MARINE INSURANCE LEGISLATION IN CANADA

Federal, Provincial or Both? What Direction are we headed?

THE INDUSTRY VIEW

JOHN A. CANTELLO Osborn & Lange Inc.

360 St. James St. W. Suite 2000

Montreal, Quebec H2Y 1PS

It is a pleasure for me to be speaking to you this

afternoon, particularly as I am sharing the platform with an

old friend in Sean Harrington. Sean and I have been comparing

notes on our subject. As I know the thorough job he will do on

the legal side of the presentation, and as I am not a lawyer, I

emph~sise that this is not a legal paper as so many others here

are. I feel confident that in the end Sean and I will reach

the same conclusions, even though we reach them by different

routes.

The decision in the case of Zavarova Skupnost Triglav

vs Terrasses Jewellers Inc. et al in the Supreme Court of

Canada on March 1st, 1983, sparked a great deal of re.newed

interest in the subject of the 'law applicable to Marine

Insurance. One result was that the question was passed to the

Marine Insurance Sub Committee of the CMLA in 1984, and I was

asked by Maitre Jean Brisset, Q.C., then President of the CHLA,

to be Chairman of that Sub Committee.

The first step was to form a sub committee as

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representative of the various parts of Canada as possible. I

was very pleased, therefore, to have as initial members, John

Joy from Newfoundland and Barry Oland from British Columbia.

Other members were Pierre Cote, Doug MacRae, Jr., Graham Deere

and Bill Tetley from Montreal, and from Ottawa, Peter Troop and

Jerry Rysanek. These basic members of the sub committee have

been meeting and corresponding as necessary since 1984, but in

the meantime the following members have been added: Bob Jette

of New Brunswick, West Telling, a Marine underwriter, Jean

Bernier, John Cunningham and Jim Moore. Our past President,

,Jean Brisset and Secretary, Bart Malott, have been kept

lnformed throughout. It is only now, looking at the list of

I realize that we have not had a representative members, that

from Ontar10. As Toronto is the undoubted centre of marine

insurance underwriting in Canada, perhaps our close

relatlonship with the Canadian Board of Marine Underwriters has

filled this gap satisfactorily.

Our sub committee from its first meeting has been

interpsted in a Federal statute governing marine insurance.

This is not a legal presentation so I shall tread warily, but

it would seem that the Federal courts have jurisdiction over

all cases of Marine insurance as a part of navigation and

shipping. There may be an exception if goods or a vessel are

moving within the boundaries of one Province only. Our

understanding at present is that such intraprovincial movements

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(e.g. cargo from Seven Islands to Montreal) are subject to the

appropriate Provincial law. This mayor may not continue to be

so when a Federal Act is brought in, depending on its scope of

application. I shall return to this question later on.

It has been said, and I believe it is true, that

businessmen do not mind so much what a particular law says

provided that what is said is quite clear. Businessmen,

therefore, have a common interest with the CMLA and its parent

body, the Comite Maritime Nationale, in uniformity of maritime

law.

The outstanding piece of legislation in our world of

marine insurance is the Marine Insurance Act 1906 of Great

Britain. It is important to remark that the provinces of

Brltish Columbia, Manitoba, Ontario, New Brunswick and Nova

Scotia all have legislation based closely on this Marine

Insurance Act of 1906. It should be noted, too, that the

important exceptions to these Marine provinces are Quebec and

Newfoundland. Newfoundland really has no detailed statute

governing marine insurance. Quebec has a number of sections in

the Quebec Civil Code which apply. These sections, or

articles, are based in part on the Napoleonic Code and do not

have the same connection with the Marine Insurance Act. In the

case of Newfoundland, there is little doubt that British Law

would apply so that the Marine Insurance Act would come into

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play in most situations.

In the 1970's, the then Liberal Government in power

in the Province of Quebec wanted to bring the law on marine

insurance in Quebec up to date, so appointed a committee to

ach1eve this. Included on

Brisset and Pierre Cote.

the committee were Maitres Jean

Also some of us in the Industry

itself were consulted. The result was avery serious and

lengthy work, in French and English, on a new proposed wording

based closely on the Marine Insurance Act of 1906. This

attempt to modernize the terms of the old statute was received

with sympathy by many of us and we felt we understood the

meaning of the lengthy provisions. In 1984 therefore many of

us thought in terms of the Quebec 1976 wording as being the

basis for proposed federal legislation. The Marine Insurance

Act of 1906 is now 83 years old and there are those who feel

that its wording is antiquated.

