Canadian Underwriter

Broken Vessels

January 1, 2017   by Greg Meckbach, Associate Editor

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Canadian Board of Marine Underwriters Fall Conference


There is “a lot of capacity” in the Canadian marine insurance market, the Canadian Board of Marine Underwriters (CBMU) president reported at the organization’s recent fall conference. Guest speakers gave presentations on a range of topics, including Hanjin Shipping’s insolvency, how courts use surrounding circumstances when interpreting contracts and the impact on insurance of the SpaceX disaster in Florida that destroyed the AMOS-6 telecommunications satellite.


A Supreme Court of Canada ruling released last year has “huge ramifications” for employers in the trucking industry, a lawyer suggested during the Canadian Board of Marine Underwriters (CBMU) fall conference in late November.

In its ruling in Wilson v. Atomic Energy of Canada Ltd. (AECL), Canada’s highest court “held that federally regulated employees cannot be terminated absent cause,” reported lawyer Rui Fernandes, whose clients include transportation and insurance companies. “So if you want to terminate someone, and you just want to give them severance pay for the notice period that normally is given, you can’t do that, which means that if you operate an airline, a shipping company, inter-provincial trucks and railways, you can’t terminate your employees without cause.”

Fernandes, a partner with Fernandes Hearn LLP, made his remarks November 29 during a presentation at the CBMU conference. Membership in CBMU is open to companies underwriting marine insurance in Canada.

Wake of Container Ship

Court records indicate that AECL hired Joseph Wilson in 2005 as a buyer/order administrator. Wilson was later promoted to procurement supervisor and had a clean disciplinary record. He was dismissed in November 2009 and paid six months of severance.

Wilson filed an unjust dismissal complaint in accordance with the Canada Labour Code, which gives the federal labour department the authority to appoint adjudicators to hear complaints. In Wilson’s complaint, an adjudicator ruled that the code did not allow dismissals without cause.

AECL applied for judicial review to the Federal Court, which ruled in favour of AECL. The court ruling was upheld in 2015 by the Federal Court of Appeal, but overturned last year by the Supreme Court of Canada, in a divided ruling.

“An employee dismissed without cause, but given reasonable notice is not wrongfully dismissed,” Justice David Stratas of the Federal Court of Appeal wrote in 2015.

However, in 1978, the federal government amended the Canada Labour Code “to offer an alternative statutory scheme consisting of expansive protections much like those available to employees covered by a collective agreement,” Justice Rosalie Silberman Abella wrote for the majority of the Supreme Court of Canada, in a decision that was released July 14, 2016.

Industries covered by that statutory scheme include, among others, airlines, banks, broadcasting, inter-provincial and international services (such as railways, telecommunications, pipelines, canals and shipping) and Crown corporations.

The Supreme Court of Canada ruling against AECL “has huge ramifications for the trucking industry,” Fernandes said during the CBMU conference. “Generally it’s 180 degrees from previous position at law.”

Fernandes noted there are some exceptions – such as employees who have been employed less than 12 months, and where a position has been eliminated.

Section 241(1) of the Canada Labour Code – which requires employers to provide reasons for dismissal – would be redundant if employers could dismiss without cause, Justice Abella wrote.

“If an employee were ordered to be reinstated under Section 242(4)(b), it could well turn out to be a meaningless remedy if the employer could simply dismiss that employee again by giving notice and severance pay,” she added on behalf of the majority.

“You have to give them warnings,” Fernandes told conference attendees. “You can’t just say, ‘I don’t like you anymore, I will pay you to get rid of you.’ You can’t do that anymore.”


The marine insurance market is “very competitive,” though premiums worldwide dropped 10.5% from 2014 to 2015 due, in part, to currency fluctuations, the president of the Canadian Board of Marine Underwriters said at the organization’s recent fall conference.

In Canada’s marine insurance market, net premiums written were about $321 million in 2015, CBMU president Isabelle Therrien told attendees.

