The Academy of Economic StudiesBusiness Administration Faculty

Marine Insurance

Students : Custura Ruxandra-Gabriela (139)

Imre Botond (139)

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Table of contents

History………………………………………………………………………………………………...…….3

Theoretical aspects………………………………………………………………………………………….4

Case study……………………………………………………………………………………..……………8

Conclusions………………………………………………………………………………………………..15

Bibliography……………………………………………………………………………………………….16

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Chapter 1. History

Marine insurance is considered to be the first form of insurance, its beginning dating back to Antiquity. Its apparition, as the first form of insurance, is explained through the strong connection between commerce and marine navigation, since the discovery that ships, people and merchandise are exposed to high risks.

It has a colourful history, beginning informally in England during the 17th century. In 1906, the Marine Insurance Act was passed under British law, creating a standard operating procedure for policies that dictates the world's policies to this day. The standards set forth by the act are considered reasonable, but due to changes in technology and social standards, the act is generally seen as obsolete and is being replaced by more modern legislature.

Its apparition, as its form of insurance, is explained through the tight connection between commerce and marine navigation, being discovered that human lives and goods were exposed to high risks. Across time, the owners of the ships were the same with those of the merchandise and, as a consequence, there was only one policy insurance which covered both the merchandise and the ship. This thing was possible because the interest belonged to the same person. Eventually, it has overcome to a specialization determined especially by the evolution of commerce, leading to a separation between persons interested in the goods and shops.

The freight that is paid in advance is insurable by the ship owner, and also the shipper could insure the fright owed at the arrival of the merchandise.

Every type of marine insurace needs to get an individual evaluation. This individual evaluation depends on many different factors, like: the nature, the dimension and the value of the risk. Also the insurance premium when it is computed it depends a lot on quality of the ship or the quality ofthe merchandise, or even according to the sdestination route.

In Italy the first marine insurance was made in the 13th century in Genoa and Palermo, but nobody knows whether this type of insurance was introduces in the Londos insurance market by the italians.

The early form of marine insurance was the bottomry loan. It became very fashionable when trading with the French. Basically this was a loan employed by the Italians to finance the voyage. The security was the pledge of the ship. If the voyage was successfull the load was repaid, even with interest. In case the ship was damaged or lost then this loan was not refunded.

Nowadays bottomry is understood as covering both ship and cargo, a similar contract that covers just the cargo alone was called the respondentia bond.

1574 was the first time when the English used the ’’Italian form of the insurance contract’’. The first contracts were negotiatied by general brokers , and were concluded by English traders. Back then in 1574 there were only 13 general brokers that helped public authorities to issue similar insurance policies.

In 1576 there was a big step made in insurance market, when the Chamber of Assurance was set up. This was when the insurance policies started to get compulsory. They negotiatied and set up the terms and the clauses of an insurance contract in case of a legal dispute.

Even in the 17th certury maritine insurance was still made by general brokers in England, especially in Royal Exchange. Royal Exhange was a market for all insurance operations.

But in the same time Antwerp, Amsterdam and Hamburg developed an restricted the English market to local risks and trade with British Islands.

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The MARINE INSURANCE ACT from 1906 is basically considered the ’bible’ of marine insurance in England. This stipulates, regulates all procedures and policies to be used by all insurers in the case of maritine insurance.

Chapter 2. Theoretical aspects

A private ship owner who uses his large boat for pleasure cruising in a marina may wish to take out inland marine insurance, as well as specialty yacht insurance. A merchant ship sailing in politically unsure waters may find it necessary to take out cargo insurance as well as a specific war policy that protects the boat and goods in the event of unfriendly actions. Marine insurance is often available through general insurance companies, and many car insurance dealers offer discounts to those who pay for more than one policy through their company. There are also dealers who work singularly in this area and only offer marine boat insurance. Policies can be broken down to cover only the boat, only the cargo, or both; most do not include coverage of objects on the boat that are not required for the ship's operation, such as computers, cell phones, or other types of valuables.

The rates of a marine insurance company vary depending upon the type of boat, size of boat, use of boat and the owner's current insurance history. Some policies may have stipulations on what they will and will not cover, and how much of the damages the owner of the boat is required to pay out of pocket. As with other types of insurance, it is almost always best to look at more than one policy before deciding on which to buy. Purchasers should be aware that the necessity for watercraft insurance varies by country and region.

