Universal Sales Ltd. et al. v. Edinburgh Assurance Co. et al., (2012) 408 F.T.R. 29 (FC)

• Judge: Harrington, J.
• Court: Federal Court (Canada)
• Case Date: April 12, 2012
• Jurisdiction: Canada (Federal)
• Citations: (2012), 408 F.T.R. 29 (FC);2012 FC 418

Universal Sales v. Edinburgh Assurance (2012), 408 F.T.R. 29 (FC)

MLB headnote and full text

[French language version follows English language version]

[La version française vient à la suite de la version anglaise]

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Temp. Cite: [2012] F.T.R. TBEd. MY.024

Universal Sales, Limited, Atlantic Towing Limited, J. D. Irving, Limited, Irving Oil Company, Limited and Irving Oil Limited (plaintiffs) v. Edinburgh Assurance Co. Ltd., Orion Insurance Co. Ltd., British Law Insurance Co. Ltd., English & American Ins. Co. Ltd., Economic Insurance Co. Ltd., Andrew Weir Ins. Co. Ltd., Insurance Co. of North America, London & Edinburgh General Ins. Co. Ltd., Ocean Marine Ins. Co. Ltd., Royal Exchange Assurance, Sun Insurance Office Ltd., Sphere Insurance Co. Ltd., Drake Insurance Co. Ltd., Eagle Star Insurance Co. Ltd. and Stephen Roy Merritt, as Representative of Underwriters Subscribing to Lloyd's Policy No. 614/B94656-A/1582 (defendants)

(T-1148-01; 2012 FC 418; 2012 CF 418)

Indexed As: Universal Sales Ltd. et al. v. Edinburgh Assurance Co. et al.

Federal Court

Harrington, J.

April 12, 2012.

Summary:

The marine insurance in issue was excess third party liability cover, split between various syndicates and companies. The plaintiffs (the "Irving Group") sought indemnity from the defendant underwriters for sums paid to the Canadian government in settlement of an action for the cost of refloating the tank-barge Irving Whale and her cargo of Bunker C fuel oil, for the cost of defending that action, and for sue and labouring expenses allegedly incurred on the underwriters' behalf. The underwriters denied liability. They took the position that the Irving Group were not liable, or, if they were, their liability was not covered by the policies. The limit on liability coverage was $5 million.

The Federal Court was satisfied that one or more of the Irving Group would have been found liable in public nuisance to an amount in excess of $5 million. The court determined that the principal amount of the liability of the excess underwriters was $4,946,001.86 ($4,508,501.86 in liability plus $437,500 in defence costs), on a several, but not joint, basis. The percentage liability of the three defendant companies which did not defend was 7.595% or $375, 648.84. The defending underwriters were liable for 92.405% or $4,570,353.02.

Crown - Topic 1581

Torts by and against Crown - Nuisance - General - [See third Insurance - Topic 8346 ].

Insurance - Topic 1124

The insurance contract - The policy - Definition - "Claims made" v. "occurrence" policy - [See eighth Insurance - Topic 8346 ].

Insurance - Topic 8346

Marine insurance - Duties of insurer - To reimburse insured for costs of protecting insurer's interests (incl. sue and labour clauses) - The marine insurance in issue was excess third party liability cover, split between various syndicates and companies - Sections 79 and 80 of the Marine Insurance Act provided that if a marine policy contained a sue and labour clause, there was in fact supplementary insurance so that the insured might recover expenses properly incurred even if the underwriter had paid for a total loss - An insured was duty bound to take "such measures as are reasonable for the purpose of averting or diminishing a loss under the marine policy" - The Federal Court stated that "[t]he insertion of a sue and labour clause is thus to benefit the underwriters. The quid pro quo is that the insured will be indemnified for expenses reasonably incurred which had the potential of benefiting the underwriter" - See paragraphs 27 and 28.

