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Newsletters > January 2008

In this issue:
1. Firm News
2. Athens Convention Limitation
3. Duty to Defend and Reservation of Rights Letters Revisited

1. Firm News

Fernandes Hearn LLP's 2008 Trucking and Logistics Seminar will be held on April 17, 2008 in Toronto, Ontario. Details are on our firm's News and Upcoming Events page at http://www.fernandeshearn.com/news_&_upcoming_events.htm.

Tentative Agenda:
9am - So You Didn't Issue a Bill of Lading!
930 - Freight Forwarders & Load Brokers
10 - Unwanted and Undeliverable Goods
1045 - Workers Compensation
1115 - Transportation to and from the USA
1145 - Freight Claims: Getting Paid
12 - Lunch

Location: Royal & Sunalliance Lecture Theatre, 10 Wellington St. East. For registration email info@fernandeshearn.com

On January 11, 2008 Gordon Hearn presented a paper "The Motor Carrier Liability Regime in Effect in Canada" at the annual Chicago meeting of the Transportation Lawyers Association. Over 200 attorneys from across the United States were in attendance.

Rui Fernandes will be speaking on Maritime Law in Canada and the U.S.A. at the University of Denver Law School on February 11th, 2008.

2. Athens Convention Limitation

The New Brunswick Court of Appeal recently reversed a trial judge's decision extending the time for a claimant to file a claim against a commercial marine operator. In MacKay v. Russell et al., [2006] NBQB 350 (N.B.Q.B.), reversed on appeal [2007] NBCA 55 (N.B.C.A.) a passenger on a whale-watching boat at sea off Grand Manan, New Brunswick was injured on August 3, 2003. While leaving the washroom she stumbled and fell upon a cooler. She fractured a bone in her leg. The cooler was the type used in camping, not a permanent structure on the vessel. The claimant commenced an action against the tour operator three years after the accident. At issue was whether the action was time barred under the Marine Liability Act (and the Athens Convention therein). The claimant argued that the relevant limitation period was six years under the provincial legislation, the Limitation of Actions Act (N.B.).

Counsel for the claimant argued that a slip and fall on a boat should be treated like any other slip and fall case and be dealt with under provincial law. He cited a slip and fall case on a boat where provincial law was applied: Peters v. A.B.C. Boat Charters Ltd. (1993), 98 D.L.R.(4th) 316 (B.C.S.C.).

In Peters the plaintiff fell through an open hatch in a boat that had been recently launched, was still under construction and was tied up at Granville Island in Vancouver. The boat was not at sea or in the course of navigation. The trial judge distinguished the Peters case. "In my view the plaintiff in Peters was not a "passenger" making a passage in that vessel; she was a guest at a construction site in the province that happened to be a boat."

The trial judge also referred to the recent decision of the Supreme Court of Canada in Isen v. Simms, [2006[ S.C.J. No. 41 [See our newsletter of October 2006]. In Isen, Dr. Stephen Simms suffered personal injuries when the metal hook at the end of a bungee cord struck him in the eye. The incident occurred while the respondent Isen was using the bungee cord to secure a part of his boat prior to towing it on the highway. The Supreme Court of Canada held that the action of placing a bungee cord was not an action involving navigation and shipping and provincial law applied.

The trial judge applied the principles stated in Isen and stated:
"In my opinion the safety of arrangements for the plaintiff as a passenger to move to and from the washroom of a vessel at sea in the course of navigation and the safe stowage aboard of items like coolers are matters involving a "standard of care … unique to the maritime context" on which a "uniform federal law … is practically necessary
Applying the principles of cases such as Isen v. Simms, I conclude that the plaintiff's claim in pith and substance is in relation to navigation and shipping and is to be decided according to federal law."

In applying federal law the trial judge then reviewed the application of the Maritime Liability Act.

Section 37 of the Marine Liability Act, S.C. 2001, c. 6 gives "the force of law in Canada" to the Athens Convention. Article 16 of the Athens Convention includes a two year limitation period for an "action for damages arising out of the death or personal injury of a passenger."

The trial judge then proceeded with a complex analysis of prior legislation, case law and concluded that he had jurisdiction to extend the limitation period in this case. It was this latter decision that the Court of Appeal for New Brunswick reversed. The Court of Appeal held that the trial judge lacked jurisdiction to extend the two-year limitation period set by Article 16(1) and that he erred in law in deeming the running of that period "suspended or interrupted". The Court of Appeal concluded that "That being so, and having regard to the uncontested facts, I find that Ms. MacKay's action is time-barred."