The subject of Marine Insurance is very wide and encompassing, which is why there is a definite categorization of various types of marine insurance and different types of marine insurance policies. As per the needs, requirements and specifications of the transporter, an appropriate type or types of marine insurance can be narrowed down and selected to be put into operation.

According to them the object of a similar contract is ’marine adventure’, and this object refers to:

1. ’The insurance goods’ - this refers to any merchandise or movable good that could be exposed to marine risk.

2. Any revenue that is coming from freight, custom taxes, commission, profit, financial interest that could be jeopardized as a result of exposure of goods to marine risk.

3. Any third party liability towards the ship owne, or any other interested party, as a result of maritine risk.

The types of marine insurance available for the benefit of a client are many and all of them are feasible in their own way. Depending on the nature and scope of a client’s business, he can opt for the best marine insurance plan and enjoy the advantage of having marine insurance.

Cargo Insurance: Cargo insurance caters specifically to the cargo of the ship and also pertains to the belongings of a ship’s voyagers.

Hull Insurance: Hull insurance mainly caters to the torso and hull of the vessel along with all the articles and pieces of furniture in the ship. This type of marine insurance is mainly taken out by the owner of the ship in order to avoid any loss to the ship in case of any mishaps occurring.

Liability Insurance: Liability insurance is that type of marine insurance where compensation is sought to be provided to any liability occurring on account of a ship crashing or colliding and on account of any other induced attacks.

Freight Insurance: Freight insurance offers and provides protection to merchant vessels’ corporations which stand a chance of losing money in the form of freight in case the cargo is lost due to

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the ship meeting with an accident. This type of marine insurance solves the problem of companies losing money because of a few unprecedented events and accidents occurring.

In addition to these types of marine insurance, there are also various types of marine insurance policies which are offered to the clients by insurance companies so as to provide the clients with flexibility while choosing a marine insurance policy. The availability of a wide array of marine insurance policies gives a client a wide arena to choose from, thus enabling him to get the best deal for his ship and cargo. The different types of marine insurance policies are detailed below:

Voyage Policy: A voyage policy is that kind of marine insurance policy which is valid for a particular voyage.

Time Policy: A marine insurance policy which is valid for a specified time period – generally valid for a year – is classified as a time policy.

Mixed Policy: A marine insurance policy which offers a client the benefit of both time and voyage policy is recognized as a mixed policy.

Open (or) Un-valued Policy: In this type of marine insurance policy, the value of the cargo and consignment is not put down in the policy beforehand. Therefore reimbursement is done only after the loss to the cargo and consignment is inspected and valued.

Valued Policy: A valued marine insurance policy is the opposite of an open marine insurance policy. In this type of policy, the value of the cargo and consignment is ascertained and is mentioned in the policy document beforehand thus making clear about the value of the reimbursements in case of any loss to the cargo and consignment.

Port Risk Policy: This kind of marine insurance policy is taken out in order to ensure the safety of the ship while it is stationed in a port.

Wager Policy: A wager policy is one where there are no fixed terms of reimbursements mentioned. If the insurance company finds the damages worth the claim then the reimbursements are provided, else there is no compensation offered. Also, it has to be noted that a wager policy is not a written insurance policy and as such is not valid in a court of law.

Floating Policy: A marine insurance policy where only the amount of claim is specified and all other details are omitted till the time the ship embarks on its journey, is known as floating policy. For clients who undertake frequent trips of cargo transportation through waters, this is the most ideal and feasible marine insurance policy.

Marine insurance, as a branch of goods insurance, protects river and sea ships, other crafts and the installations used in harbours, like the loadings of them, against a complex of risks.

Marine risks have as an object some damages, whose probability is , more or less, known but, neither way, is close to uncertainty.

The goal of marine insurance states in the insurance against those events that might produce and not against those that have to take place. Because of that, in speciality literature and in international practice of insurances, two main categories of risks are met.

The first are insurable risks, which are divided in usual or general and special. The usual ones associated with water transportation are part of the so called “ sea risks”. By this, it can be understood that any accident or fortuitous event caused during marine transportation, no matter if they are or not the direct result of wind and waves.

The most important risks are considered to be storms, which can provoke the sinking of the vessel or the damage of the carried goods by getting the water on the ship, shipwreck, that is considered to be the sinking of the ship determined by different causes. Moreover, failing is another risk which refers to grounding the vessel on shore or on the bottom of the sea; collision of two ships and with fix or floating object is important. Also, launching the merchandise overboard in case of mutual damage, robbery, kidnapping are considered usual risks.