Insurance - Topic 8346

Marine insurance - Duties of insurer - To reimburse insured for costs of protecting insurer's interests (incl. sue and labour clauses) - The plaintiffs (the Irving Group) sought indemnity from the defendant excess underwriters, on policies written in 1970, for sums paid to the federal Crown in 2000 in settlement of an action for the cost of refloating the tank-barge Irving Whale and her cargo (Bunker C fuel oil) in 1996 - The Federal Court dismissed the sue and labour portion of the claim - The sue and labour expenses began in 1995 - At that time, the Irving Group knew the Crown had let out a contract for $12.8 million, and had been provided by the Crown with a 1992 report in which the combined costs of preventative measures and cargo extraction were estimated as being in excess of $21 million - Consequently, the sue and labour expenses incurred in 1995 and 1996 could not possibly have benefited the underwriters, as the limit of their liability, if any, was $5 million - See paragraphs 27 to 30.

Insurance - Topic 8346

Marine insurance - Duties of insurer - To reimburse insured for costs of protecting insurer's interests (incl. sue and labour clauses) - The plaintiffs (the Irving Group) sought indemnity from the defendant excess underwriters, for sums paid to the federal Crown in settlement of an action for the cost of refloating the tank-barge Irving Whale and her cargo of Bunker C fuel oil - The limit of the underwriter's liability, if any, was $5 million - The underwriters asserted that as no proper "ascertainment" was made among the various heads of claim, the Irving Group were not entitled to recover anything - The Federal Court was satisfied that one or more of the Irving Group would have been found liable in public nuisance to an amount in excess of $5 million - "Although the Courts discourage self-help remedies, in this case, it was the community at large, through the Crown, that took the necessary steps to remove the nuisance" - Further, "if the claim does not fall within Canadian Maritime Law as it now is, it would be permissible to incrementally make a change thereto so as to hold that the Crown may delay in abating a public nuisance, without calling upon the creator of that nuisance to remove it" - See paragraphs 33 to 43.

Insurance - Topic 8346

Marine insurance - Duties of insurer - To reimburse insured for costs of protecting insurer's interests (incl. sue and labour clauses) - In 1970, the Irving Whale, under tow of the tug Irving Maple, sank, along with her cargo of Bunker C fuel oil - She lay below the surface for 26 years, until the federal Crown raised her - The Crown took action against the Irving Group, among others - Although the Irving Group eventually settled, they never admitted any liability - The Irving Group sought indemnity from the defendant excess underwriters, for the $4,709,501.86 paid to the Crown - The court was called upon to determine, inter alia, if any member of the Irving Group was liable to the Crown, and if that liability was covered by the policies - The Federal Court opined that Irving Oil Co., Ltd. and its successor were not covered by the policy: they did not own, charter, operate, or use either the tug or tow; their cargo was simply onboard - The sum paid to the Crown did not cover any liability on the part of Irving Oil: it was not the polluter and its potential liability to the Crown was too remote - As to which members of the Irving Group would have been found liable, Atlantic Towing, the bareboat charterer of the Irving Whale, was the polluter - It created the public nuisance - See paragraphs 44 to 48.

Insurance - Topic 8346

Marine insurance - Duties of insurer - To reimburse insured for costs of protecting insurer's interests (incl. sue and labour clauses) - The plaintiffs (the Irving Group) sought indemnity from the defendant excess underwriters, for sums paid to the federal Crown in settlement of an action for the cost of refloating the tank-barge Irving Whale and her cargo of Bunker C fuel oil - The limit of the underwriter's liability, if any, was $5 million - The underwriters, on the premise that the liability, if any, of the Irving Group was much greater than $5 million, submitted that the settlement should be apportioned between the insured and uninsured portion of the claim - The Federal Court stated that "[t]his reasoning is flawed. It is based on the principle of underinsurance which applies to goods, not to liabilities. Section 88 of the Marine Insurance Act provides that if the insurance is less than the value of the subject matter insured, the insured is deemed to be self-insured with respect to the uninsured portion. ... This principle does not apply to a third party liability policy." - See paragraphs 49 to 51.

