T‑1711‑03
2005 FC 1565
Secunda Marine Services Limited (Plaintiff)
v.
Fabco Industries Limited (Defendant)
Indexed as : Secunda Marine Services Ltd. v. Fabco Industries Ltd. (F.C.)
Federal Court, Harrington J.—Ottawa, October 28 and November 18, 2005.
Maritime Law — Insurance — Motion by defendant for summary judgment following damage caused by fire to plaintiff’s ship — Plaintiff insured under builder’s risk policy, recovering damages from underwriters — Action taken in plaintiff’s name by underwriters in exercise of subrogation rights — Whether underwriters barred from taking subrogated action — Case law on subrogation reviewed — Cases relied upon by defendant not establishing rule of law underwriters on builder’s risk policy prohibited from seeking subrogated recovery from contractor on insured project — Defendant asking Court to ignore precise wording of Marine Insurance Act, s. 81 — Motion dismissed.
Practice — Parties — Subrogation — Plaintiff’s underwriters suing defendant in exercise of subrogation rights under builder’s risk policy — Whether underwriters prohibited from seeking subrogated recovery — Plaintiff not releasing defendant from liability — Subrogation cannot be obtained against insured itself — As matter of construction, defendant not insured under policy, underwriters not waiving subrogation rights — Underwriters on builder’s risk insurance policy written on marine form, covering ship not prohibited from seeking subrogated recovery against contractor who damaged ship.
Practice — Summary Judgment — Motion for summary judgment by defendant in relation to damage caused by fire to plaintiff’s ship — Court shall grant summary judgment if satisfied no genuine issue for trial — If satisfied only genuine issue question of law, Court may determine question — Sufficient evidence to determine whether as matter of law plaintiff’s underwriters prohibited from seeking subrogated recovery from defendant — Motion dismissed.
Constitutional Law — Distribution of Powers — Under Constitution Act, 1867, s. 91(10), “Navigation and Shipping” within federal jurisdiction — Insurance not enumerated class of subject — S.C.C. holding marine insurance, although matter falling within property and civil rights, assigned under Constitution to Parliament as part of navigation, shipping — Canadian maritime law uniform throughout country, not including provincial law except as might be incidental to resolution of dispute — Courts may make incremental changes to maritime, common law to further requirements of justice, fairness — Defendant asking Court to read down explicit language of Marine Insurance Act — Fire during building, conversion of ship not only maritime peril at large, but peril covered by policy.
This was a motion for summary judgment brought by the defendant in relation to damage caused by fire to the plaintiff’s ship while being restored. There was disagreement about the origin of the fire, but it was admitted that the plaintiff was insured under a builder’s risk policy and has been fully paid by its underwriters. In fact, the underwriters commenced the action in the plaintiff’s name in exercise of their subrogation rights. The defendant moved for dismissal of the action by way of summary judgment on the basis that “as a matter of law, underwriters of a Builder’s Risk Insurance Policy are prohibited from seeking subrogated recovery from a contractor or subcontractor on the project which was the subject of that policy.” It primarily relied on a rule of law, rather than upon the construction of its contract with the plaintiff and the wording of the plaintiff’s insurance policy. There were no exoneration from or limitation of liability clauses in the contract between the plaintiff and the defendant. There was not even a single word about insurance, or an indication that the plaintiff would insure the project, which could lead to an argument that the plaintiff had relieved the defendant from liability for losses caused by its negligence. The Insurance Policy, commonly referred to as a builder’s risk policy, covered the ship in question while undergoing refurbishment, overhaul and conversion. The plaintiff was not obliged under its contract with the defendant to name it as an insured. The subrogation clause provided that: “The Insured may, without prejudice, release prior to the happening of a loss, any persons or corporations from liability for loss from whatever cause arising to the within described property”. It was assumed that the plaintiff had not released the defendant from liability. The main issue was whether, as a matter of law, the underwriters were barred from taking a subrogated action, even if there were contra‑indications in the construction contract and in the insurance policy.
Held, the motion should be dismissed.
In considering whether it was appropriate to grant summary judgment at this stage, the Court had to take into account the actual language of the construction contract and the insurance policy, the cases cited by both parties, the basic principles of insurance such as the identity of the insured, insurable interests and subrogation, the constitutional treatment of marine insurance in comparison with other forms of insurance and the doctrine of privity of contract, the general principle being that no one can enforce a promise unless he has given consideration for it. If the Court is satisfied that there is no genuine issue for trial, it shall grant summary judgment. If the Court is satisfied that the only genuine issue is a question of law, it may determine that question. There was sufficient evidence to determine whether the plaintiff’s underwriters were prohibited from seeking subrogated recovery from the defendant, who admittedly was a contractor on the very project which was the subject of that policy.
In Commonwealth Construction Co. Ltd. v. Imperial Oil Ltd. et al., the Supreme Court of Canada began with the basic principle that subrogation cannot be obtained against the insured itself. That case, which dealt exclusively with the language of the policy, stood for the proposition that if a builder’s risk policy specifically insures subcontractors as a class, the insurable interest of such subcontractors extends beyond its own property to the project as a whole, so as to deprive underwriters of subrogated rights. An underwriter who pays one co‑insured cannot seek recovery from another co‑insured. As a matter of construction, the defendant was not insured under the policy and the underwriters did not waive subrogation rights. There was no evidence that the plaintiff released the defendant. Indeed, it put it on notice immediately following the loss. The cases relied upon by the defendant did not establish a rule of law that underwriters on a builders’ risk policy are prohibited from seeking subrogated recovery from a contractor on the insured project. The answer is to be found in the language used in the construction contract and in the policy. Marine insurance is treated quite differently constitutionally from other forms of insurance.