Special risks are those which have special causes and they are insured separately, at the request of the insured by paying some special insurance premiums. In this category there are also the risks determined by the intrinsic features of goods, like liquid draining, break of fragile objects etc. Also, it this section war risks are mentioned, including civil war, but also strike, civil movements.

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War risks refers to capturing the merchandise, blockades, kidnapping, commercial prohibition, reprisals etc.

Strikes ,as mentioned before, are also risks. They refer to the possibility of breaking or damaging some goods by those who are involved.

The excluded risks are those for which the insurance company does not carry any responsibility in the case in which they would interfere during the transport of the insured merchandise.

Vaporization of liquids, drying of cereals, natural death of livings are inevitable risks, which are specific to the nature of the insured object. Also, there are no policy insurance for damages like the delay of arrivals of goods at destination, lack of a suitable package, increasing custom taxes in the country of import etc.

In international practice of marine insurance, the presence of insurable interest is the direct result of the existence of goods exchange and the complex of circumstances that may provoke the damage of insured goods.

Damages, depending on the nature of the insured object, the intensity of insured risk action and the interests that affect, can be total, partial and general.

By total damage is to be understood the complete loss of an insured good or damaging the physical-chemical integrity of it until the end of being part of the type of good that belongs. Any total damage can be presumed to be caused by a sea risk, beside the case in which it can be exactly established that the vessel, together with the onboard loading, was lost because of war.

Moreover, total damage can be real, meaning that the good was destroyed totally thorough fire, or the features of it can no longer be used, or confiscating it by the enemy.

It can also be presumed damage. This refers when the loss of the insured merchandise is inevitable or the cost of saving, reconditioning or resending would overcome the value of the good at the destination, so that it is abandoned. Forsaking must be notified to be insurer clearly and unconditionally.

Partial damage refers to any partial casualty suffered by the insured good in a surprising way, fortuitous, or because of an insured risk. This can happen to merchandise, but also to means of transportation and freight. It can take the form of material damages, a lack, the selling during the voyage or at destination, expenses of reconditioning etc.

Particular damages of freight state only to the paid freight at the destination, not to the one paid in anticipation, which is included in the price of the merchandise.

Rules of York-Anvers establish that there is mutual damage when, out of necessity, intentionally and reasonably a sacrifice is made with the goal of protecting of danger the engaged goods in a marine transportation.

Throwing off the board, intentionally and by the order of the captain, of a part of the loading with the scope of bringing back in the status of floating or the flood of a part of the ship, with the goal of saving the rest of the merchandise etc., are sacrifices that belong to mutual damage. It results that mutual damage is a particular damage which happens in specific conditions.

While particular damage is because of some accidental causes and it concerns only the owner of the good, mutual damage is the result of an intentional, voluntarily act, done in a moment of great danger for the whole expedition, with the goal of salvaging and it concerns all those who are involved in the marine expedition. The losses resulted from it divided proportionally among them, no matter if the goods were insured or not.

In order that the sacrifice(expenses) made during the transport to be recognised as an act of commercial damage, it is necessary that the danger to be commune, meaning to threaten the ship and the loading, to be real, serious, out of the order, the expenses made because of it have exceptional feature, referring to overcome the expenses normally made, and the sacrifice(expenses) to be reasonable and also, the result of an intentional act to save the mutual belongings.

A peculiarity of marine insurance, and insurance law generally, is the use of the terms condition and warranty.

The conditions for goods insurance, which have become traditional in the practice of insurances all over the world are FPA (free of particular damage), WPA (with particular average) and all risks.

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First, FPA refers to limits recovery of partial losses to those directly caused by the vessel stranding, sinking, burning, or being in collision with another vessel.

WPA talks about the protection for partial loss from perils of the sea if the partial loss amounts to a certain percentage (usually 3%) of the insured value. A common clause reads "Subject to particular average if amounting to 3%, each case or shipping package separately insured." The percentage is called a franchise it is not a deductible percentage, but is the amount the claim must reach before the partial loss from a peril insured against is paid. The franchise is not applied if the vessel is involved in a fire, stranding, sinking, burning, or a collision, nor is it applied in general average losses.

In time, the sharpening of competitors on the market marine insurances and the insistences of business people, who demanded protection in a more largely way, lead to practicing “all risks”. In fact, this condition covers , no matters the scale, the damages resulted in total damaging or particular of the whole loading or a part of it, which happened because of anything, with the exception of some clauses mentioned in the insurance policy.