Insurance - Topic 8346

Marine insurance - Duties of insurer - To reimburse insured for costs of protecting insurer's interests (incl. sue and labour clauses) - The plaintiffs (the Irving Group) sought indemnity from the defendant excess underwriters, on policies written in 1970, for sums paid to the federal Crown in 2000, in settlement of an action for the cost of refloating the tank-barge Irving Whale and her cargo (Bunker C fuel oil) in 1996 - The limit of the insurance coverage was $5 million - Following the $5 million settlement, both the Crown and the Irving Group issued press releases - The underwriters argued that the payment in whole or in part was gratuitous - The Federal Court disagreed - The public nuisance (oil pollution) continued, and so the action was not time-barred under that heading - The six-year limitation under s. 39 of the Federal Courts Act had no application as no part of the Crown's claim was for damage suffered more than six years before the refloating - "Undoubtedly, the Irving Group were conscious of their public image. However, in my opinion no part of the settlement should be considered as being gratuitous." - See paragraphs 52 to 54.

Insurance - Topic 8346

Marine insurance - Duties of insurer - To reimburse insured for costs of protecting insurer's interests (incl. sue and labour clauses) - The plaintiffs (the Irving Group) sought indemnity from the defendant excess underwriters, on policies written in 1970, for sums paid to the federal Crown in 2000 in settlement of an action for the cost of refloating the tank-barge Irving Whale and her cargo (Bunker C fuel oil) in 1996 - The court was called upon to determine, inter alia, whether the Irving Group's liability (if any) would have exceeded the $5 million limit of the insurance coverage - The Federal Court found that the settlement was reasonable and made in contemplation of the likelihood that one or more of the Irving Group would have been found liable in excess of that amount should the matter have gone to trial - "[U]nder the law at the time, the burden of establishing entitlement to limit liability lay with the Irving Group. They had to show that the accident occurred without 'the actual fault or privity' of a directing mind of the corporations - The basis of the 'actual fault or privity' provisions of the Canada Shipping Act was the 1957 Limitation Convention. Although it had been replaced in Canada before the settlement by the 1976 Convention and the 1996 Protocol, as a result of transitional provisions the old law still applied to this case. The jurisprudence was such that it was fairly easy to break limitation" - See paragraphs 59 and 60.

Insurance - Topic 8346

Marine insurance - Duties of insurer - To reimburse insured for costs of protecting insurer's interests (incl. sue and labour clauses) - The plaintiffs (the Irving Group) sought indemnity from the defendant underwriters, on policies written in 1970, for sums paid to the federal Crown in 2000 in settlement of an action for the cost of refloating the tank-barge Irving Whale and her cargo (Bunker C fuel oil) in 1996 - The underwriters submitted that the claim fell outside the coverage, as the public nuisance in this case was a continuing tort, creating a new cause of action - It followed, the underwriters asserted, that the Crown was claiming for expenses incurred in 1995 and 1996, based on a new cause of action, which did not occur within the time frame of the policies - The Federal Court disagreed - The policies did not deal with the creation of causes of action, but with accidents or occurrences - The accident or occurrence was the sinking of the Irving Whale during the policy year - It did not matter that the damage was only suffered many years later - "Indeed, this is the reason why many recent policies are written on a 'claims made' basis rather than on an 'occurrence' basis" - See paragraphs 63 to 67.

Insurance - Topic 8346

Marine insurance - Duties of insurer - To reimburse insured for costs of protecting insurer's interests (incl. sue and labour clauses) - This action was only concerned with excess third party liability - While there was no contractual duty on the part of the defendant excess underwriters to defend, it was agreed that it was lawful for the insured to sue, labour and defend any claim - The Federal Court opined that there was a distinction between defence costs and sue and labouring costs, in that "the expenses claimed as sue and labouring could not possibly have benefitted the underwriters, while the cost of defending, as long as the claim fell under the policy, is recoverable" - See paragraph 69.