It was clear to us that the proposal for federal

legislation by the CMLA would be received seriously by the

Canadian Government.

Marine Underwriters

At the same time, the Canadian Board of

represents pretty well all the Marine

insurers in Canada and The Risk and Insurance Management

SOclety represents a very substantial number of buyers of

marine insurance in Canada. Consequently, it became our aim to

be able to make a combined resolution to the Federal Government

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Wh1Ch was supported by the Canadian Board of Marine

Underwriters, the Canadian Chapter of The Risk and Insurance

Management Society and the Canadian Maritime Law Association.

As soon as we tried to achieve this end, it became quite clear

that the Underwriters represented by the CBMU, wanted very much

to have the Marine Insurance Act of 1906 in its original

wording and no amendment would be acceptable to them. This

would even exclude a simple attempt to modernize the

phraseology.

One or two critics have suggested that this point of

view is entirely due to the fact that Marine Underwriters in

Canada are a group of "fuddy duddies" wishing to bask in the

glow of the words of the last century. This, I suggest, is far

from the truth. The Marine Insurance industry in Canada is an

entirely competent one. It is not as large as the industries

in London or New York, but does see all types of vessel and

merchandise requiring prompt evaluation of the risks involved

and the appropriate terms of cover which will apply.

The principal reason that Underwriters would like to

see the adoption of the wording of the Marine Insurance Act of

1906 in full is in the interests of uniformity, but, more

importantly, 1S because

that Act has been tested

almost every part of the wording of

in the Courts since 1906. This in

addition to the fact that the Act itself was merely a

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Codlficalion of BrItish Common Law as it was at the time the

legislation was enacted.

It should be said here that after considerable

discussion in the sub-committee of the CMLA, it was agreed

without serious dissent to recommend to the Federal Government

that an Act be passed in the terms of the Marine Insurance Act

of 1906. Also, I am pleased to say that this recommendation

went forward in the names of the Canadian Board of Ma~ine

Underwriters, the Canadian Chapter

Maritime Law Association. We feel

of RIMS and the Canadian

that the opinions of the

sellers and buyers of marine insurance, together with the body

representIng the large majority of marine legal opinion, should

carry considerable weight. This was borne out when Transport

Canada's Discussion Paper was issued in May 1988.

Having said that this was our policy, with which I

totally agree, It might be as well to look a little more

closely at the Marine Insurance Act, 1906. As stated, it was

precisely an Act to I~odify British Common Law as it existed at

that tIme. The prime draftsman was Sir McKenzie D. Chalmers,

the District Judge In the area of Birmingham, England. The

eXIsting law was not completely clear on every point so the

drafters had, where necessary, to state the law as they thought

it to be. However, there were more than 2000 recorded cases

concerning marine insurance upon which the committee could

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draw. It is lnteresting to note that the Bill was in fact

introduced In the House of Lords in 1894, 1895, 1896 and 1899

so it certainly did not receive a cursory look or a hurried

passage. It is also interesting to note that the Bill was

introduced by the Lord Chancellor, Lord Herschell and such

namE'S as Messrs. Glover and Melbourne representing the

of Commerce, Mr. shipowners, Charles McArthur from the Chamber

Hogg representing Average AdJusters, Mr. Street, the Deputy

Chairman of Lloyds, Mr. Douglas Owen of the Alliance Maritime

and General Insurance Company and the local advisor to Lloyd's,

amongst others appeared before the Committee.

I am trying here to make two points. There was a

tremendous amount of

2,000 cases. I notice

legal

that

precedent available in more than

the earliest such case may be

Sadler's Company vs. Babcock of 1743 and many, many others go

right up to the date of legislation. In some of the more

Interesting cases, decisions were handed down which affected as

many as six, seven or eight sections of the Act. 2) There has

also been a tremendous volume of legislation in the 80 odd

years since 1906 testing the precise meaning of the various

sections. So it can be shown that more than 250 years of court

decisions in the country which has always been the leader in

the industry of marine insurance have contributed to the Marine

Insurance Act of 1906. It could be that Canada can benefit

from this wealth of experience by adopting into its own marine

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legIslatIon the MarIne Insurance Act of 1906.

The history of marine insurance in Canada has

primarily been one of British and American insurance companies

setting up branches in Canada to service the local scene.