Under subsection 91(10) of the Constitution Act, 1867, Parliament may make laws in relation to “Navigation and Shipping”. Insurance is not an enumerated class of subject. However, the Supreme Court of Canada held that, although marine insurance is strictly speaking a matter falling within property and civil rights and as such a matter within provincial jurisdiction under subsection 92(13) of that Act, it was nevertheless assigned under the Constitution to Parliament as part of navigation and shipping. Marine insurance is not an application of insurance to the maritime area but a contract of maritime law. Canadian maritime law is uniform throughout the country, does not include provincial law except such law as might be necessarily incidental to the resolution of the dispute, and is based on English admiralty law as it was in 1934, subject to overriding Canadian statute and case law. The courts may make incremental changes to both maritime and common law to further the requirements of justice and fairness. The defendant was asking the Court to read down the explicit language of the Marine Insurance Act. As a matter of justice and fairness or policy, there was no need for such a change. A fire during building or conversion of a ship is not only a maritime peril at large, but a peril covered by the policy as it insured “against all risks of loss or damage to the subject‑matter insured.”
As a matter of law, underwriters on a builder’s risk insurance policy written on a marine form and covering a ship are not prohibited from seeking subrogated recovery against a contractor who damaged that ship. Section 81 of the Marine Insurance Act specifically provides that on payment “the insurer becomes entitled to assume the interest of the insured in the whole or part of the subject‑matter and is subrogated to all the rights and remedies of the insured in respect of the [insured].” If Parliament intended that there be a rule of law against subrogation on a builders’ risk policy, it would have specifically said so. The defendant was not seeking an incremental change to judge‑made law but was asking the Court to ignore the precise wording of a statute. Its motion for summary judgment was dismissed. There is no rule of law which deprives underwriters on a builder’s risk policy written on a marine form, the subject‑matter of which is maritime property, of subrogation rights against non‑insureds.
statutes and regulations judicially
considered
Constitution Act, 1867, 30 & 31 Vict., c. 3 (U.K.) (as am. by Canada Act 1982, 1982, c. 11 (U.K.), Schedule to the Constitution Act, 1982, Item 1) [R.S.C., 1985, Appendix II, No. 5], s. 91(10), 92(13), 101.
Contracts (Rights of Third Parties) Act 1999 (U.K.), 1999, c. 31.
Federal Court Act, R.S.C. 1970 (2nd Supp.), c. 10, s. 22.
Federal Courts Rules, SOR/98‑106, rr. 1 (as am. by SOR/2004‑283, s. 2), 213, 216(3).
Marine Insurance Act, S.C. 1993, c. 22, ss. 2(1) “marine adventure”, “maritime perils”, 6(1), 81.
cases judicially considered
applied:
Commonwealth Construction Co. Ltd. v. Imperial Oil Ltd. et al., [1978] 1 S.C.R. 317; (1976), 1 A.R. 161; 69 D.L.R. (3d) 558; [1976] 6 W.W.R. 219; [1976] I.L.R. 331; 12 N.R. 113; Triglav, Zavarovalna Skupnost, (Insurance Community Triglav Ltd.) v. Terrasses Jewellers Inc. et al., [1983] 1 S.C.R. 283; [1983] I.L.R. 6243; (1983), 54 N.R. 321; Bow Valley Husky (Bermuda) Ltd. v. Saint John Shipbuilding Ltd., [1997] 3 S.C.R. 1210; (1997), 153 D.L.R. (4th) 385; 158 Nfld. & P.E.I.R. 269; 37 B.L.R. (2d) 1; 48 C.C.L.I. (2d) 1; 40 C.C.L.T. (2d) 235; 221 N.R. 1; Fraser River Pile & Dredge Ltd. v. Can‑Dive Services Ltd., [1999] 3 S.C.R. 108; (1999), 176 D.L.R. (4th) 257; [1999] 9 W.W.R. 380; 127 B.C.A.C. 287; 67 B.C.L.R. (3d) 213; 50 B.L.R. (2d) 169; 11 C.C.L.I. (3d) 1; 47 C.C.L.T. (2d) 1; [1999] I.L.R. 3717; 245 N.R. 88.
considered:
Sylvan Industries Ltd. v. Fairview Sheet Metal Works Ltd. (1994), 113 D.L.R. (4th) 493; [1994] 5 W.W.R. 449; 42 B.C.A.C. 147; 89 B.C.L.R. 2d) 18; 22 C.C.L.I. (2d) 175; 14 C.L.R. (2d) 22; [1994] I.L.R. 2961 (B.C.C.A.); Earl A. Redmond Inc. v. Blair LaPierre Inc. (1995), 127 Nfld. & P.E.I.R. 329; 27 C.C.L.I. (2d) 201 (P.E.I.S.C. (T.D.)); 529198 Alberta Ltd. v. Thibeault Masonry Ltd. (2001), 306 A.R. 143; [2002] 11 W.W.R. 330; 6 Alta. L.R. (4th) 323; 4 C.C.L.I. (4th) 37; 19 C.L.R. (3d) 63; 2001 ABQB 1108; Citizens Insurance Company of Canada v. Parsons (1881), 7 App. Cas. 96 (P.C.).
