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Newsletter > May 2014

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In this issue: 1.         News & Upcoming Events 2.         Beware of the “Covenant to Insure” in Contracts Involving the Storage of Your Goods 3.         Transportation of Oil by Rail 4.         Hold Harmless Clause Upheld

The three masted schooner Empire Sandy at the Harbour Front in Toronto for the January 2017 newsletter.

1. Firm and Industry News

  • Rui Fernandes will be representing the Firm at the 11th Shiparrested Convention in Hamburg on June 12-14, 2014.
  • Aerospark Press has just published Rui Fernandes’ release 2013-2 of Transportation Law.
  • Gordon Hearn will be representing the Firm at the Defence Research Institute Trucking Law Seminar in Las Vegas, Nevada on June 18-20 and at the Conference of Freight Counsel Meeting in Beaver Creek, Colorado on June 22-23, 2014.
  • Gordon Hearn has been appointed to the Executive Committee of the Transportation Lawyers Association to serve as a Voting Past President.


2. Beware of the “Covenant to Insure” in Contracts Involving the Storage of Your Goods

Introduction A plaintiff files a lawsuit against a defendant claiming damages for the loss of or damage to property entrusted to the defendant for safekeeping and storage. The essential elements of the claim are made out by the plaintiff:
1.   The plaintiff proves the contractual or ‘bailment’ relationship whereby on certain terms the defendant was to safeguard the property. 2.   The plaintiff can show that the loss of or damage to the property occurred while in the possession of the defendant. 3.   The plaintiff can establish that it suffered damages as a result and quantifies the amount of the damages.
Assume that the defendant, in turn, does not have a “positive” defence – that is, it cannot show that it complied with all of the safekeeping requirements and/or acted reasonably in accordance with its mandate.  Perhaps the specific cause of the loss or damage points directly to the defendant.  This would, at first blush, constitute a “ready made” case for recovery by the plaintiff. What if, however, in the underlying storage or bailment agreement the plaintiff and defendant agreed that the plaintiff would obtain property insurance over the property while in the possession of the defendant?   Could the plaintiff’s undertaking to insure its property amount to an assumption of risk of the very damage for which it sues, therefore providing a complete defence for the defendant? Yes, it can.  The recent Ontario Superior Court of Justice decision in Sanofi Pasteur Limited v. UPS SCS, Inc. and others (*1)provides an example where the owner of stored goods was found to have assumed the risk of loss to product entrusted to another by undertaking to procure property insurance that covered the loss event. Facts In April 2009 the plaintiff and the defendant UPS SCS Inc. (“SCS”) entered into a Master Services Agreement which incorporated service schedules pursuant to which SCS agreed to store vaccines belonging to the plaintiff in a temperature controlled environment.  SCS agreed to store the vaccines at a temperature between 2 degrees and 8 degrees Celsius. In June of 2009, SCS discovered that the cooler in which the vaccines were stored had malfunctioned, and that the temperature had dropped to -4.2 degrees Celsius.  At the time of the incident, the alarm notification system for the cooler was depressed due to the actions of an employee of an SCS affiliate with the result that the vaccines spent a weekend at an excessively low temperature.  The plaintiff contended that the vaccines were rendered unusable and claimed damages for $8.25 million against SCS and certain other defendants, being contractors engaged by SCS in connection with the provision of the storage services. Under the terms of the Master Services Agreement, the plaintiff agreed that it would insure its stored goods against the risk of loss.  This ‘covenant to insure’ provided as follows:
10.2 Client Insurance [The plaintiff] shall maintain in effect during the term of this Agreement and for a period of two years after the termination of this Agreement:
c) all-risk property or stock-transit insurance for the [vaccines] and the personal property of the plaintiff (or property for which the plaintiff is legally responsible) in an amount not less than the full replacement cost thereof, whether such (vaccines) or property are in the SCS facilities or in transit and shall include SCS as an additional insured.