Those conditions were brought to perfection over time, so that they respond better to the interest of the insurer and insured. In this form, they were practiced until 1982, when the Institute of Insurance from London elaborated new insurances conditions, adopted by most of the countries in the world.

In presents time, merchandises ,which are the object of marine transportation, are insured by one of the three conditions : A, B, C. The main differences between them and the previous conditions are related not only to the name, but especially in precise and clear limiting of coverage.

“A” condition is the widest condition of the three. On this basis, all loss and damages risks are covered, with the exception of some exclusions. Those are mutual to all three conditions and they are formulated of three groups of excluded risks. The first is the loss, damage and expenses resulted from or provoked by the bad behaviour of the insured, the usual loss of weight or volume of the insured good, direct delay, even if it is caused by an insured risk, bankruptcy, the use of war weapons, radioactive contamination and the unnavigable status of the ship. There are no extra coverage for this kind of risks.

To continue with, there are risks of war or military conflicts and the last, risks of strikes or social conflicts. Those can be covered through extra insurances.

Condition “B” is the condition through which the insured goods are covered of loss or damage caused by : fire, explosions, sinking, turning upside down, collision with another vessel or object, downloading the ship in an alternative harbour, earthquake, volcano eruptions, sacrifice in commercial damage, throwing the loading off the board, floods, total damage of the merchandise transported.

The last condition, C, has a narrower coverage than B and selects the risks caused by : fire, explosion, sinking, turning upside down, collision, sacrifice in commercial damage and throwing off the board.

A warranty may be express or implied. also, as above defined, it is a condition which must be exactly complied with, whether it be material to the risk or not. If it be not so complied with, then, subject to any express provision in the policy, the insurer is discharged from liability as from the date of the breach of warranty, but without prejudice to any liability incurred by him before that date."

A warranty must be exactly complied with. If it is not then the insurer is discharged from liability from the date of breach.

In international practice of marine insurance, the presence of insurable interest is the direct result of the existence of merchandise exchange and the complex of circumstances which might provoke the damage of the goods insured.

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Chapter 3. Case Study

Date: 20090212

Docket: T-1148-01

Citation: 2009 FC 150

Ottawa, Ontario, February 12, 2009

PRESENT: The Honourable Mr. Justice Russell

BETWEEN:

UNIVERSAL SALES, LIMITEDATLANTIC TOWING LIMITED

J.D. IRVING, LIMITEDIRVING OIL COMPANY, LIMITED

IRVING OIL LIMITEDas plaintiffs

and

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 AMERICALONDON & EDINBURGH GENERAL INS. CO. LTD.

OCEAN MARINE INS. CO. LTD.ROYAL EXCHANGE ASSURANCESUN INSURANCE OFFICER LTD.SPHERE INSURANCE CO. LTD.DRAKE INSURANCE CO. LTD.

EAGLE STAR INSURANCE CO. LTD.STEPHEN ROY MERRITT, AS REPRESENTATIVE OF UNDERWRITERS SUBSCRIBING TO

LLOYD'S POLICY NO. 614/B94656-A/1582as defendants

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REASONS FOR JUDGMENT AND JUDGMENT MOTION[1] This motion by the Plaintiffs is an appeal from an order of Prothonotary Lafrenière dated

August 6, 2008. The Plaintiffs are seeking to have that order set aside and/or varied and an order from the Court:

a. Declaring that the Defendants have waived privilege over all documents relating to the issue of coverage that were prepared before July 13, 2000;

b. Requiring the Defendants to produce all documents not previously produced relating to the issue of coverage that were prepared before July 13, 2000;

c. Requiring the Defendants to answer certain questions that were refused during the written examination for discovery of Mr. Roland Birch;

d. Requiring a representative of the Defendants to attend to be examined for discovery to answer any of the refusals ordered to be answered, and any proper questions arising there from, and to answer any proper questions arising from any additional documents ordered to be produced as a result of the waiver of privilege;

e. Costs of the motion.

[2] The Plaintiffs say that Prothonotary Lafrenière was both incorrect and clearly wrong in that he misapprehended the facts surrounding the Defendants’ partial disclosure of their coverage advice and the production of the Côté Letter, and misapplied principles of solicitor-client privilege and waiver. In addition, the Plaintiffs say that the issues of consent and prejudice raised in this motion are vital to the case because they are directly relevant to the soundness of the Defendant’s defence.