American and British companIes still playa very important part

in CanadIan Marine insurance, but there IS today a separate and

efficient local industry. Nonetheless, in the three principal

nations in the market, we have English speaking people with a

common herItage. Adopting the same Marine Insurance Act in

Canada as eXIsts in Britain would be a

uniformity and clarity to the law.

logical step to give

As stated prevIously, five of our ten Canadian

PrOVInces have a Marine

with the British Act.

Insurance wording which corresponds

It would be much more logical to enact

Federal legislation In accordance with the law in those five

provinces than to adopt something new and expect that the

Provinces would follow suit. Even if the desire was there,

this would be a lengthy process. Clearly Federal legislation,

in keepIng wIth most of the Provincial law,

step forward for uniformity.

would be a great

Reference was made earlier to new wording produced in

Quebec in 1976. Unfortunately (in the context of the proposed

legIslation) this was the year that the Parti Quebecois, under

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Mr. Rene Levesque, defeated the L1beral Government and assumed

power in the Province. Perhaps it is not surprising that the

Marine Insurance wording got lost in the shuffle.

At this time I would like to mention the useful book

written by Rui M. Fernandes of Toronto called Marine Insurance

Law of Canada publ1shed by Butterworths in 1987. The book is

particularly relevant in that it contains a comparison of the

sections of the British Marine Insurance Act and the five

Provincial Acts of Ontario, British Columbia, Manitoba, New

Brunswick and Nova Scotia. The comparison highlights how very

mur.h alike they all are. The Provincial Acts took effect over

the per10d 1967 and 1980 and thls book focuses on the Marine

Insurance Act of Ontario.

In Appendix H. Mr. Fernandes refers to the draft Act

prepared for the Liberal Government of Quebec by various

experienced practitioners in 1976, notably Jean Brisset and

Pierre Cote. Th1s draft was given very useful consideration by

the sub committee. However. it is not true to say that in the

end the CMLA recommended its use as the basis for Federal

legislation. Hopefully it 1S clear the sub committee has

recommpnded the adoption of the Marine Insurance Act 1906.

Now the Province of Quebec has a Liberal Government

once again and has established a committee to work on

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amendment.s t.O the Civil Code on the subject of marine

insuranCE>. Several of our members in the CMLA have been

appolnted to advise thls committee and they share the view of

the CMLA that uniformlty lS the major concern. This means

wlthout doubt incorporation of the Marine Insurance Act of 1906

and we have a

the Province

letter from Quebec's committee telling us that

intends to follow closely the wording of the

Marine Insurance Act.

At the beginning, I said that businessmen are more

concerned that the law is clear rather than any other aspect.

consider the Marine Insurance Act of 1906, having been

carefully drafted, has since been tested many times so that in

general. practitioners feel confident that they know what the

law says and means. Apart from uniformity as mentioned

prevlously, this is a principal reason for our strong support

of the Mar ine Insurance Act as the model for Federal

le,]islation.

It may be worth saying that three questions were

ralsed, following our support

varIOUS people, as follows:

of the Marine Insurance Act, by

1) There was some feeling that there should be some amendments

to Sections 19 to 20 regarding disclosure and representa-

tions made by the broker in negotiating a contract of

Marine insurance. It was suggested that failure by the

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2>

broker to make disclosure of necessary facts could lead to

denial of a claim by the Insurer. We do not agree that

The broker has to thjs is a reasonable proposition.

dIsclose all material changes known by himself as well as

by the Insured. In a contract based on the utmost good

faith, this is a necessary provision.

Attention was drawn to Sections 40 to 49 which deal with

warranties and the various

Insurer can avoid the policy.

are discriminatory sections.

or no control over the major

circumstances in which an

Some people said that these

Shippers of cargo have little

features of a voyage. This

fact is well known to insurers so that in practice clauses

in the policy eliminate situations which could prejudice

the cargo, so that we do not think it is necessary to

attempt to amend a well written Act in this area.

3) There are those who feel that a new Marine Insurance Act

should provide for direct action against the Insurer.

There will be, I expect, some discussion on this point at

thIS Seminar because recent British case law affects the P

and I Clubs.

In the United Kingdom, there is a special Act being

the Third Parties (Rights Against Insurers> Act of 1930, which

deals with this matter as it affects all types of insurances.

We believe that provision for direct action against Insurers

should be considered as a proper subject for another Act as

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distinct from the MarIne Insurance Act.