referred to:
St. Lawrence Cement Inc. v. Wakeham & Sons Ltd. (1996), 26 O.R. (3d) 321; 23 B.L.R. (2d) 1; 86 O.A.C. 182 (C.A.); Madison Developments Ltd. v. Plan Electric Co. (1997), 36 O.R. (3d) 80; 152 D.L.R. (4th) 643; 35 C.L.R. (2d) 147; 104 O.A.C. 194 (C.A.); Timcon Construction Ltd. v. Riddle, McCann, Tattenbury & Assoc. Ltd. (1981), 16 Alta. L.R. (2d) 134 (Q.B.); A. Tomlinson (Hauliers), Ltd. v. Hepburn, [1966] 1 Lloyd’s Rep. 110 (H.L.); ITO—International Terminal Operators Ltd. v. Miida Electronics Inc. et al., [1986] 1 S.C.R. 752; (1986), 28 D.L.R. (4th) 641; 34 B.L.R. 251; 68 N.R. 241; Adler v. Dickson and Another, [1954] 2 Lloyd’s Rep. 267 (C.A.); London Drugs Ltd. v. Kuehne & Nagel International Ltd., [1992] 3 S.C.R. 299; (1992), 97 D.L.R. (4th) 261; [1993] 1 W.W.R. 1; 73 B.C.L.R. (2d) 1; 43 C.C.E.L. 1; 13 C.C.L.T. (2d) 1; 143 N.R. 1; 31 W.A.C. 1; Stone Vickers Ltd. v. Appledore Ferguson Shipbuilders Ltd., [1992] 2 Lloyd’s Rep. 578 (C.A.); National Oilwell (U.K.) Ltd. v. Davy Offshore Ltd., [1993] 2 Lloyd’s Rep. 582 (Q.B. (Com. Ct.)); Petrofina (U.K.) Ltd. and Others v. Magnaload Ltd. and Others, [1983] 2 Lloyd’s Rep. 91 (Q.B. (Com. Ct.)).
MOTION for summary judgment brought by the defendant on the basis that underwriters of a builder’s risk insurance policy are prohibited from seeking subrogated recovery from a contractor or subcontractor on the project which was the subject of that policy. Motion dismissed.
appearances:
Christopher J. Giaschi for plaintiff.
A. William Moreira, Q.C. for defendant.
solicitors of record:
Giaschi & Margolis, Vancouver, for plaintiff.
Stewart McKelvey Stirling Scales, Halifax, for defendant.
The following are the reasons for judgment and judgment rendered in English by
[1]Harrington J.: The plaintiff, Secunda Marine Services Limited, hired the defendant, Fabco Industries Limited, to work on a major refit of their ship, the Burin Sea. Instead, they burned her down, or so the story goes I’m told.
[2]Fabco tells quite a different story. Although it admits that a fire broke out while its employees were welding, it denies that the fire, and subsequent damage, arose from a breach of contract or breach of any other legal duty. It alleges that at the time of the fire, it was Secunda who was supervising the work. In the alternative, it further alleges that Secunda itself caused, or contributed to the fire in a number of ways such as by its failure to maintain a fire watch and by placing combustible materials in a space which had been certified for hot work. These are all triable issues.
[3]More to the point, Fabco alleges that Secunda was insured under a builder’s risk policy and has recovered from its underwriters. Secunda admits that allegation. In reality, this action has been taken in Secunda’s name by underwriters in exercise of their subrogation rights.
[4]Fabco says that the underwriters are barred from suing it because it is an unnamed insured under the policy, or at least benefits from a waiver of subrogation. In either case, it does not matter if it would otherwise be liable for the damage caused by the fire; this action is doomed to fail.
[5]Fabco moves for dismissal of the action by way of summary judgment, because, to use its words: “as a matter of law, underwriters of a Builder’s Risk Insurance Policy are prohibited from seeking subrogated recovery from a contractor or subcontractor on the project which was the subject of that policy.” It is significant that Fabco primarily relies on a rule of law, rather than upon the construction of its contract with Secunda and the wording of Secunda’s insurance policy.
[6]Secunda does not oppose the motion. Rather, it welcomes it and actually treats it as an opportunity to have this insurance point decided at an early stage of the proceedings. Indeed, in the spirit of co-operation which one has come to expect from the admiralty bar, the parties set aside two potentially thorny issues in the hope that the Court would deal with Fabco’s motion on the merits. The first point is the deductible under Secunda’s policy. The parties have reached a side agreement which allows the Court to proceed on the basis that Secunda was fully paid. The second point is whether, as a matter of construction of the policy, Secunda had to release Fabco from liability prior to the loss in order that the underwriters be deprived of their subrogation rights. Fabco says it does not matter whether or not Secunda had released it from liability because, in any event, the underwriters are barred from pursuing it as a rule of law. However, if it is wrong and the action proceeds further, it reserves the right to introduce evidence that Secunda had released it from liability.