The Master Services Agreement contained a provision that any consequential damages flowing from damage to or destruction of the vaccines could not be recovered by the plaintiff in the event of any loss. The Master Services Agreement also contained a limitation of liability clause limiting any liability on the part of SCS to $100,000.  SCS paid this amount to the plaintiff interests on terms that it was neither an admission of liability nor an advance payment made to obtain a release from liability and that the plaintiff could keep such funds regardless of the outcome of the lawsuit.(*2) The Lawsuit The plaintiff’s insurer commenced a subrogated lawsuit against SCS and certain other entities contracted by SCS in relation to the storage services offered to the plaintiff.  The defendant brought a motion for summary judgment on the basis that the law was clear that, in undertaking to procure the insurance in question, the plaintiff assumed the risk of the loss, which acts as a total defence to the claim.  The plaintiff resisted the motion for summary judgment raising various arguments:
1.   The “covenant to insure” does not exonerate the defendant from liability.  Rather, as the Master Services Agreement contains a clause limiting SCS’ liability, this clause indicates the parties’ intention that SCS be liable for the loss. 2.   The “covenant to insure” does not exonerate the defendant from liability by virtue of there being mutual insurance placement obligations under the Master Services Agreement.   In this regard, the plaintiff cited the following provision: 10.1  SCS Insurance SCS shall maintain the following insurance: a) commercial general liability including premises or operations, broad form property damage, independent contractors, warehouseman’s liability and contractual liability covering SCS’s obligations hereunder for bodily injury and property damage, with a combined single limit of not less than $5,000,000 USD each occurrence…
1.   The Master Services Agreement cannot be interpreted to exonerate the defendant from liability.  This would be “unconscionable”. 2.   In any event of the foregoing arguments, the plaintiff maintained that it could continue with its claims against the other [i.e. non-SCS] defendants.
Analysis The Court held that SCS was indeed exonerated from liability based on the “covenant to insure” and rejected the arguments raised by the plaintiff.  The Court also ruled that the plaintiff could not pursue the other defendants as they enjoyed the same protection as SCS by virtue of the “covenant to insure”. In its analysis, the Court addressed the following issues: 1.         The effect of the “covenant to insure”. The Ontario Court of Appeal has unequivocally held that “a contractual undertaking by the one party to secure property insurance operates in effect as an assumption by that party of the risk of loss or damage caused by the peril to be insured against”: Madison Developments Ltd. v. Plan Electric Co. (*3) It follows that, in the context of this matter (being a subrogated claim by the plaintiff’s insurer), the same result would follow binding the subrogating insurer since it should stand in no better position than the plaintiff in relation to the defendant:  Amexon Realty Inc. v. Comcheq  Services Ltd. (*4) The Court cited the established legal principle that a contractual undertaking by one party to place property insurance amounts to an assumption by that party of the risk of loss or damage – even where it can be said that the other party to the contract was responsible for the loss. In the Madison Developments decision, the Court of Appeal analogized the “covenant to insure” to a covenant by a landlord to obtain fire insurance for leased premises, noting that based on well established case law that “where the landlord covenants to obtain insurance against the damage to the premises by fire, the landlord cannot sue the tenant for a loss by fire caused by the tenant’s negligence…. There would be no benefit to the tenant from the covenant (to insure) if it did not apply to a fire caused by the tenant’s negligence”.    The court noted in the present case, likewise, that “where the plaintiff covenanted to obtain all-risk property insurance against damage to the stored goods, the plaintiff could not sue SCS for loss of those goods caused by SCS’s negligence.  As in the Madison Developments case, there would be no benefit to SCS from the covenant if it did not apply to loss or damage caused by SCS’s negligence or by that an agent for whom it is responsible”. The “all-risk” nature of the insurance in issue is important – it would [and, in fact, did, this being a subrogated claim] cover the very loss being the subject of the action.   The Court noted that the nature of “all-risk” coverage is not limited to a specific type or peril of damage, but rather it covers all situations in which the cause of damage is ‘fortuitous’.  