BACKGROUND[3] These proceedings involve an insurance claim dispute between the Plaintiffs (the

insureds) and the Defendants (the insurers) over coverage for certain expenses incurred by the Plaintiffs related to the sinking and raising of the Irvine Whale. The ship sank in the Gulf of St. Lawrence on September 7, 1970 with a cargo of fuel oil and was raised by the Federal Government on July 31, 1996.

[4] The Federal Government took legal action against the Plaintiffs that concluded in a settlement about July 13, 2000. As part of the settlement the Plaintiffs agreed to pay the government $5 million dollars without admission of liability.

[5] The Plaintiffs then sought indemnity from the Defendants who have denied the insurance claim. As a consequence, the Plaintiffs commenced these proceedings in June 2007 for indemnity under the relevant insurance policies.

[6] The Plaintiffs take the position in this motion that the Defendants have denied coverage in their Statement of Defence on the basis, inter alia, that the Plaintiffs did not seek the consent of the Defendants before agreeing to the settlement with the Federal Government.

[7] The Plaintiffs say that, under the relevant insurance policies, consent is only required where action is taken to the prejudice of the Defendants and that the Defendants were not prejudiced by the settlement.

[8] The Plaintiffs take the position that if the Defendants held the view prior to the government settlement that the Plaintiffs were not covered, then this would counter any alleged lack of

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consent and prejudice. In other words, the Plaintiffs say that if the Defendants had made a determination prior to the settlement with the government (July 31, 2000) that there was no coverage, then the Plaintiffs’ act of entering into the settlement could not have been to the Defendants prejudice, because the Defendants would not have behaved any differently if their consent had been sought.

[9] This motion deals with the Defendants’ refusal to produce documents or answer discovery questions related to when they determined there was no coverage. The Defendants are claiming solicitor-client privilege.

[10] The Plaintiffs say that the issue of when the Defendants decided there was no coverage is a factual question and is not even protected by solicitor-client privilege. In addition, the Plaintiffs say they may be hamstrung at the trial if they do not have discovery of information and documents that will allow them to mount an argument at trial that the Defendants had concluded prior to July 31, 2000 that there was no coverage under the relevant insurance policies.

[11] The Plaintiffs allege that the defendants have raised a defence that the Plaintiffs cannot counter and which the Court cannot evaluate without knowing when the Defendants came to hold the view that the Plaintiffs would not be covered, and without reviewing the legal advice provided to the Defendants concerning coverage.

PROTHONOTARY’S DECISION[12] In his decision of August 6, 2008, Prothonotary Lafrenière dealt with the coverage and

privilege issue as follows:At paragraph 21 of their Statement of Defence, the Defendants have plead that: “(t)he settlement

entered into between the Plaintiffs and the Government of Canada was entered into without the knowledge and consent of the Pleading Defendant”. The Plaintiffs submit that the Defendants have raised a defence that they cannot counter and that the Court cannot evaluate without reviewing the advice counsel provided to the Defendants about coverage. The Plaintiffs also submit that the Defendants have waived privilege by producing a document which contains solicitor-client legal advice.

On the evidence before me, I am not satisfied that the Defendants have waived solicitor-client privilege, either explicitly or implicitly, to documents that relate to the issue of coverage that were prepared before July 13, 2000. To begin with, paragraph 21 of the Statement of Defence cannot be viewed as a waiver of privilege. The mere fact that the Plaintiffs may be hamstrung in responding to the allegation does not warrant breaching solicitor-client privilege.

Moreover, the Defendants quite properly disclosed the letter dated January 28, 1999 signed by Pierre G. Côté (Côté Letter) because privilege had been waived when it was provided to third parties. The fact the Côté Letter refers to reports dealing with insurance coverage issues dating back to July 28, 1996 and September 10, 1997 does not constitute waiver of those reports or the legal advice contained therein. It bears noting that the Côté Letter does not contain any kind of detailed information respecting the legal position of his client, and more particularly the legal advice as given to his client in the past. In the circumstances, the concern of “completion and fairness” as referred to By Justice O’Driscoll in Stevenson v. Reimer, [1993] O.J. No. 2800, is of no moment. On the facts before me, I find that the disclosure of the Côté Letter did not operate to waive solicitor-client privilege in the remaining undisclosed reports or the legal advice itself.

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STANDARD OF REVIEW[13] The Plaintiffs say that if the Prothonotary’s conclusion on solicitor-client privilege is one

of law then the standard of review ought to be correctness. However, even if the decision was discretionary, so that the principles in Merck & Co. v. Apotex Inc., 2003 FCA 488, 30 C.P.R. (4th) 40, at paragraphs 17-19, and Canada v. Aqua-Gem Investments Ltd., [1993] 2 F.C. 425 (C.A.) at page 19, apply, the result is the same because Prothonotary Lafrenière was both incorrect and clearly wrong in that he misapprehended the facts surrounding the Defendants’ partial disclosure of their coverage advice and the production of the Côté Letter, and he also misapplied the principles of solicitor-client privilege and waiver.