[7]Secunda takes the position that the cases relied upon by Fabco, which deal with land‑based construction projects, and thus governed by provincial law, do not establish any such rule of law. Rather they were grounded in the specific language of the construction contracts and the insurance policies in question. Alternatively, if they do stand for such a rule it should not be extended to marine insurance which, unlike other forms of insurance, is a federal matter under the Constitution Act, 1867 [30 & 31 Vict., c. 3 (U.K.) (as am. by Canada Act 1982, 1982, c. 11 (U.K.), Schedule to the Constitution Act, 1982, Item 1) [R.S.C., 1985, Appendix II, No. 5]].
[8]The case raises a number of interesting points. The Court must consider whether it is appropriate to grant summary judgment at this stage. In reaching a decision, the Court must take into account the actual language of the construction contract and of the insurance policy, the cases cited by both parties, basic principles of insurance such as the identity of the insured, insurable interests and subrogation, the constitutional treatment of marine insurance in comparison with other forms of insurance and the doctrine of privity of contract, the general principle being that no one can enforce a promise unless he has given consideration for it.
PRINCIPLES OF SUMMARY JUDGMENT
[9]Motions for summary judgment are governed by Federal Courts Rules [SOR/98-106, s. 1 (as am. by SOR/2004-283, s. 2)], rule 213 and following. If the Court is satisfied that there is no genuine issue for trial, it shall grant summary judgment. If the Court is satisfied that the only genuine issue is a question of law, it may determine that question. It may also grant part of the application so that the action would then continue on a restricted basis. Subsection 216(3) of the Rules contemplates that the Court may not only dismiss the application but in so doing may actually grant summary judgment in favour of the respondent.
[10]I am satisfied that there is sufficient evidence before me to determine whether as a matter of law Secunda’s underwriters are prohibited from seeking subrogated recovery from Fabco, who admittedly was a contractor on the very project which was the subject of that policy.
ISSUES
[11]The first issue is whether, as a matter of construction, the underwriters are prohibited from seeking subrogated recovery. In exercising their subrogated rights, they are in no better position than Secunda itself. If Fabco is not liable to Secunda, then the action must fail. The underwriters would also be barred if Fabco is an insured under the policy, or at least a third party beneficiary of a waiver of subrogation clause.
[12]The second issue is whether as a matter of law the underwriters are barred from taking a subrogated action, even if there are contra-indications in the construction contract and in the insurance policy.
[13]Finally, if, as a matter of law, underwriters on a builder’s risk insurance policy are prohibited from seeking subrogated recovery from a contractor, does that principle extend to marine insurance?
The Contract Between Secunda and Fabco
[14]Secunda acted as its own general contractor. Its contract with Fabco is to be found in letters and purchase orders. Daly Snow, Fabco’s president at the time, describes it well. “In very general terms, the scope of work to be performed . . . was modification of the steel hull, superstructure and equipment of Burin Sea, including welding services.” He went on to admit “a fire broke out in the Burin Sea’s bridge following welding of a beam by one of Fabco’s employees.”
[15]There are no exoneration from or limitation of liability clauses in the contract. There is not even a single word about insurance, or an indication that Secunda would insure the project, which could lead to an argument that Secunda had relieved Fabco from liability for losses caused by its negligence (St. Lawrence Cement Inc. v. Wakeham & Sons Ltd. (1996), 26 O.R. (3d) 321 (C.A.)).
The Insurance Policy
[16]Turning now to the policy, which is in a manuscript form prepared by Secunda’s broker, Sedgwick Limited; it is entitled a “Policy of Insurance”. However, it is clear, and it is not disputed, that it is what is commonly referred to as a builder’s risk policy. It covered the Burin Sea and the Trinity Sea “whilst undergoing refurbishment, overhaul and conversion.” It incorporates the “Institute Clauses for Builders’ Risk” and had been characterized by all concerned as that type of policy. I am satisfied that the refit of the Burin Sea was a construction project of greater magnitude than the work carried out in some of the cases Fabco cites.
[17]The insured and loss payees are Secunda and Canadian Imperial Bank of Commerce. As is fairly common in marine matters, it is a valued policy: $15,500,000 for each ship.
[18]The underwriters agreed “to insure against loss or damage liability or expense in the proportions and manner hereinafter provided.” There is no specific provision extending the property aspects of the policy to property not owned by the insured.
[19]Two clauses require specific consideration. The “Additional assureds and waivers of subrogation” clause and the “Subrogation” clause.
[20]The policy covered the assureds’ “subsidiary, affiliated or interrelated companies.” Fabco is not such a company. However, the clause continues:
Privilege is hereby granted the Assured to name others as required by contract or for whom the Assured is performing work as additional assureds on this policy, provided the Assured shall have exercised this option prior to loss. Privilege is also granted the Assured to release from liability others as required by contract or for whom the Assured is performing operations or who are performing operations for the Assured, provided the Assured shall have exercised this option prior to loss; and these insurers waive all rights of subrogation against any parties so released.
Secunda was not obliged under its contract with Fabco to name Fabco as an insured. I am also to presume that it did not in fact name Fabco to the underwriters.
