Archive for the ‘Canada’ Category

Setting the Standard: Ontario Court Enforces Hybrid Arbitration Agreement in Favour of Bermudian P&I Club

Wednesday, February 17th, 2016

In the recent decision of T. F. Warren Group Inc and Vanguard Shipping (Great Lakes) Ltd v The Standard Steamship Owners’ Protection and Indemnity Association (Bermuda) Limited [2015] ONSC 7778, the Ontario Superior Court of Justice granted a stay of court proceedings under Ontario’s International Commercial Arbitrations Act 1990, in order to enforce a hybrid London arbitration agreement between two insureds and The Standard Club, a Bermudian Protection & Indemnity Association (‘the P&I Club’).

The liability insurance claims asserted in the proceedings related to a maritime incident that occurred in 2011, when a ship collided with a railway bridge on the Maumee River in Ohio. As the Court noted in passing: “the bridge was very likely minding its own business.

Section 25 of the P&I Club’s Defence Rules imposed conditions that arguably could be read as giving the P&I Club unilateral discretion to delay the submission of any dispute to arbitration. In particular, section 25 provided that:

  1. The insured party had to submit the dispute to the P&I Club;
  2. No insured party was entitled to maintain any legal proceedings against the P&I Club unless and until the matter had been submitted to the P&I Club for decision;
  3. The parties then would engage in mandatory mediation (in London); and
  4. If the matter was not settled by mandatory mediation within 14 days, “the dispute shall be referred to and finally resolved by arbitration in London,” subject to the UK’s Arbitration Act 1996.

The Court noted that the P&I Club sat on the insured’s claim for a year.  The Court observed that, “the entire premise of granting a stay under the ICAA is that the party whose action is stayed is not denied access to justice but is gently but firmly directed to the correct door to obtain it.

To mitigate against the risk of further delays, the Court ordered an interim stay of the proceedings, which would then become a permanent stay if all conditions precedent to commencement of arbitration proceedings had been waived or completed within a reasonable period of time.

Although this decision should give comfort to the various P&I Clubs that are incorporated in Bermuda and in the UK that the Canadian Courts will enforce London and Bermuda arbitration agreements, it also illustrates the importance of careful drafting of such clauses, so that they can be easily understood, performed, and enforced.

British Columbia Supreme Court: Property Policy’s Pollution Exclusion Not Subject to Proximate Cause Analysis

Monday, September 29th, 2014

By Timothy Kevane, Sedgwick New York

An insured’s argument to broadly apply an exception to a pollution exclusion was recently rejected by the British Columbia Supreme Court in Whitworth Holdings Ltd. v. AXA Pacific Insurance Co., 2014 CarswellBC 2648, 2014 BCSC 1696 (Sept. 9, 2014).  There, the court was called on to resolve the application of the exclusion to a sequence of events involving excluded pollution and a non-excluded fire peril.

The insured’s commercial building was damaged in a fire.  As a result of the fire, chemicals escaped from one of the tenants’ fertilizer, herbicide and pesticide wholesale operation, causing pollution damage.  The building was insured by an all-risk property insurance policy.  Among other things, the policy excluded coverage for damage or expense arising from the clean-up due to any release of pollutants, but exempted any loss to the property “caused directly by an insured peril … not otherwise excluded elsewhere in the Policy.”  The insurer argued that the exception ensures coverage exists for fire damage, but not for clean-up of pollutants contaminating property not damaged by fire.  In that case, the cause of the damage was the escape of the pollutants, not the fire.

The insured argued that the exception requires a proximate cause analysis.  According to the insured, the “proximate cause” of the pollution damage was an insured peril, the fire.  That is, but for the fire, the pollutants would not have escaped.  In the insured’s view, any other interpretation would render the exception in the exclusion meaningless, as physical loss caused by fire is already covered regardless of the exception.

The court, however, agreed that the language of the exception – particularly the word “direct” – does not call for a proximate cause analysis.  Relying on the British Columbia Court of Appeal’s reasoning that “direct” describes “an event lead[ing] straight or immediately to its consequence,” the court concluded that the fire and the chemical spill were two distinct events, just as the Court of Appeal found two distinct events in a prior case involving damage to pipes by freezing and damage from the discharge of water.  Neither could be described as a semantic or specious distinction. The court thus adopted the insurer’s interpretation, rejecting the notion that it creates any redundancy in the policy.  To illustrate, the court imagined a reversal of the facts, in which an escape of pollutants subsequently caused fire damage.  The exclusion would bar coverage for the fire damage, thus necessitating the exception to reinstate coverage for the covered fire damage.  Accordingly, the court upheld the application of the exclusion to bar coverage for the pollution damage where it was not directly caused by the fire.

Please click here for a description of Sedgwick’s Canada Insurance practice.  The lawyers in the group are watching coverage decisions and news from Canada for publication on the Insurance Law Blog.

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