Insurance - Topic 8346

Marine insurance - Duties of insurer - To reimburse insured for costs of protecting insurer's interests (incl. sue and labour clauses) - The plaintiffs (the Irving Group) sought indemnity from the defendant underwriters, on policies written in 1970, for sums paid to the federal Crown in 2000 in settlement of an action for the cost of refloating the tank-barge Irving Whale and her cargo in 1996 - The limit of the insurance coverage was $5 million - The total amount claimed for defence costs was some $1.8 million - Of that amount, $1,681,959.67 related to legal fees - When Osler, Hoskin & Harcourt had to withdraw from the record because of a conflict of interest, they recommended Ogilvy Renault - The legal fees and disbursements paid to Ogilvy Renault amounted to $1,168,242.67 - The underwriters submitted that the Irving Group agreed to absorb those fees no matter what - The Federal Court, on the evidence, disagreed - In the end result, the court made some minor adjustments on the legal fees and other expenses - There was some overlap when Ogilvy Renault took over the file - Roughly speaking, the court considered it appropriate that $50,000 be deducted from the defence costs, and so fixed that figure at $1,750,000 - See paragraphs 70 to 81.

Insurance - Topic 8346

Marine insurance - Duties of insurer - To reimburse insured for costs of protecting insurer's interests (incl. sue and labour clauses) - In 1970, the Irving Whale sank, along with her cargo of fuel oil - She lay below the surface for 26 years, until the federal Crown raised her - In 1997, the Crown sued the Irving Group, and claimed in excess of $42 million - The Irving Group sought indemnity from the defendant underwriters, for the $4,709,501.86 paid to the Crown in settlement of the action - The total amount fixed for defence costs was $1.75 million - The Federal Court addressed the "vexing" issue that, as the Irving Group were defending an action for more than $42 million, "[i]s it reasonable that the underwriters bear the entire cost thereof? ... I am of the opinion that a division should be made, and it matters not whether it is based on an analogy to underinsurance or to defence of both insured and uninsured claims, the excess over $5 million being uninsured" - The Crown would not have succeeded in its action for the costs it incurred in 1995 - That left a claim of about $24 million - "Somewhat arbitrarily, I fix the claim at $20 million for defence purposes. It follows that the underwriters should pay 25%, and the Irving Group absorb 75%" - See paragraphs 82 to 84.

Insurance - Topic 8346

Marine insurance - Duties of insurer - To reimburse insured for costs of protecting insurer's interests (incl. sue and labour clauses) - The Federal Court fixed the defendant underwriters' liability for defence costs - No average adjustor had testified - The court stated that "[i]t would have been helpful to the Court to have had the opinion of an average adjuster. These professionals deal on a daily basis with such matters as losses spread over several years and several policies, general average, particular average, particular charges, deductibles, sue and labour, underinsurance, excess insurance, double insurance, and reinsurance" - See paragraph 84.

Cases Noticed:

Ultramar Canada Inc. v. Mutual Marine Office Inc. et al., [1995] 1 F.C. 341; 82 F.T.R. 1; 1994 A.M.C. 2409 (T.D.), refd to. [para. 23].

Attorney General v. P.Y.A. Quarries Ltd., [1957] 1 All E.R. 894; [1957] 2 Q.B. 169, refd to. [para. 39].

Southport Corp. v. Esso Petroleum Co., [1954] 2 Q.B. 182; [1954] 1 Lloyd's Rep. 446, revsd. [1956] A.C. 218; [1955] 2 Lloyd's Rep. 665; [1955] 3 All E.R. 864 (H.L.), refd to. [para. 39].

R. v. Ship Sun Diamond, [1984] 1 F.C. 3, refd to. [para. 41].

Letang v. Cooper, [1964] 2 Lloyd's Rep. 339; [1964] 2 All E.R. 929, refd to. [para. 42].

Canadian National Railway Co. et al. v. Norsk Pacific Steamship Co. and Tug Jervis Crown et al., [1992] 1 S.C.R. 1021; 137 N.R. 241, refd to. [para. 43].

London Drugs Ltd. v. Brassart and Vanwinkel, [1992] 3 S.C.R. 299; 143 N.R. 1; 18 B.C.A.C. 1; 31 W.A.C. 1, refd to. [para. 43].

London Drugs Ltd. v. Juehne & Nagel International Ltd. - see London Drugs Ltd. v. Brassart and Vanwinkel.