[21]The subrogation clause provides: “The Insured may, without prejudice, release prior to the happening of a loss, any persons or corporations (including transportation companies), from liability for loss from whatever cause arising to the within described property.” Again, I am to act on the assumption that Secunda had not released Fabco from liability.
The Cases: Insureds and Subrogation
[22]It is convenient to consider the cases relied upon by Fabco at this stage. Fabco recognizes that the earlier cases it cites were anchored in the specific language of the construction contract and the insurance policy before the Court, but submits the more recent cases have advanced to the stage that what had been a rule of construction has now become a rule of law.
[23]Fabco begins with the decision of Mr. Justice de Grandpré in Commonwealth Construction Co. Ltd. v. Imperial Oil Ltd. et al., [1978] 1 S.C.R. 317. Imperial Oil had retained the services of a general contractor for the construction of a fertilizer plant. Commonwealth Construction was a subcontractor whose workmen negligently caused a fire, which resulted in slight damage to its own property and to the portion of the project on which it was engaged. However, extensive damage was caused to the remainder of the project. Imperial had taken out a multi‑peril policy which described the insured as “Imperial Oil Ltd. . . . and any of their contractors and subcontractors.”
[24]The loss payable clause was in favour of “Insured or order.”
[25]It was agreed that Commonwealth Construction was insured with respect to damage to its own property, which was in the amount of $305. The real issue was not whether Commonwealth Construction was an insured, but whether it was only insured to the extent of the portion of the work it performed under the subcontract.
[26]The Court began with the basic principle that subrogation cannot be obtained against the insured itself. The policy covered:
. . . all materials, machinery, equipment including labour charges, and all other property of any nature whatsoever owned by Insured or in which the Insured may have an interest or responsibility or for which the Insured may be liable or assume liability prior to loss or damage to be used or incidental to the fabrication, installation, completion, upkeep, expansion, modification, and all other changes or extensions (whether defined herein or not), all pertaining to the Fertilizer Plant situated at Redwater, Alberta.
[27]Mr. Justice de Grandpré said the issue was whether in the context of a construction contract, the various trades, prior to the loss, had such a relationship with the entire works that their potential liability for damage thereto constituted an insurable interest in the whole.
[28]Drawing on the principles of bailment, and the bailee’s risk of liability, the Court held that Commonwealth Construction had an insurable interest in the project as a whole.
[29]Fabco seizes upon Mr. Justice de Grandpré’s underlying philosophy. He said at pages 323-324:
On any construction site, and especially when the building being erected is a complex chemical plant, there is ever present the possibility of damage by one tradesman to the property of another and to the construction as a whole. Should this possibility become reality, the question of negligence in the absence of complete property coverage would have to be debated in court. By recognizing in all tradesmen an insurable interest based on that very real possibility, which itself has its source in the contractual arrangements opening the doors of the job site to the tradesmen, the courts would apply to the construction field the principle expressed so long ago in the area of bailment. Thus all the parties whose joint efforts have one common goal, e.g., the completion of the construction, would be spared the necessity of fighting between themselves should an accident occur involving the possible responsibility of one of them.
[30]However, it is clear that he was basing himself on the language of the contracts. He said at page 328:
It follows that the clause upon which the insurers rely to claim subrogation in the case at bar, does not support their contention. By that clause, the policy makes it clear that it is only to the rights of the group against outside parties that the insurers are entitled to proceed by way of subrogation.
The conclusion I have expressed is based on an ordinary reading of the subrogation clause as well as on the general text of the policy. In my eyes, it also conforms to the intent of the drafters of this type of insurance, as well as to the intent of the parties to the construction contract in the case at bar.
[31]Commonwealth Construction dealt exclusively with the language of the policy. The Court expressly refrained from considering the terms and conditions of Commonwealth Construction’s contract with the general contractor. The case stands for the proposition that if a builder’s risk policy specifically insures subcontractors as a class, the insurable interest of such subcontractors extends beyond its own property to the project as a whole, so as to deprive underwriters of subrogated rights. An underwriter who pays one co‑insured cannot seek recovery from another co‑insured.
[32]Fabco also relies on three subsequent cases decided on the same policy wording:
This policy, except as herein provided, insures
(a) property in the course of construction, installation, reconstruction or repair
(i) owned by the insured;
(ii) owned by others, provided that the value of such property is included in the amount insured;
all to enter into and form part of the completed project including expendable materials and supplies not otherwise excluded, necessary to complete the project.
The three cases are: Sylvan Industries Ltd. v. Fairview Sheet Metal Works Ltd. (1994), 113 D.L.R. (4th) 493 (B.C.C.A.); Earl A. Redmond Inc. v. Blair LaPierre Inc. (1995), 127 Nfld. & P.E.I.R. 329 (P.E.I.S.C. (T.D.)) and Madison Developments Ltd. v. Plan Electric Co. (1997), 152 D.L.R. (4th) 643 (C.A.).
[33]Another case relied upon by Fabco, Timcon Construction Ltd. v. Riddle, McCann, Tattenbury & Assoc. Ltd. (1981), 16 Alta. L.R. (2d) 134 (Q.B.), had very similar wording.