The courts have made it clear that with this type of coverage obligation, there is no need to “prove the exact nature of accident or casualty which, in fact, occasioned the loss: British & Foreign Marine Insurance Co. v. Gaunt. (*5) The Court of Appeal has applied a “covenant to insure” clause to a situation where grain was ruined in storage due to overheating.  In Goderich Elevators Ltd. v. Royal Insurance Co. (*6),the Court indicated that, “the fact that grain became ‘heated’ grain while in the care and control of Goderich is exactly the kind of ‘fortuitous event’ that triggers the coverage of this all-risks policy”.  The Court noted in the present case that, “it stands to reason that if a covenant to insure prevents a warehouse from being held liable for overheated products, a similar covenant prevents a warehouse from being held liable for overcooled products.” The Court cited the Kruger Products Ltd. v. First Choice Logistics Inc. decision of the British Columbia Court of Appeal (*7) indicating that this type of arrangement reinforces what is called at paragraph 34 in that decision “tort immunity” flowing from a “covenant to insure”.  As the B.C. court stated “it would make no business sense for each subcontractor to pay premiums to duplicate the comprehensive fire coverage to be obtained by the contractor and there would be no purpose for a covenant on the latter’s part to obtain such insurance if it were not to protect the subcontractors caused by their own negligence”. 2.         The effect of the Limitation of Liability of $100,000 in the Master Services Agreement The Court of Appeal “read down”, or effectively ignored, this provision in light of the foregoing analysis.  The Court found that the “covenant to insure” displaces the risk that would otherwise be on SCS, which in any case would be capped by the limitation of liability provision: “just because SCS is responsible for a limited amount of the plaintiff’s loss does not mean that the allocation of risk for the overwhelming majority of the plaintiff’s losses is to be ignored.”   Analogizing SCS’s position to that of a tenant in a case where a landlord covenants to insure against fire and the tenant has an obligation to repair the premises under the same lease, the limited obligation of SCS “does not impose upon the tenant [or, here, upon SCS] any greater liability for fire caused by its negligence than exists in the absence of such a provision”: Economical Mutual Insurance CO. v. 1072871 Ontario Ltd. (*8) Rather, “the landlord’s covenant to insure is a covenant that runs to the benefit of the tenant, lifting from it the risk of liability for fire arising from its negligence and bringing that risk under insurance coverage”: Smith v. T. Eaton Co.  (*9) The limitation of liability in this case is thus analogous to the tenant’s “covenant to repair” contained in a lease in which a landlord has covenanted to insure.  As noted by Chief Justice Laskin in the T. Eaton case (*10) “the effect of this insurance obligation was to entitle the tenant to protection against the risk of loss by fire caused by its negligence, and this notwithstanding the repairing covenants.” 3.         Do the mutual insurance placement obligations under the Master Services Agreement nullify SCS’s reliance on the effect of the “covenant to insure”? The Court ruled that there was no “offset” of the effect of the “covenant to insure” by virtue of clause 10.1 in the Master Services Agreement.  The insurance coverages were in fact different.  Clause 10.1 (the SCS obligation to place liability insurance) addressed claims by third parties.  The insurance being the subject of the “covenant to insure” by the plaintiff in turn addressed damage or injury to the plaintiff’s property.    Accordingly, the fact that SCS had to have in place insurance to address the possibility of claims by third parties did not offset or affect the insurance to be put in place by the plaintiff insuring the property itself. If a third party sustained damage because of the negligence of SCS then SCS would bear the risk of that loss. 4.         Is the Master Services Agreement ‘unconscionable’ to the extent that SCS is exonerated for any claim by the plaintiff for negligence or breach of contract? The Court of Appeal made short shrift of this argument.  As noted by the Court, “this argument was born of despair rather than reason”.   The Court noted that the “covenant to insure” benefited both parties to the contract.  While SCS would be relieved of liability under the contract, the plaintiff would, by having the insurance in place, be indemnified for the loss.   Given that this was a subrogated action, the plaintiff had indeed been indemnified. The Court also noted that there was no inequality of bargaining power upon which the plaintiff could rely in pressing its unconscionability argument.  