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Newsletters
> November 2002
"Pay to be paid" provisions in non-mutual
marine liability policies are to be interpreted in the same manner
as "pay to be paid" provisions in mutual insurance policies.
Walter A. Conohan and Eastern Marine Underwriters
Inc. v. the Cooperators, 2002 FCA 60 (released February 11,
2002)
There was a collision between vessels A and B. Vessel
B was insured under a marine liability policy issued by Cooperators
to G, vessel B's owner and master. C, the owner of vessel B, and
EMU, C's insurer, sought repayment from G. Cooperators refused to
pay for vessel A's damages (repairs and loss of use) until there
was a finding of liability against G and G paid for C's losses.
G did not have the money to pay. C and EMU threatened to sue G.
G admitted that the collision was his fault due to his errors in
navigation and failing to keep an adequate lookout. He assigned
his rights under his Cooperators policy, in respect of the claims
against him and vessel B, to C.
C and EMU then sued Cooperators on G's policy seeking
reimbursement. Their action was dismissed at trial. The dismissal
was affirmed on appeal.
The case deals with the collision liability coverage
provided by clause 16 of the Fishing Vessel Wording Rider. The Federal
Court of Appeal, agreeing with and applying U.K. decisions, held
that a clearly worded "pay to be paid" requirement in
a non-mutual insurance policy is to receive the same interpretation
it would in a mutual insurance policy. The insured must first pay
in order to be repaid. The Court stated that "the ordinary
meaning of the words employed in the clause plainly required that
payment first be made to the third party as a condition precedent
to recovery." The relevant portion of the clause 16 of the
Fishing Vessel Wording Rider is:
It is further agreed that if the vessel hereby insured
shall come into collision with any other vessel and the insured
shall in consequences thereof become liable to pay and shall pay
by way of damages to any other person or persons any sum or sums
in respect of such collision for ... [damage to the other vessel,
property on the vessel, general average, salvage, etc] the insurer
will pay the insured such sums so paid ..." [emphasis added]
The Court also affirmed the principle that the insured's
impecuniousity is not grounds for the court to ignore a clearly
stated "pay to be paid" requirement. The remedy in equity,
which in the absence of an express pay to be paid requirement might
otherwise permit the insured to enforce the policy obligation to
indemnify for insured liability without first paying, does not apply.
D.C.
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