[34]In each of these cases the contractor, or subcontractor, was a member of an insured class, i.e. those whose property was computed in the insured value. It follows, based on Commonwealth Construction, that their insurable interest extended to the entire project so that having paid a coinsured, underwriters were barred from seeking recovery from another coinsured. Indeed, all four cases make reference to the intention of the parties.
[35]However, Fabco submits that some of the policy considerations referred to were independent from the actual language of the contracts. In Sylvan, the British Columbia Court of Appeal said [at page 497] that “Canadian law treats the builders’ risk policy as a unique species of insurance contract.” Certainly, this type of all-risk or multi‑risk policy is not identified by name in non‑marine insurance statutes. Nominate provincial policies may include automobile, fire, life, accident and sickness, livestock and home warranties.
[36]Redmond may have gone a step further by referring to public policy. Nevertheless, DesRoches J., as he then was, concluded at paragraph 25: “My finding is based on the wording of the Builders’ All Risk policy issued to the plaintiff and on article 12 of the contract between the plaintiff and the defendant, as well as on considerations of public policy and the jurisprudence on the issue.”
[37]It is important not to take statements in isolation and build too much upon them. See A. Tomlinson (Hauliers), Ltd. v. Hepburn, [1966] 1 Lloyd’s Rep 110 (H.L.) a decision relied upon in Commonwealth Construction. As Lord Reid noted, the question of whether a bailee has taken out a goods policy or whether he is only insured against personal loss or liability must depend on the true construction of the policy.
[38]Another decision relied upon by Fabco is 529198 Alberta Ltd. v. Thibeault Masonry Ltd. (2001), 306 A.R. 143, a decision of the Alberta Court of Queen’s Bench. This case went further than other builders’ risk policies in that the policy, unlike those referred to above, did not specifically cover property of subcontractors the value of which was included in the value of the work. Nevertheless, the Court held that the property coverage in question which was on “buildings while in the course of construction” would include the work of subcontractors as the value of a construction project necessarily includes the sum of materials, supplies and labour of the subcontractors. The Court concluded that the subcontractor Thibeault was an unnamed insured under the policy, especially in light of the commercial purposes of such policies.
[39]One could argue that since the scope of coverage in the case at bar was on “the vessels Burin Sea and Trinity Sea whilst undergoing refurbishment, overhaul and conversion”, Fabco was a co-insured under the policy. Even if that proposition were true, which I doubt, in this case any such presumption is rebutted by the specific language of the insurance policy. In order to be insured, Secunda was required “to name others as additional assureds on this policy”. That option had to be exercised prior to the loss. I have been asked to proceed on the basis that Secunda did not name Fabco as an insured at any time.
[40]To conclude on this point, I hold, that as a matter of construction, Fabco is not insured under the policy. Quite apart from that, underwriters, as noted in such cases as Commonwealth Construction, may waive subrogation rights. However, and again as a matter of construction, the underwriters did not do so, as it was a policy requirement that Secunda “release prior to the happening of a loss, any persons or corporations . . . from liability from loss from whatever cause arising to the within described property.” There is no evidence that Secunda released Fabco. Indeed, it put it on notice immediately following the loss.
RULE OF LAW FAVOURS SUBROGATION
[41]It follows, in my view the cases relied upon by Fabco do not establish a rule of law that underwriters on a builder’s risk policy are prohibited from seeking subrogated recovery from a contractor on the insured project. The answer is to be found in the language used in the construction contract and in the policy. However, the inquiry does not end there. Marine insurance is treated quite differently constitutionally from other forms of insurance. Even though there is no such rule of law when it comes to land‑based construction policies, there could be such a rule when it comes to the construction of a ship. We must look to the Marine Insurance Act, S.C. 1993 c. 22, as well as the doctrine of privity of contract.
A WORD ABOUT THE CONSTITUTION
[42]Under the British North America Act, 1867, patriated to Canada as the Constitution Act, 1867, Parliament may make laws in relation to “Navigation and Shipping” (subsection 91(10)). The provincial legislatures under subsection 92(13) may make laws in relation to “Property and Civil Rights in the Province”. Insurance is not an enumerated class of subject. Generally speaking, the administration of justice, including the organization of courts, is a provincial matter. However, the federal Parliament may organize a general court of appeal for Canada (which is the Supreme Court) and establish [at section 101] “additional Courts for the better Administration of the Laws of Canada.”
[43]The Federal Court is such a Court, established by the Federal Court Act in 1971 [R.S.C. 1970 (2nd Supp.), c. 10]. Section 22 of that Act gives the Court concurrent jurisdiction in all cases under Canadian maritime law or any other law of Canada relating to navigation and shipping, unless that jurisdiction is otherwise specifically assigned. For greater certainty, any claim “arising out of a contract relating to the construction, repair or equipping of a ship” [s. 22(2)(n)] and any claim “arising out of or in connection with a contract of marine insurance” [s. 22(2)(r)] fall within Canadian maritime law.
[44]There were many who thought that Parliament’s conferring of marine insurance jurisdiction on the Federal Court was unconstitutional because it had been held in Citizens Insurance Company of Canada v. Parsons (1881), 7 App. Cas. 96 (P.C.) that insurance policies were a matter of property and civil rights and thus within provincial legislative jurisdiction.