Following the considerable work which the Marine

Insurance sub committee has done since 1984 in considering the

subject of Federal legislation and ptessing the Canadian

Government in this regard, we were very pleased to receive

copies in the middle of last year of a discussion paper

entitled "Canadian Marine Insurance Act" from Transport Canada.

You will not be surprised to learn that a joint resolution was

sent on behalf of the Canadian Board of Marine Underwriters,

the Canadian Chapter of RIMS and the Canadian Maritime Law

Association in August, 1988, as follows:

a) we are appreciative of the progress being made toward

b)

Since

the ~nactment of Federal legislation on Marine insurance

we support the proposal that the British Marine

Insurance Act of 1906 should serve as the model for the

proposed Canadian Marine Insurance Act.

submitting that resolution, we have received some

encour~gement that progress is being made. I mentioned earlier

that Messrs. Peter Troop and Jerry Rysanek were original

members of our sub committee. Subsequently they both continued

to serve as observers.

spheres. We are stIll

Recently Peter Troop moved on to other

most happy to cooperate with Jerry

Rysanek and are pleased that Mr. Alfred Popp has agreed to take

the place of Peter Troop. As members of the sub committee,

closely allied with the practice of marine insurance, we are

all ready to help in any way that we can.

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In April a group of us from the Canadian Maritime Law

Association, being David Angus, Edgar Gold, Johanne Gauthier,

Guy Vaillancourt, Norman Hall, Bart Malott and me, met with

various representatives of Government, on a variety of

subjects, in Ottawa. Jerry Rysanek introduced the subject of

the Marine Insurance Act at the meeting in a helpful and

optimistic way. He reviewed progress to date and lold us it

should not be long before a paper is put before Cabinet. Mr.

Alfred Popp also was at the meeting.

Attention was drawn to the question of Application of

the proposed Act. Reference to this question is made in Clause

49 on page 16 of Transport Canada's Discussion Paper on Marine

Insurance which says:

The

In the light of the Supreme Court judgment

In Triglav et aI, it is proposed that the

Canadian Act apply to marine insurance contracts

related to interprovincial and international

navigation and shipping"

corollary being that the various Provincial Acts would

continue to apply to intraprovincial contracts.

Advice has been received from the Department of

Justice that no restriction should be placed on the proposed

Act's scope of application because

It is unusual for Federal Acts to include any such

restrictions,

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2) The decision ln the Buenos Aires Maru case makes marine

lnsurance the exclusive responsibility of Parliament, and

3) It may be that in the future, therefore, all Provincial

Acts will be considered to be ultra vires.

to all

At first sight it seems that having the new Act apply

situations would again raise doubts as to the

appropriate law to apply in specific cases. It had been

thought that on the basis that Provincial legislation would

apply to intraprovincial movements the navigation limits clause

in the policy could be the determining factor. If a new

Federal Act could apply to all policies then it might be

necessary for Underwriters to state in the policies which law

would apply.

policies.

This would require a new special clause in the

The opinion of some lawyers is that such a clause

would be lnvalid. In particular it has been stated that in

Quebec a POI1Cy clause requesting Federal law to be applied to

a contract covering act.ivity confined to the Province would not

be valld in the terms of the Civil Code.

In the long run, it is probably desirable to have one

Act governing all marine insurance situations real

uniformity. In the shorter run, the Provinces will probably

not favour their authority being taken away. It is important

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to know what form the Provinces' reactions to the Federal Act

will take. As there 1S general concensus that a new Federal

Marine Insurance Act should be in the form of the Marine

Insurance Act 1906, 1t should proceed satisfactorily subject to

re-action from the Provinces. Here also the legislation in

fIve major provinces. plus representations by several of our

members in Quebec, should ensure smooth sailing. However, the

question of

hiccough.

the scope of application could cause quite a

We shall have to see what transpires between

Transport Canada, the Department of Justice and the various

Provinces. To date, the Provinces have had very little to say

but we understand this is usual until such time as

actual Bill to study.

there is an

As to whether the Federal Act should apply to

intraprovincial matters, I am not so sure. Suggest we keep an

open mind until we have heard the debate in full.

I hope the preceding words have made my position as a

staunch supporter of new Federal legislation based on the

Marine Insurance Act of 1906 quite clear. This is also the

official policy of the Canadian Board of Marine Underwriters,

the Canadian Chapter of The Risk and Insurance Management

Society and the Canadian Maritime Law Association. I hope that

we may see such legislation enacted in the near future.

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