This is a necessary ingredient for any argument seeking to invalidate a specifically bargained covenant between contracting parties:  Tercon Contractors Ltd. v. British Columbia (Transportation and Highways). (*11) The Court also noted that, the plaintiff having identified itself in its pleading as an “international pharmaceutical company”.  Further noting that  “it is axiomatic that to render a contract or limitation clause invalid there must be evidence that the aggrieved party was in the power or control of the other to the extent that their will is overborne”. The Court found no evidence to suggest that such a large corporate party as the plaintiff suffered any unconscionable inequity in the making of the contract. In light of the foregoing the Court held that as a matter of contract law that the plaintiff could not sustain its action against SCS. 5.         Could the plaintiff, at any rate, continue its claims against the other [e.g. non-SCS] defendants? The Court held that the other defendants also benefited from the plaintiff’s “covenant to insure” as amounting to a bar to any action against them.  These defendants included the manufacturer of the temperature control system used in the SCS warehouse, the supplier and installer of the temperature control system and the contractor who calibrated and tested that system in the SCS warehouse. The Court noted that the plaintiff’s claims against these other defendants were ‘derivative’ of the same incident and the same damage as the claim against SCS.  Each of these defendants was alleged to have played a part, along with SCS, in the failure of the cooling and monitoring system.  The goods and services provided by these parties came within the scope of the Master Services Agreement. These other defendants accordingly had an “identity of interest” with SCS insofar as the covenant to insure was concerned.   Reverting again to a discussion on the analogous tenant – landlord case law, and the case where a landlord has “covenanted” to insure against fire, the Supreme Court of Canada stated in Agnew-Surpass v. Cummer-Young (*12) that “the ordinary concept of fire insurance does embrace fires caused by negligence and the fact is that the policy taken out by the lessor did insure against negligence, whether that of the lessee or others.”  The Court accordingly found that the covenant to insure acted as a bar to any liability of the other defendants who were contracted by SCS for it to service the goods covered by the plaintiff’s all-risk insurance. The Court of Appeal has specifically held that the contractual allocation of risk embodied in a “covenant to insure” extends to all claims related to the manifestation of that risk.  This would include SCS’ co-defendants, even though they were not parties to the agreement in which the covenant to insure is contained:  Williams-Sonoma Inc. v. Oxford Properties Group Inc.. (*13) The Court of Appeal noted that (contrary to the submissions by plaintiff’s counsel) that the doctrine of “privity of contract” does not apply in the situation of a “covenant to insure”.  In the first place, the privity of contract rule runs the risk of ignoring, or undermining the commercial realities of the relationship at issue: London Drugs Ltd. v. Kuehne & Nagel International Ltd. (*14) The Court noted that, in this case, SCS warehoused the plaintiff’s goods for a limited fee.  The indication was that the manufacturer, supplier and installer and monitoring company for the temperature control system earned only the ordinary fees for their supplies or services.  It “stretches commercial credulity” as the Supreme Court said in London Drugs, to suggest that the warehouse and its contractors, rather than the owner of the high value vaccines, would, under the carefully bargained Master Services Agreement, be responsible for their loss. The Court cited the Fraser River Pile & Dredge Ltd. v. Can-Drive Services Ltd. (*15) decision as authority for the proposition that whether a party is within or without the third party beneficiary rule (for the application of a clause in its favour found in a contract between others) turns on the intentions of the contracting parties – i.e.whether the parties intended to extend the benefit in question to a class of third party beneficiaries”. In this case, such intention can be measured by the fact that the acts of SCS’s co-defendants are the very activities at which the “covenant to insure” is aimed.  The Master Services Agreement contains, among other things, detailed provisions relating to temperature control for the vaccines, which confirms that the activities of the co-defendants – all of whom were sued because they were alleged to have played a role in the failure of the required temperature control mechanism – are the very activities at which the covenant aims. Accordingly, just as the plaintiff could not maintain its claim against SCS, it cannot maintain its claim against SCS’s co-defendants who take the benefit of the covenant to insure.  