[45]These concerns were laid to rest by the Supreme Court in Triglav, Zavarovalna Skupnost, (Insurance Community Triglav Ltd.) v. Terrasses Jewellers Inc. et al., [1983] 1 S.C.R. 283. The Court held that although marine insurance is strictly speaking a matter falling within property and civil rights, it nevertheless was assigned under the Constitution to Parliament as part of navigation and shipping.
[46]Marine insurance, and other allocations of risk, be they limited to those within the adventure or extended to those beyond, such as general average and bottomry and respondentia, preceded other forms of insurance, and have unique characteristics.
[47]Chouinard J., in speaking for the Court, said at page 298:
It is wrong in my opinion to treat marine insurance in the same way as the other forms of insurance which are derived from it, and from which it would be distinguishable only by its object, a maritime venture. It is also incorrect to say that marine insurance does not form part of the activities of navigation and shipping, and that, although applied to activities of this nature, it remains a part of insurance.
Marine insurance is first and foremost a contract of maritime law. It is not an application of insurance to the maritime area. Rather, it is the other forms of insurance which are applications to other areas of principles borrowed from marine insurance.
[48]Canadian maritime law is uniform throughout the country, does not include provincial law except such law as might be necessarily incidental to the resolution of the dispute, and is based on English admiralty law as it was in 1934, subject to being overridden by Canadian statute and Canadian jurisprudence (ITO—International Terminal Operators Ltd. v. Miida Electronics Inc.), [1986] 1 S.C.R. 752 (the Buenos Aires Maru)).
[49]Even if, as Fabco contends, there were a provincial rule of law against underwriters on builders’ risk policies taking subrogation against contractors and subcontractors, such a rule would not be incidental to the resolution of a maritime dispute, and thus would not fall automatically within maritime law. In Bow Valley Husky (Bermuda) Ltd. v. Saint John Shipbuilding Ltd., [1997] 3 S.C.R. 1210, the Supreme Court held that Canadian maritime law did not include a provincial contributory negligence statute. The same reasoning applies here. However, Bow Valley, and other cases, state that the courts may make incremental changes to both maritime and common law to further the requirements of justice and fairness. Therefore, one must ask whether Fabco is seeking an incremental change to maritime law and, if so, whether it is appropriate in the interests of justice and fairness to implement such a change.
[50]My opinion runs against Fabco primarily because it is asking the Court to read down the explicit language of the Marine Insurance Act. Furthermore, as a matter of justice and fairness or policy, call it what you will, I see no need for such a change.
[51]In the Marine Insurance Act [s. 2(1)], “marine adventure” means any situation where insurable property is exposed to maritime perils. “Maritime perils” in turn include fire and “in respect of a marine policy, any peril designated by the policy.” It is clear that a fire during building or conversion of a ship is not only a maritime peril at large, but was a peril covered by the policy as it insured “against all risks of loss of or damage to the subject‑matter insured.” The policy in the Sedgwick manuscript form is without question a marine policy.
[52]If there were any doubt, subsection 6(1) of the Act covers against:
6. (1) . . .
(a) losses that are incidental to a marine adventure … or
(b) losses that are incidental to the building, repair or launch of a ship.
[53]Turning now to the proposition whether as a matter of law, underwriters on a builders’ risk insurance policy written on a marine form and covering a ship are prohibited from seeking subrogated recovery against a contractor who damaged that ship, I must answer in the negative. I base myself on section 81 of the Act and on the decision of the Supreme Court in Fraser River Pile & Dredge Ltd. v. Can‑Dive Services Ltd., [1999] 3 S.C.R. 108.
[54]Section 81 of the Marine Insurance Act specifically provides that on payment “the insurer becomes entitled to assume the interest of the insured in the whole or part of the subject‑matter and is subrogated to all the rights and remedies of the insured in respect of [the insured].” Although it is said that a builders’ risk policy is unique within the context of land‑based construction projects, subject to provincial insurance acts, there is nothing unique about a builders’ risk policy in the maritime context. Builders’ risks with respect to a ship has been carved out of their natural home as a maritime peril to which a marine adventure may be subject and have been given separate standing, so much so that section 6 of the Act only recognizes two forms of marine insurance: losses incidental to a marine adventure or losses incidental to the building, repair or launching of a ship.
[55]Surely if Parliament intended that there be a rule of law against subrogation on a builders’ risk policy, it would have specifically said so. Fabco is not seeking an incremental change to judge-made law. It is asking the Court to ignore the precise wording of a statute.
[56]Maritime law has constantly been wrestling with the concept of privity of contract. Following of the decision of Lord Denning in Adler v. Dickson and Another, [1954] 2 Lloyd’s Rep. 267 (C.A.) (the Himalaya), rather convoluted “Himalaya Clauses” found their way into bills of lading. Bills of lading armed with such a clause not only evidenced a contract between the shipper and the ocean carrier, but also evidenced an offer to the shipper from the carrier’s subcontractors, through the agency of the carrier, to perform the services they had already promised the carrier they would perform, services such as stevedoring, in exchange for the shipper’s promise to either not sue them at all or to extend to them the same limitations and exonerations of liability the carrier enjoyed. This promise from subcontractors to the shipper to do what they were already contractually bound to the carrier to do constituted consideration on a collateral contract. It was commercially convenient to give effect to such circuitous contracts. Their validity was recognized by the Supreme Court in the Buenos Aires Maru case.