[14] The Plaintiffs also say that the issues of consent and prejudice are vital to the final issue or disposition of this case because they are directly relevant to the soundness of the Defendants’ defence on the coverage issue.

[15] In reviewing Prothonotary Lafrenière’s decision on the point at issue, it seems to me that it is based upon findings of fact and his view of the principles of solicitor-client privilege applicable to the facts as found.

[16] In my view then, I am required to consider, within the usual principles set forth in Merck and Aqua-Gem whether the order is clearly wrong in the sense that Prothonotary Lafrenière’s discretion was based upon a wrong principle or upon a misapprehension of the facts.

[17] I am not convinced that I am dealing with a question vital to the final issue of the case or with a situation in which the standard ought to be correctness. However, even if I were to apply a standard of correctness, my conclusions would be the same.

ANALYSIS[18] The Plaintiffs say that the Defendants have chosen to make an allegation in their

Statement of Defence that puts privileged material directly at issue and have thereby, by implication, waived any privilege in that material.

[19] My review of the record suggests to me that the Defendants have not put at issue their position on coverage prior to receipt of the Plaintiffs’ claim, and they certainly do not put at issue advice received by counsel on coverage prior to the claim.

[20] As Prothonotary Lafrenière pointed out, paragraph 21 of the Statement of Defence cannot be viewed as a waiver of privilege.

[21] All that paragraph 21 of the Statement of Defence pleads is that the government settlement is not “based on any established liability” under the relevant policy and it was entered into “without the knowledge and consent” of the Defendants so that, for both reasons, “the said settlement is not binding on the Pleading Defendants.”

[22] Paragraph 21 alleges that the government settlement cannot be binding on the Defendants because there is no liability for it under the policy and the Defendants never consented to it.

[23] I do not see anything in this paragraph which puts in issue the Defendants’ state of mind before the claim was made or that even raises the issue of prejudice as a result of a failure to obtain prior consent. The Defendants are simply saying that there is no coverage for the government settlement because it is not based upon any established liability and they did not consent to it.

[24] The Plaintiffs are seeking to expand the import of paragraph 21 by connecting it to their own interpretation of clause 7 of the Excess Insurance Policies, which states:

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The Assured hereby warrants and agrees that it will in no way consent to any act or agreement which shall admit liability in any matter connected with this insurance to the prejudice of these Assurers without the consent of the Assurers in writing.

[25] The Plaintiffs appear to be suggesting that under this clause “consent is only required where an action is taken to the prejudice of the Defendants” and that the “import of the Defendants’ defence is that the Defendants were prejudiced by the Government Settlement, allegedly entered into without their consent.”

[26] In their Reply the Plaintiffs say, at paragraph 6, “In any event, the Government Claim settlement did not in any respect prejudice the interests of the Defendants.”

[27] It would appear from this that the Plaintiffs would like to mount a particular argument that consent was not required for the Government Settlement under clause 21 and that the Defendants are alleging prejudice as a result of failure to obtain consent by the Plaintiffs.

[28] But this is an argument put forward by the Plaintiffs. It is not, as the Plaintiffs allege, the “import” of the Statement of Defence, and, in my view, the Defendants have not put their pre-claim state of mind on coverage at issue. The Plaintiffs are attempting to make it an issue but, as the Defendants point out, the Statement of Defence “does not rely upon or even mention coverage positions held by the Pleading Defendants prior to receipt of the Plaintiffs’ claim, nor does it refer to advice received from counsel with regard to coverage.” All the Plaintiffs have done in the Statement of Defence is to assert that the amounts claimed by the Plaintiffs are not payable under the terms of the relevant policies.

[29] So I think I have to agree with the Defendants that the “question of potential coverage positions held by the Pleading Defendants prior to any claims being actually submitted to them is entirely irrelevant and is in no way raised in the Pleading Defendants pleadings.” The consent and prejudice issues, and their relationship to pre-claim positions on coverage have been put at issue by the Plaintiffs based upon their interpretation of clause 7 of the Excess Insurance Policies. However, be that as it may, I cannot accept that the Defendants have put at issue their pre-claim state of mind regarding coverage in such a way that would justify a waiver of privilege.