That covenant, as indicated above, protects SCS, and by extension, its co-defendants, by placing on the plaintiff the risk of the very losses at issue.  SCS was ‘responsible at law’ for the acts of the contractors that it retained to fulfill the temperature control requirements of the Master Services Agreement, which bring those parties within the benefit for which SCS contracted. (*16) In further justification of the practicality and logic for the above finding, the Court also noted that since SCS had protected itself against any claim by the plaintiff or its insurer, it “does not lie in the mouth of the other defendants to claim contribution (against SCS) in such a case”: Giffels Associates Ltd. v. Eastern Construction Co.. (*17)  Accordingly SCS could not be exposed through the back door by virtue of contribution and indemnity claims by its co-defendants when it has protected itself against liability through the front door by means of its contract with the plaintiff. As a result of the foregoing the plaintiff’s claim was dismissed as against all of the defendants. Conclusion The foregoing analysis is of great interest to both owners of goods and their property insurers.  Care must be taken by the owner when contracting storage services (or services involving a storage element not just being for the purpose of storage) in identifying its risk tolerance and how it wishes to manage that risk.  Property underwriters must take note of the possible implications regarding their rights of subrogation. Gordon Hearn Endnotes (*1)  2014 ONSC 2695 (CanLII) (*2) This raises a discussion concerning defence strategy in such matters that goes beyond the scope of this article.  Suffice to say, there is always a degree of risk associated with any such voluntary payment, calling for the utmost care and precision by the paying party in the ‘packaging’ and description of what any such payment is intended to be. (*3) 1997 CanLII 1277 (ON CA) (*4)1998 CanLII 3987 (ON CA) (*5)[1921] 2 AC 41 at 47 (HL) (*6) 1999 CanLII 3196 (ON CA) at para. 15 (*7) [2013] 3 WWR 45 (*8) 1998 CarswellOnt 4042 at para 12, affirmed 1999 CanLII 18664 (ON CA) (*9) [1978] 2 SCR 749 at 754. (*10) Ibid, at 755 (*11) [2010] 1 SCR 69, at paras. 121-123 (*12) [1976] 2 SCR 221 at 229-230 (*13) 2013 ONCA 2980 (*14)  [1992] 3 SCR 299 at para. 212 (*15) [1999] 3 SCR 108 at para. 32 (*16) See endnote *13 at para. 25 (*17) [1978] 2 SCR 1346 at 1355  

3. Transportation of Oil by Rail

On April 23rd, 2014 Transport Canada issued two Protective Directions regarding the transportation of crude oil (and other similar products) by rail in Canada. Protective Direction 33 provides that:
  1. No person shall offer for transport or import dangerous goods listed in 2) by rail, in a tank car, if one or more of the rail tank cars in a train are each filled to 10 per cent or more of its capacity, unless the person has an Emergency Response Assistance Plan (ERAP) approved in accordance with section 7 of the Act;
This Protective Direction No. 33 takes effect 150 days from the date of signing. Protective Direction 34 provides that:
  1. Every tank car owner, as defined in CGSB 43.147-2005 (as amended July 2008), must immediately identify each of its tank cars that meet the following criteria:
    1. The tank car is of stub sill design and of a CTC 111, DOT 111 or AAR 211 specification;
    2. The tank car shell is made of non-normalized ASTM A515 Grade 70 steel plates;
    3. The bottom shell of the tank car does not have exterior heater coils; and
    4. The bottom shell of the tank car is not continuously reinforced between the end of one of the stub sill’s reinforcing plate (stub sill cradle pad) to the end of the other stub sill’s reinforcing plate by reinforcing steel bars, steel plate or other structural shapes or by other structural elements such as a bottom discontinuity protection device.
  2. A tank car owner must ensure that every tank car it identifies in 1) is marked with the words “Do not load with dangerous goods in Canada/Ne pas charger de marchandises dangereuses au Canada” or similar words to that effect.
  3. No person shall offer for transport, transport, handle or import dangerous goods in a rail tank car that meets the description in 1) or has been marked in accordance with 2).
  4. Despite 3), any dangerous goods in a tank car identified in 1) in transport on the day before this Protective Direction takes effect must arrive at their final destination within 30 days of the day this Protective Direction takes effect, where they must immediately be unloaded and the tank car must be marked in accordance with 2).