In finding the action time barred the Court of Appeal commented on the ability of a court to extend the limitation period under Article 16 of the Athens Convention:

"Similarly [to the Highway Traffic Act and the Professional Engineers Act of Ontario], Article 16 of the Athens Convention makes no provision for any court-ordered extension of the limitation period that it prescribes. That state of affairs is revealing of Parliament's intention, particularly when one considers that, as noted, another provision of the Marine Liability Act, s. 23, does make express provision for extending the limitation period that it describes. Another indicator of a parliamentary intention at odds with the decision in the court below emerges from Article 16(4). That provision addresses the issue of extending the limitation period set by Article 16(1) and identifies only two means by which such an extension can be effected: (1) a written declaration by the carrier; or (2) an agreement in writing executed by the parties after the cause of action has arisen."

Rui Fernandes

3. Duty to Defend and Reservation of Rights Letters Revisited

Case Comment on Russell Metals Inc. v. Ball Construction Inc. [2007] O.J. No. 4673.

This case involved a review of whether a duty to defend was triggered and whether a Reservation of Rights letter was appropriately issued and acted upon.

Russel Metals Inc. sued Ball Construction Inc. ("Ball") for damages for the cost of correcting deficiencies in the structure of a building, lost productivity and the costs incurred in investigating the building deficiencies totaling $5,000,000.00. The action made allegations against Ball, the general contractor, and its subcontractors. There was some question as to whether one subcontractor had a separate contract from Ball's contract. Ball added Aviva Insurance ("Aviva") as a third party alleging that Aviva owed indemnity and a defence for Ball. Aviva brought the within motion before Justice Allen to determine the issue of whether it owed a duty to defend and, if not, to strike the third party claim. Aviva appointed defence counsel for Ball pursuant to a Reservation of Rights letter. The CGL policy, in this case, would only respond if the damage done was to work other than Ball's, which was excluded under the policy.

Regarding the duty to defend, Justice Allen applied the test from Nichols v. American Home Assurance Co. (1990) 1 S.C.R. 801 which provided that a duty to defend was much broader than a duty to indemnify and that "the mere possibility that a claim within the policy might succeed suffices". The CGL policy at issue would have to include no applicable exclusion and the claim need only raise a possibility that the incident resulting in damage was to work other than that of Ball.

Justice Allen held that this was not a case to review extrinsic evidence to determine whether there was a duty to defend as had been permitted in Monenco Ltd. v. Commonweath Insurance [2001] 2 S.C.R. 699. Justice Allen held that any examination of whether one subcontractor had an independent contract with the plaintiff including any review of associated reports in that regard would require factual findings and were contentious issues. As such, it was appropriate for the court to look only at the Statement of Claim and not pleadings filed by other parties as same would again advance other contentious facts and issues. Allen J. found that the allegations in the Statement of Claim were clearly directed against the work of Ball and its subcontractors.

Ball also claimed prejudice resulting from Aviva's Reservation of Rights letter pursuant to which Aviva had appointed defence counsel but also had delineated coverage issues and asserted a need for further investigation.

Justice Allen considered the elements delineated in the Rosenblood Estate v Law Society of Upper Canada (1989) 37 C.C.L.I. 142 (Ont. H.C.) affirmed Ont. CA (1992) 16 C.C.L.I. (2d) 226 which required timely advice and action by insurers issuing Reservation of Rights letters. Justice Allen examined Aviva's use of the Reservation of Rights letter and found that Aviva had retained counsel for Ball very quickly. Aviva had issued a Reservation of Rights letter shortly thereafter that clearly informed Ball of Aviva's concerns regarding coverage and that investigation was required.

Justice Allen further dismissed Ball's claims of prejudice that service by Aviva's appointed defence counsel of a Response to Demand for Particulars failed to address key property damage issues (which could have established whether the policy was triggered) and that such failure stymied Ball's ability to serve a second such Demand. Justice Allen found that Ball could not have relied to its detriment on Aviva in this regard as Ball knew it could retain its own counsel in light of the Reservation Rights letter. Further, there was no rule or substantive law to preclude Ball from further serving another Demand.

Justice Allen ordered that Aviva's policy did not have to respond.

Insurers should always keep timely issuance and action in mind regarding Reservation of Rights letters. Such letters should be issued as soon as coverage issues arise and should not be forgotten. Waiting too long to take an off coverage position may very well result in a finding of prejudice and the insurer may be estopped from doing so.

Kim Stoll

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