[30] This also means that I must reject the Plaintiffs’ arguments that the Defendants have somehow raised a defence that the Plaintiffs cannot counter and the Court cannot evaluate without knowing when the Defendants came to hold the view that the Plaintiffs would not be covered by the Excess Insurance Policies and without reviewing the legal advice provided to the Defendants on the subject matter of coverage.

[31] In my view, Prothonotary Lafrenière was entirely correct to conclude that “paragraph 21 of the Statement of Defence cannot be viewed as a waiver of privilege.”

[32] If the Plaintiffs feel “hamstrung” then, in my view, this is because they are seeking to breach privilege in search of evidence regarding the Defendants’ position on pre-claim coverage, an issue which they have raised to support their interpretation of clause 7 of the Excess Insurance Policies. They are not “hamstrung” as a result of anything the Defendants have put in issue.

[33] The difficulties, if any, are a result of what the Plaintiffs claim is the “import” of the Statement of Defence. I can find no such import but, given the particular interpretation adopted by the Plaintiffs, I think that Prothonotary Lafrenière was correct to conclude that the “mere fact that the Plaintiffs may be hamstrung in responding to the allegation does not warrant breaching solicitor-client privilege.” If it did, then an idiosyncratic interpretation of an allegation contained in a pleading could be used to allege being “hamstrung” and justify a breach of privilege. I do not see how, by pointing out in paragraph 21 of the Statement of Defence that the “settlement entered into between the Plaintiffs and the

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Government of Canada was entered into without the knowledge and consent of the Pleading Defendants,” the Defendants can be said to have placed in issue their pre-claim state of mind regarding coverage.

[34] In Fraser v. Houston, 2002 BCSC 1378 (Can.LII), the following summary of the authorities relating to solicitor-client privilege appears at paragraph 22:

22 The authorities relating to waiver of solicitor-client privilege set out the following principles:1. Solicitor-client privilege should be interfered with only to the extent necessary to achieve

a just result: Descoteaux v. Mierzwinski, [1982] 1 S.C.R. 860.2. Waiver of solicitor-client privilege may occur in the absence of an intention to waive,

where fairness and consistency so require. Waiver of privilege as to part of a communication will be held to be waiver as to the entire communication. Similarly, where a litigant relies on legal advice as an element of his claim or defence, the privilege which would otherwise attach to that advice is lost: S. & K. Processors Ltd. v. Campbell Ave. Herring Producers Ltd., [1983] B.C.J. No. 1499.

3. A party will waive the protection of solicitor-client privilege when it voluntarily injects into the proceeding the question of its state of mind, and, in doing so, uses as a reason for its conduct the legal advice that it has received: Morrison (supra).

4. To displace solicitor-client privilege there must be an affirmative allegation which puts the party's state of mind in issue: Pax Management Ltd. v. C.I.B.C. (1987), 14 B.C.L.R. (2d) 257 (B.C.C.A.).[35] On the facts before me, there is no affirmative allegation by the Defendants that puts their

state of mind regarding a pre-claim position on coverage at issue. Hence on this issue I cannot say that Prothonotary Lafrenière was clearly wrong in the sense of basing his decision upon a wrong principle or upon a misapprehension of the facts. In fact, I think his decision was correct on this issue.

[36] The Plaintiffs also say that the Defendants waived privilege over the coverage issue by disclosing the Côté Letter.

[37] As Prothonotary Lafrenière pointed out in his order, the Côté Letter was disclosed because privilege had been waived when the letter was provided to third parties.

[38] The Plaintiffs say the Côté Letter suggests that, by January 1999, the Defendants had reached the view that the settlement amount was not covered by the Excess Insurance Policies. They say it is not fair to require the Plaintiffs or the Court to assess whether the Settlement Agreement prejudiced the Defendants in light of the Defendants’ partial and contradictory disclosure relating to their instructions to counsel and their legal advice on the issue of coverage.

[39] I have already made it clear that, in my view, the Defendants have not put their pre-claim state of mind regarding coverage at issue and that the Plaintiffs are pursuing an argument of their own devising regarding consent and prejudice. The Plaintiffs’ argument relating to the disclosure of the Côté Letter is based upon the allegation that the Defendants have raised the issue of their opinion on coverage, an argument I have rejected.

[40] The disclosure of the Côté Letter does not, in my view, demonstrate an intention to waive privilege over the coverage issue. The letter was disclosed because it had already been provided to a third party. There is neither express nor implied waiver on these facts.