  5. A tank car owner must provide the reporting mark of each car marked in 2) within 30 days of the day this Protective Direction takes effect, to Transport Canada.
This Protective Direction takes effect immediately upon signing. The Protective Directions arose from recommendations made on January 23, 2014, by the National Transportation Safety Board of Canada (NTSB). The NTSB made three recommendations to Transport Canada that were identical to those issued by its US counterpart, the US National Transportation Safety Board (NTSB) to improve the safe transport of crude oil by rail. The recommendations arise from the NTSB’s ongoing investigation into the July 6, 2013, disaster in Lac-Mégantic, Quebec, where an unattended unit train with 72 crude oil tank cars rolled down a hill and exploded upon derailing in the town’s centre, killing 47 people and destroying many buildings. Rui M. Fernandes  

4. Hold Harmless Clause Upheld

The recent decision in Neely v. MacDonald, 2014 ONSC 2866 demonstrates that Ontario courts are prepared to uphold hold harmless clauses. The claimant was a guest at a golf tournament hosted by Canadian Litigation Counsel Inc. (“CLCI”) in the summer of 2010. The tournament was held at a golf course owned by Clublink Corporation. The claimant was injured while she was a passenger in a golf cart driven by Kelly MacDonald. The claimant sued Ms. MacDonald and Clublink for negligence. Clublink claimed over against CLCI seeking to be indemnified under the terms of the agreement by which CLCI booked the tournament at Clublink’s course. Clublink and CLCI had entered into a contract governing the tournament that included the following clauses:
CUSTOMER IS LIABLE FOR ALL DAMAGE CAUSED BY CUSTOMER AND/OR THEIR GUEST(S) The Customer and/or their guest(s) agree to hold Clublink Corporation and its officers and employees free and harmless from any damage or claims of any nature that may arise from or through the use of a golf cart. It is the Customer/s and/or their guest(s) responsibility to fully understand the safe operating instructions of the golf cart and to return it immediately following completion of the round of golf in as good condition as was received.
The claimant claimed that Clublink’s negligence caused or contributed to her injury. The injury was said to have occurred when Ms. MacDonald lost control of the golf cart while driving down a steep hill on the golf course. Ms. MacDonald “bailed” from the golf cart leaving the golf cart with no driver. The claimant jumped out and was injured. CLCI claimed that Clublink’s liability to the claimant for negligence was clear because it knew of two prior minor incidents reported by drivers of golf carts who complained that their carts went too fast down that same hill. It was only after the claimant’s injury that Clublink remodeled the cart path to reduce the grade. CLCI claimed that it could not be held liable to indemnify Clublink under their agreement because the agreement did not expressly cover claims made against Clublink by third parties, claims for personal injury, or claims for loss based on Clublink’s own negligence. CLCI also argued that the indemnity clause applied only to damage to Clublink’s property by CLCI and its guests, particularly damage to golf carts. It came to this view based on the wording of the title and the second clause regarding user responsibility to return golf carts in good condition. The judge noted, however, that there was a need to consider the wording of the entire clause taken as a whole to discern objectively the intention of the parties from the words they used and the surrounding circumstances. The judge commented on the difference between an indemnity clause and an exclusion clause. An indemnity clause does not let a guilty party “escape” liability. Clublink’s right to indemnity, if any, was not a defence to its liability to the claimant. If the indemnifier did not pay or was insolvent, Clublink would not be reimbursed. The court noted that:
 “the intention of an indemnification clause is to try to shift the risk of loss. The loss may be shifted to an “innocent” party in the sense that the party did not commit the act that caused the loss, but the indemnifier has its own commercial reason to execute the indemnity. Labeling it “innocent” ignores that parties contract for their own commercial reasons. Perhaps, for example, a company has a desire to throw a golf tournament where people will have fun, play golf, eat, drink, and drive golf carts. The commercial benefit to the tournament sponsor may be sufficient for it to be willing to bear the risk of people being hurt in golf cart accidents if the golf course owner is not willing to do so. The tournament sponsor may have insurance for this very thing. The fact that the sponsor did not cause the loss that it undertakes to indemnify has little bearing on the interpretation of the terms of the indemnity.”
