judge has recently ruled that communications
between an insurer and the Insurance Crime Prevention Bureau ("ICPB")
are not privileged. It is well settled that disclosure of privileged
information to outsiders constitutes a waiver of privilege. However,
the common law has recognized an exception to this known as "common
interest privilege". In Re Supercom of California Ltd. and
Sovereign General Insurance Company, Justice Wilson considered the
issue of whether an adjuster waived privilege by providing his reports
to the ICPB, or did common interest privilege apply.
Supercom was a distributor and manufacturer of computer
equipment. It had theft insurance with Sovereign General Insurance
Company. Following a break-in, Supercom made a claim for approximately
$2,000,000.00. At first instance, the Master held that the release
of investigative reports to the ICPB amounted to a waiver of privilege
and ordered the reports produced. Sovereign appealed, and the ICPB
was granted intervenor status.
ICPB filed additional evidence to explain its role
within the insurance industry. That information indicated that the
ICPB used reports submitted to it in order to create a database
for other insurers. The database contains only select key information
from the reports received from insurers. This includes the name
of the insured, the insurer, the date of the occurrence, the claim
amount, the reason for the denial and the disposition. The summary
of information provided by the database is marked "privileged
and strictly confidential".
After carefully considering the role of the ICPB and
the facts of this case, the court found that there had in fact been
a waiver of privilege to the information in the computerized database
as well and the underlying reports, unless the doctrine of common
interest privilege applied. The court noted that common interest
privilege "implies the dynamic of parties sharing a united
front against a common foe." (P. 612) ICPB had argued that
common interest privilege should be extended to apply "to all
insurers co-operatively fighting the plague of potential insurance
fraud by plaintiffs". The court rejected this concept finding
that in this particular case a number of insurers were in fact adverse
in interest, aside from sharing common defence on trying to deny
the claim. The court also went on to consider whether or not the
relationship between insurers
and the ICPB was a relationship that "ought sedulously to be
fostered," a key element underlying the right to common interest
privilege. Wilson J. Had the following comments:
"It would, in my view be contrary to the interests
of our adversary system to grant to the powerful insurance industry
the rights and the advantage of freely pooling information to ICPB
investigators without the obligation of it advising the plaintiff
of the nature of the information received. To do so would create
a very uneven playing field. The principles of waiver of privilege
are well founded. A litigant cannot take a position inconsistent
with privilege and maintain the privilege. To extend the principles
of common interest to the ICPB and its members in the insurance
industry would be a quantum leap from the limited extent of common
interest privilege developed to date in the case-law." (p.
In light of this judgment, insurers and their adjusters
should be careful in choosing what documents and information they
provide to the ICPB in the future. Rather that provide investigative
reports, it would be safer to simply provide summaries containing
the factual information which would, in any event, have to be disclosed
to an insured in litigation. This will avoid the risk of sensitive
privileged information being obtained by an insured in the course
of coverage litigation.
Re Supercom of California Ltd. and Sovereign Gen.
Ins. Co. (1998), 37 O.R. (3rd) 597 (Gen. Div.)
6. Bill S-4 Into Effect
On August 10, 1998 the new limitation of liability
provisions of the Canada Shipping Act came into effect.
For vessels less than 300 tons, the maximum liability
of a shipowner is $1,000,000 in respect of claims for loss of life
or personal injuries and $500,000 in respect of any other claims
(property). For claims involving a ship over 300 tons there are
increased limits which are tied to the ship's tonnage and based
on a formula. The greater the tonnage the greater the limitation
A person is not entitled to limit liability if it
is proved that the loss resulted from his or her personal act or
omission, committed with the intent to cause such loss, or recklessly
and with knowledge that such loss would probably result. This test
is similar to the "willful misconduct" test found in the
Carriage By Air Act which has been shown to be difficult to break.
The new Bill provides for special limitation amounts
for passenger claims which are not yet in force. Until then the
general limits set in the Bill apply.
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