“The Canadian market is still very competitive and there is a lot of capacity,” Therrien reported. “There are new entrants coming into the marine market,” she said.

“With respect to hull, we are faced with an aging fleet of vessels and we are also faced with larger losses this year,” added Therrien, who is also vice president at Falvey Cargo Underwriting.

Of net premiums written in 2015, $109 million or 34% was in cargo, Therrien noted. A third, or $106 million, was in yacht, $55 million (17%) was in hull and $51 million (16%) was in marine liability, she said. Those figures are approximations.

Citing figures from the International Union of Marine Insurance, Therrien pointed out that the worldwide market in 2015 was US$29.9 billion, down 10.5% from 2014 as a result of mainly of currency fluctuations. Of the premiums in 2015, 25% was from hull, 53% was from cargo, 7% was from protection and indemnity, and 15% was from offshore energy.

In 2016 in Canada, there was a $3.5-million fishing vessel loss on the east coast of Canada, Therrien said. Another incident last year was the sinking of a barge in the St. Lawrence Seaway near Montreal, where the loss repairs and salvage is estimated to be more than $1 million.”There has been another barge that broke loose in B.C., causing a diesel spill and the word is that the pollution part of it, the spill, is said to have broken the $1 million primary limit of the P&I (property and indemnity) and the loss is expected to settle at upwards of $2 million.”

The Fort McMurray, Alberta wildfire “had a lot of impact” on the economy, Therrien said during her presentation, adding the Canadian economy has been “hit hard over the past couple of years,” with a decline in exports, a drop in crude oil prices and the depreciation of the Canadian dollar relative to U.S. currency.

“The most recent wildcard sits with the [North American Free Trade Agreement] that President-Elect [Donald] Trump wants to renegotiate,” she said. “If and when this happens it will certainly have an impact on our economy. To what extent? Only time will tell.”


When the Costa Concordia cruise ship capsized five years ago, it was the biggest marine loss “up to that point,” but that record was broken in late 2012 in the aftermath of Hurricane Sandy, a reinsurance professional told attendees of the Canadian Board of Marine Underwriters’ recent fall conference.

Hurricane Sandy was downgraded to tropical storm status before it made landfall about 200 kilometres south of New York City on October 29, 2012.

The marine loss from that storm was greater than US$2.5 billion, suggested Sean Dalton, head of marine underwriting, North America for Munich Re.

At the time, Swiss Re estimated total insured losses from Sandy at more than US$20 billion.

“If you look at losses during Super Storm Sandy, it wasn’t just cargo in the port areas that got damaged,” Dalton said. “It was warehouses sitting up in Secaucus, New Jersey that were completely inundated.”

Dalton made his remarks at the CBMU conference during the presentation, Accumulation, modelling and CAT Management in the Marine Market.

Lloyd’s reported earlier that 32 died after the Costa Concordia, which was carrying 4,200 passengers, capsized January 13, 2012 off the west coast of Italy. That tragedy resulted in “the largest and most expensive wreck removal operation in history,” Dalton said.

Marine insurance is “a tiny line,” with “anywhere from 1.5% to 4%” of global property and casualty insurance premiums, Dalton explained to attendees.

“But we get outsized attention, because when things go wrong, they are rather spectacular in nature,” he said.

Two more recent losses “will heavily hit the London market,” Dalton suggested.

One of those is the September 1 loss of a rocket and satellite. Space Exploration Technologies Corporation (SpaceX) was preparing to conduct a “pre-launch static fire test,” at Cape Canaveral, Florida, of the AMOS-6 satellite, SpaceX reported at the time. The AMOS 6 was built by government-owned Israel Aerospace Industries (IAI) and owned by Space Communication Ltd.

“An anomaly took place about eight minutes in advance of a scheduled test firing of a Falcon 9 rocket,” SpaceX reported. That “anomaly” caused both the rocket and satellite to be destroyed, The Associated Press reported at the time.