Justice Myers concluded that the indemnity clause was very broadly drafted and, by its express terms, it applied to more than just damage caused by guests to the property of Clublink. It referred to CLCI’s indemnification of Clublink from “any damage or claims of any nature that may arise from or through the use of a golf cart.” Justice Myers noted that, if all that was encompassed by this clause was CLCI paying for damage caused to golf carts, then the words “or claims” would be surplusage. The indemnification for “damage” protected Clublink from damage to its property. The word “claims” referred to claims made by people against Clublink, i.e. third parties. Moreover, damage caused “from or through the use of a golf cart” grammatically meant far more than just damage to the golf cart itself. In addition, the second clause already contained an obligation on guests to return carts in the same condition as received. If the indemnity clause meant no more than just that, then the entire clause was duplicative and meaningless. Justice Myers looked at the intention of the parties, stating:
To discern the intention of the parties, one need consider the meaning of all of the words used in the context of a commercial social event in 2009 – 2010. In the second clause CLCI undertakes responsibility for its guests “to fully understand the safe operating instructions of the golf cart”. The risk of safe driving therefore is allocated to CLCI. Personal injury claims are the most significant and most obvious risk associated with motor vehicle claims. Moreover with recent public attitudes and the law coalescing against drinking and driving, one can fairly assume that a golf course would not wish to take responsibility for the risk of guests drinking and driving golf carts. Mr. Dunn conceded that it is the sponsor of the tournament that has the best knowledge of its guests’ conduct and the best ability to police its guests. I conclude therefore that the indemnity clause includes at least the obligation of CLCI to indemnify Clublink for claims by third parties (i.e. guests) for personal injury associated with driving and use of golf carts.
Justice Myers commented that statutes now are interpreted under the general rule giving the words used their plain and ordinary meaning with all other presumptions and subsidiary rules applying only in cases of ambiguity or doubt. He added “So too with contracts. They are interpreted to discern the objective intention of the parties in accordance with the business sense of the words used by the parties.” The task of interpretation must begin with the words of the document and their ordinary meaning. However, the general context that gave birth to the document or its “factual matrix” will also provide the court with useful assistance. The court also commented that “where, as here, the document to be construed was a negotiated commercial document, the court should avoid an interpretation that would result in a commercial absurdity. Rather, the document should be construed in accordance with sound commercial principles and good business sense. Care must be taken, however, to do this objectively rather than from the perspective of one contracting party or the other, since what might make good business sense to one party would not necessarily do so for the other.” In conclusion Justice Myers stated:
The liability claimed in this case arises out of the normal use of a golf cart as driven every day by thousands of golfers at golf courses. CLCI undertook responsibility for its guests’ understanding the safe operation of the carts. It undertook to indemnify Clublink from any “claims of any nature that may arise from or through the use of a golf cart.” The most obvious claims are personal injury claims arising out of accidents in which case Clublink’s liability is necessarily tortious. While the title of the clause could be seen to suggest a limitation of liability to damage caused by guests, the wording actually used carries with it claims made against Clublink in tort in connection with the use of a golf cart. To hold otherwise is to undermine the business rationale of the clause to allocate the risk of safe operation of golf carts to CLCI by excluding the dominant type of claims one would expect to see arise from or through the use of a golf cart and leave the indemnity clause virtually with no application.
Clublink was entitled to be held harmless by CCLI. Rui M. Fernandes

This newsletter is published to keep our clients and friends informed of new and important legal developments. It is intended for information purposes only and does not constitute legal advice. You should not act or fail to act on anything based on any of the material contained herein without first consulting with a lawyer. The reading, sending or receiving of information from or via the newsletter does not create a lawyer-client relationship. Unless otherwise noted, all content on this newsletter (the “Content”) including images, illustrations, designs, icons, photographs, and written and other materials are copyrights, trade-marks and/or other intellectual properties owned, controlled or licensed by Fernandes Hearn LLP. The Content may not be otherwise used, reproduced, broadcast, published,or retransmitted without the prior written permission of Fernandes Hearn LLP.

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