Why this marine cargo claim ended up in Canadian court

Can a marine cargo policy cover damage to goods when they are transported thousands of kilometres by truck?

This question will likely be considered by the Ontario Superior Court of Justice. A disputed claim – under a marine cargo policy written by Chubb Insurance Company of Canada – is currently before the courts.

In late 2013, a Thai subsidiary of Cambridge, Ont.-based ATS Automation Tooling Systems Inc. sold machinery to a customer in India. ATS has about 3,800 employees in 20 manufacturing facilities worldwide.

In 2014, the ATS subsidiary – IWK (Thailand) Ltd. – shipped a tube-filling and crimping machine by sea from Thailand to the Indian port of Chennai. The goods were then transported about 2,500 kilometres by truck to the buyer, Dr. Reddy’s Laboratories Ltd. in Baddi, India. Dr. Reddy’s said the goods were damaged on arrival and held the vendor responsible.

In 2016, ATS filed a claim with Chubb under its open marine cargo policy. Chubb denied the claim on the grounds that the policy only covers damage if it occurs while being transported by ship. Chubb says it is evident that the goods arrived intact at Chennai and the damage occurred during the land leg of the journey.

Dr. Reddy’s “took the necessary steps to permit the commencement of  an arbitration in India” against IWK to compensate Dr. Reddy’s for the loss of the machinery, wrote Case Management Master Donald Short of the Ontario Superior Court of Justice in a ruling released Nov. 2, 2018.

ATS took Chubb to court in Ontario seeking to “preserve an indemnity claim against Chubb,” in case Dr. Reddy’s starts the arbitration process in India. ATS is arguing that the Chubb marine policy might possibly cover the overland portion of the journey, and that an arbitrator in India could find the the goods were damaged at sea.

The ruling issued this past Thursday was not on the disputed claim itself. Short’s ruling – against ATS Automation Tooling – was on ATS’s request for a stay in the proceedings. In essence, ATS was asking the court to delay going ahead with its lawsuit against the insurer because ATS wanted to wait for the outcome of a possible arbitration in India. For its part, Chubb is asking the Ontario court to throw ATS’s lawsuit out of court.

As a result of the Nov. 2 ruling, there will not be a stay in the proceedings. So now, the next step is for the Ontario Superior Court of Justice to consider Chubb’s motion to dismiss the case by summary judgment.

“It is my understanding that there is no existing arbitration hearing scheduled in India; there is no evidence that there ever will be arbitration in India; and, even if there ever was arbitration in India, Chubb would not be a party to it,” Short wrote.

ATS said an inspection in November, 2014 in Chennai of the machines destined for its client revealed “external damages” and damages to “both side of the panels” of the machines.