Bow Valley Husky (Bermuda) Ltd. et al. v. Saint John Shipbuilding Ltd. et al., [1997] 3 S.C.R. 1210; 221 N.R. 1; 158 Nfld. & P.E.I.R. 269; 490 A.P.R. 269, refd to. [para. 43].

Ordon et al. v. Grail, [1998] 3 S.C.R. 437; 232 N.R. 201; 115 O.A.C. 1, refd to. [para. 43].

Fraser River Pile & Dredge Ltd. v. Can-Dive Services Ltd., [1999] 3 S.C.R. 108; 245 N.R. 88; 127 B.C.A.C. 287; 207 W.A.C. 287, refd to. [para. 43].

Robert v. Portage LaPrairie (City), [1971] S.C.R. 481, refd to. [para. 53].

Ship Rhone v. Ship Peter A.B. Widener et al., [1993] 1 S.C.R. 497; 148 N.R. 349; 101 D.L.R.(4th) 188, refd to. [para. 59].

Société Telus Communications et al. v. Peracomo Inc. et al. (2011), 389 F.T.R. 196; 2011 FC 494, refd to. [para. 59].

Lumberman's Mutual Casualty Co. v. Bovis Land Lease Ltd., [2004] E.W.H.C. 2197; [2005] 1 Lloyd's Rep. 494 (Comm. Ct.), disagreed with [para. 62].

Enterprise Oil Ltd. v. Strand Insurance Co., [2006] E.W.H.C. 58; [2007] Lloyd's Rep. I.R. 186, refd to. [para. 62].

Omega Poteins Ltd. v. Aspen Insurance U.K. Ltd., [2010] E.W.H.C. 2280; [2011] Lloyd's Rep. I.R. 183, refd to. [para. 62].

Reid Crowther & Partners Ltd. v. Simcoe & Erie General Insurance Co., [1993] 1 S.C.R. 252; 147 N.R. 44; 83 Man.R.(2d) 81; 36 W.A.C. 81, appld. [para. 66].

Remo Imports Ltd. v. Jaguar Cars Ltd. et al. (2007), 367 N.R. 177; 2007 FCA 258, refd to. [para. 71].

Lefeunteum v. Beaudoin (1897), 28 S.C.R. 89, refd to. [para. 77].

World Marine & General Insurance Co. v. Leger, [1952] 2 S.C.R. 3, refd to. [para. 77].

Borthwick v. Johnson et al., [1997] B.C.T.C. Uned. 402 (S.C.), refd to. [para. 77].

Doyle v. Olby (Ironmongers) Ltd., [1969] E.W.C.A. Civ. 2; [1969] 2 All E.R. 119, refd to. [para. 81].

Royal Boskalis Westminster NV v. Mountain, [1997] E.W.C.A. Civ. 1140; [1997] 2 All E.R. 929 (C.A.), refd to. [para. 82].

Statutes Noticed:

Marine Insurance Act, S.C. 1993, c. 22, sect. 79, sect. 80 [para. 27].

Authors and Works:

Bennett, Howard, The Law of Marine Insurance (2nd Ed. 2006), p. 23.51 [para. 51].

Halsbury's Laws of England (5th Ed. 2010), vol. 78, Nuisance, p. 99 [para. 38].

Mayers, Edward C., Admiralty Law and Practice in Canada (1st Ed. 1916), p. 272-73 [para. 61].

McGuffie, Kenneth C., Fugeman, P.A., and Gray, P.V., British Shipping Laws, vol. 1, Admiralty Practice (1964), para. 1224 [para. 61].

Strathy, George R., and Moore, George C., Law & Practice of Marine Insurance in Canada (2003), p. 179-180 [para. 29].

Counsel:

John MacDonald and Mary Paterson, for the plaintiffs;

Peter Cullen and Matthew Liben, for the defendants.

Solicitors of Record:

Osler, Hoskin & Harcourt LLP, Toronto, Ontario, for the plaintiffs;

Stikeman Elliott LLP, Montreal, Quebec, for the defendants.

This case was heard at Montreal, Quebec, on February 20-24 and February 27-29, 2012, before Harrington, J., of the Federal Court, who delivered the following reasons for judgment and judgment, dated April 12, 2012.