[41] As the Affidavit of Ms. Marlene Kempthorne dated July 7, 2008 makes clear, initial attempts were made to resist disclosure of the letter based upon privilege. The letter was only disclosed when it was discovered it had previously been disclosed by insurers to third parties. So it is simply not accurate to allege, as the Plaintiffs do, that the Defendants have chosen to disclose and rely upon a portion

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of the story regarding coverage and the legal advice they received on coverage. As Prothonotary Lafrenière found, this is not a case of cherry picking.

[42] The case law relied upon by the Plaintiffs provides examples of where one party to a dispute first disclosed and then sought to rely upon portions of documents containing privileged information while withholding others.

[43] In the present case, the Côté Letter was disclosed in its entirety and the ripple effect that the Plaintiffs are seeking to support coverage arguments they want to raise should be resisted: Letourneau v. Clearbrook Iron Works Ltd. (2004), 36 C.P.R. (4th) 228 (Fed. Ct.).

[44] As regards the Plaintiffs’ arguments for waiver over the letters referred to in the Côté Letter, they are once again premised on the assertion that the Plaintiffs are seeking to breach privilege because of the pre-claim coverage issue raised by the Defendants. I have found that position to be untenable.

[45] In effect, the Plaintiffs are seeking all advice provided to the Defendants on the issue of coverage and, at the very least, production of the actual letters referred to in the Côté Letter.

[46] Prothonotary Lafrenière made important findings of fact on this issue that have not, in my view, been shown to be misapprehensions:

Moreover, the Defendants quite properly disclosed the letter dated January 28, 1999 signed by Pierre G. Côté (Côté Letter) because privilege had been waived when it was provided to third parties. The fact the Côté Letter refers to reports dealing with insurance coverage issues dating back to July 28, 1996 and September 10, 1997 does not constitute waiver of those reports or the legal advice contained therein. It bears noting that the Côté Letter does not contain any kind of detailed information respecting the legal position of his client, and more particularly the legal advice as given to his client in the past. In the circumstances, the concern of “completion and fairness” as referred to by Justice O’Driscoll in Stevenson v. Reimer, [1993] O.J. No. 2800, is of no moment. On the facts before me, I find that the disclosure of the Côté Letter did not operate to waive solicitor-client privilege in the remaining undisclosed reports or the legal advice itself.

[47] The Defendants have made it clear that they “do not intend to raise the privileged information in the context of these proceedings,” and I have already made it clear that the pre-claim coverage issue is raised by the Plaintiffs. So I do not see how the Defendants can be said to have engaged in selective disclosure on these facts and, in my view, there is nothing “clearly wrong” with the Prothonotary’s decision on these waiver issues. Once again, even if I review the matter de novo, it is my view that he was correct.

JUDGMENT

THIS COURT ORDERS AND ADJUDGES that:

1. The Plaintiffs’ motion is dismissed.2. The Defendants shall have their costs of this motion payable forthwith

within 30 days and in any event of the cause.

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Conclusions

In this case it is about the sinking and raising of a ship which happened in 1970. It sank in the Gulf of St. Lawrence with a loading of fuel oil. The vessel was taken out of the water by the Federal Government on July 31, 1996. Important to be mention is that is an appeal of the Prothonotary Lafrenière dated August 6, 2008. In this stage, the appeal refers to reviewing some documents and the coverage of the cost.

Since the event happened near the coasts of Canada, the risks that had to be taken into account the “sea risks”, mainly storms and winds. The climate allows specific obstacles to form and they can happen during transportation. The result was the sinking of the ship, along with the whole loading. As the theory states, a shipwreck is the result of different causes.

In this case it is about total damage because both the ship and the merchandise have been lost. It is the result of sea risk. It can be also classified as real, meaning that the ship was destroyed by natural causes and it can no longer be used.

Moreover, condition “B” is applied to this situation since the vessel sank and there was total damage of the transported merchandise.

All the documents and evidences proved that the plaintiffs were not right and the defendants would have their cost paid in 30 days.

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Bibliography

1. Badea, D.-G. (2003) “Marine insurance”, in Editor - Taranu C.(eds.) Insurance and reinsurance, Editura Economica, Bucuresti, 215-232

2. http://www.paclii.org/maritime-law/case-summaries-marine-insurance/index.html3. http://www.paclii.org/vu/cases/VUSC/2001/130.html4. http://www.marineinsight.com/marine/different-types-of-marine-insurance-marine-insurance-

policies

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