[57]The Court then extended this concept to provincial warehousemen in London Drugs Ltd. v. Kuehne & Nagel International Ltd., [1992] 3 S.C.R. 299. Finally, and in a marine insurance context at that, the Supreme Court recognized these clauses for what they are, namely stipulations for the benefit of a third party. The Fraser River case arose from the sinking of the barge Sceptre Squamish owned by Fraser River and, at the time of loss, under charter to Can‑Dive. Can‑Dive did not dispute that the loss resulted from its negligence, but contended that it could not be held liable in what was a subrogated action by Fraser River’s underwriters. This case is distinguishable from the cases cited by Fabco in that, on the language of the policy, Can‑Dive was not an additional insured. However, in the policy “it is agreed that the Insurers waive any right of subrogation against . . . any charterer.”
[58]The charter party did not require Fraser River to take out insurance, and as Can‑Dive was unaware prior to the loss that underwriters had purported to waive subrogation rights against it, it can hardly be said to have given consideration. Nevertheless, the Court held that London Drugs was a principled exception to the doctrine of privity of contract, which would have required Can‑Dive to give contractual consideration.
[59]Iacobucci J., speaking for the Court, said, at paragraphs 32-33:
In terms of extending the principled approach to establishing a new exception to the doctrine of privity of contract relevant to the circumstances of the appeal, regard must be had to the emphasis in London Drugs that a new exception first and foremost must be dependent upon the intention of the contracting parties. Accordingly, extrapolating from the specific requirements as set out in London Drugs, the determination in general terms is made on the basis of two critical and cumulative factors: (a) Did the parties to the contract intend to extend the benefit in question to the third party seeking to rely on the contractual provision? and (b) Are the activities performed by the third party seeking to rely on the contractual provision the very activities contemplated as coming within the scope of the contract in general, or the provision in particular, again as determined by reference to the intentions of the parties?
(a) Intentions of the Parties
As to the first inquiry, Can‑Dive has a very compelling case in favour of relaxing the doctrine of privity in these circumstances, given the express reference in the waiver of subrogation clause to “charterer(s)”, a class of intended third‑party beneficiaries that, on a plain reading of the contract, includes Can‑Dive within the scope of the term.
[60]In taking into account policy reasons in favour of the principled exception to the doctrine of privity, the Court specifically referred to Commonwealth Construction.
[61]Fraser River was a case governed by Canadian maritime law. The Court held that if, as a result of the language in the policy, the underwriter waived subrogation against a charterer it was barred from seeking recovery. There is no difference, in this context, between a charterer and a subcontractor constructing a ship, and so there is no rule of maritime law barring subrogation.
[62]Fabco had suggested that while the Canadian cases provide for a rule of law, the English cases may not. Mention was made of Stone Vickers Ltd. v. Appledore Ferguson Shipbuilders Ltd., [1992] 2 Lloyd’s Rep. 578 (C.A.) and National Oilwell (U.K.) Ltd. v. Davy Offshore Ltd., [1993] 2 Lloyd’s Rep. 582 (Q.B. (Com. Ct.)).
[63]Secunda countered that there was no difference between the Canadian and English cases; both relied upon the construction of the contracts. It referred to Petrofina (U.K.) Ltd. and Others v. Magnaload Ltd. and Others, [1983] 2 Lloyd’s Rep 91 (Q.B. (Com. Ct.)), which applied Commonwealth Construction, the point being that a party engaged on a contract may insure the entire work as well as his own property.
[64]As interesting as a comparison may be, there is nothing to be gained by indulging in such an exercise in the present case. The old common-law doctrine of privity of contract was too inflexible and allowed parties to escape the consequences of serious promises. The common law was reformed in the United Kingdom by the passage of the Contracts (Rights of Third Parties) Act 1999 [(U.K.), 1999, c. 31]. However, under Canadian contract law, both marine and common, the reform has been led by the courts. A waiver of subrogation is a stipulation for the benefit of a third party, which in accordance with Fraser River is directly enforceable by that party. Contractors and subcontractors who wish to exonerate themselves or limit their liability should negotiate their contracts accordingly. Intention is paramount. Indeed, the underwriters implicitly recognized that a construction contract might require Secunda to take out insurance for the benefit of a subcontractor or to waive liability. It would be foolhardy for a contractor or subcontractor to fail to address this problem. By not doing so, it would not know what insurance the owner had, the terms thereof or even if it was insured. Canada is a great trading nation. Many of the ships plying our waters are foreign. A foreign ship may require extensive repair following a collision. Its underwriters will likely be foreign, and a contractor or subcontractor should not assume that it is a beneficiary, in one fashion or another, of that foreign insurance policy. Indeed, Fabco had taken out its own shipbuilders’ liability cover.
CONCLUSION
[65]For these reasons, Fabco’s motion for summary judgment shall be dismissed. There is no rule of law which deprives underwriters on a builder’s risk policy written on a marine form, the subject-matter of which is maritime property, of subrogation rights against non‑insureds. Secunda shall have its costs.
JUDGMENT
Defendant’s motion for summary judgment is dismissed with costs.