Israel Aerospace noted in 2012 its deal to design and produce the AMOS-6 for Space Communication was worth about US$195 million. The payload included 45 transponders, allowing the satellite to provide communication services, including direct satellite home Internet, adds IAI.

In addition to AMOS-6, another loss that will hit the London market is the bankruptcy proceedings of South Korean firm Hanjin Shipping Company Ltd., Dalton said.

Court documents indicate that as of June, 2016, Hanjin had loans – of more than 3 trillion South Korean Won – which “will mature within one year,” but which the firm will be unable to repay on time. At press time, the Canadian dollar was trading at about 900 Won.

“The performance of the maritime transportation business, which the Debtor is engaged in, deteriorated since the 2008 financial crisis after a lack of demand resulting from the ongoing contraction of the global economy, which led to a reduction in cargo volume and drop in freight charges over a long period of time,” Hanjin states in a filing in a United States court, in which it seeks relief from several creditors, including BNSF Railroad, Union Pacific Railroad, CN Rail, Yusen Terminals LLC and Maher Terminals.

“The Hanjin insolvency is going to bring some pretty significant container leasing losses,” Dalton argued.


A ruling two years ago by the Supreme Court of Canada means that courts will want to “determine the intent of the parities” when presented with contract disputes, a lawyer suggested during the recent fall conference of the Canadian Board of Marine Underwriters.

Court records indicate that in 2007, Creston Moly Corporation, formerly known as Georgia Ventures, agreed to pay a finder’s fee to Sattva Capital Corporation, which “introduced Creston to a potential molybdenum mining deposit in Mexico.”

That fee was to be paid in Creston Moly shares or a combination in cash and shares subject to certain conditions. But the firms disagreed as to which date should be used to determine the value of the Creston Moly shares, which were trading at 15 cents when Creston Moly agreed to buy the property, but at 70 cents each when the property sale closed.

An arbitrator’s 2008 ruling in favour of Sattva Capital was upheld by the Supreme Court of British Columbia, overturned by the province’s Court of Appeal and restored in 2014 by the Supreme Court of Canada.

“The Supreme Court essentially clarified how you interpret contracts,” Rui Fernandes, a partner with Fernandes Hearn LLP, told attendees during a presentation at CBMU’s fall conference.

In previous centuries, interpretation of contracts “had to be considered questions of law because only the judge could be assured to be literate and, therefore, capable of reading the contract,” Justice Marshall Rothstein of the Supreme Court of Canada wrote in Sattva.

But today, the interpretation of contracts “has evolved towards a practical common-sense approach not dominated by technical rules of construction,” Justice Rothstein added.

“The overriding concern of the court is to determine the intent of the parities and the scope of their understanding,” Fernandes told those attending the recent CBMU conference.

The Sattva ruling “did a little bit of a turn-around in saying courts can also look at the surrounding circumstances that existed when the contracts were made,” Fernandes added.

The Supreme Court of Canada also found that the standard of review, on appeal, in the Sattva case, was reasonableness rather than correctness.

“In the context of commercial arbitration, where appeals are restricted to questions of law, the standard of review will be reasonableness unless the question is one that would attract the correctness standard, such as constitutional questions or questions of law of central importance to the legal system as a whole and outside the adjudicator’s expertise,” Justice Rothstein wrote.

But the Sattva ruling “should not be read as holding that contractual interpretation is always a question of mixed fact and law, and always owed deference on appeal,” Justice Richard Wagner of the Supreme Court of Canada wrote in the 2016 ruling, Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., against insurers over a faulty workmanship exclusion in a builder’s risk policy.

In Ledcor, “the Supreme Court said, ‘Yes we did say in Sattva that the standard of review was reasonableness, but in a standard form contract, such as insurance, it’s going to be correctness,'” Fernandes told conference attendees.

The court “made a comment that contractual interpretation with a factual matrix – what was going on in the background – carries less weight in the interpretation of standard form contracts,” Fernandes explained. The Ledcor case arose when windows were damaged during cleaning on an Edmonton office tower under construction.

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