CANADIAN INSURANCE LAW

Transcription

1 WINTER 2007 CANADIAN INSURANCE LAW IN THIS ISSUE 1 EDITOR S INTRODUCTION 2 THE "FLY IN THE BOTTLE" CASE AN UPDATE Robin Squires 5 ONTARIO COURT OF APPEAL UPHOLDS DENIAL OF INDEMNI- TY FOR BREACH OF DUTY TO COOPERATE William A. McClelland 7 RECOVERY OF RISK PREMIUMS: COUNSEL TO SEEK FROM CLIENTS NOT OPPOSING UNSUCCESSFUL PARTY Jennifer L. Radford 10 SUPREME COURT OF CANADA REFUSES TO HEAR CASE CHALLENGING UPPER LIMIT ON DAMAGES FOR NON- PECUNIARY LOSS Angus M. Gunn, Jr 12 DISCLOSURE OF AN EXPERT S FINDINGS, OPINIONS, CON- CLUSIONS AND "FOUNDATIONAL INFORMATION" - PRINCIPLES REVISITED BY THE ONTARIO COURT OF APPEAL Michael G. Massicotte 15 RECENT DEVELOPMENTS CONCERNING ONTARIO S LIMITATIONS ACT, 2002 Keith N. Batten 17 SUPREME COURT OF CANADA PUTS THE BRAKES ON THE EXPANSION OF MARITIME LAW Jean-Marie Fontaine EDITOR S INTRODUCTION Borden Ladner Gervais LLP is pleased to present this fourteenth edition of the Canadian Insurance Law Newsletter for the benefit of our clients and others interested in this constantly evolving area of law. Our objective is to keep you abreast of recent trends and developments of significance on a wide variety of insurance law related topics. This fourteenth edition canvasses recent developments in the area of tort recovery for damages for nervous shock, the obligation to disclose an expert s findings, opinions and conclusions and the refusal of the Supreme Court of Canada to grant leave to appeal on the issue of the upper limit on damages for non-pecuniary loss. This edition also contains case comments on denial of coverage for breach of the duty to co-operate, recovery of risk premiums on costs claims, as well as an overview on recent developments relating to Ontario s Limitations Act. We invite your comments and suggestions with respect to questions, topics or concerns of special interest that you would like to see addressed in future editions Keith N. Batten Toronto Office (416) kbatten@blgcanada.com

2 2 WINTER 2007 THE "FLY IN THE BOTTLE" CASE - AN UPDATE On December 15, 2006, the Ontario Court of Appeal reversed the decision of the trial judge in a decision clarifying the duty of care in product liability cases in which the plaintiff claimed damages from nervous shock. The trial judgment in Mustapha v. Culligan (April, 2005) (Culligan), originally awarded $340,000 to the plaintiff, who alleged that he had developed a psychiatric illness after seeing a dead fly and part of another dead fly in a bottle of water delivered by Culligan. Neither Mr. Mustapha nor anyone in his family drank from the bottle. The Trial Judgment given that it was "clearly foreseeable" to Culligan that if it supplied a water bottle with dead flies floating around in it, Mr. Mustapha, and other customers like him, would suffer "some degree" of nervous shock. In the circumstances, the court found the foreseeability test was established. The Appeal Decision On appeal to the Ontario Court of Appeal, the court overturned the trial judgment and dismissed the plaintiff s claim, based in large part on the issue of foreseeability: During the seven day trial, the plaintiffs presented medical experts that found that Mr. Mustapha s symptoms were triggered by the fly in the bottle. In addition, the evidence showed that Mr. Mustapha had a particular sensitivity to issues of cleanliness and hygiene due to his background and that he had an "unusually high concern over the health and well being of his family", particularly his wife, who was pregnant at the time. The issue of tort law raised on this appeal is whether a defendant may be liable for damages for psychiatric harm where the harm, by any objective measurement, consists of an exaggerated reaction by an obsessive person of particular sensibilities to what, in reality, is a relatively minor or trivial incident the sight of a dead fly in a bottle of consumer water. In my view, the answer to this question is no. The trial judge concluded that the defendant Culligan was liable for the plaintiff s damages Justice Blair delivered the decision of the court. He reviewed the history of the tort of psychi-

3 3 CANADIAN INSURANCE LAW atric injury and noted that some case law drew a distinction for the foreseeability of harm between "primary victims" (those who were directly harmed by the negligent acts) and "bystanders". In Ontario, primary victims needed only to show that the harm was a foreseeable consequence of the negligent act and that it resulted in a recognizable psychiatric illness. With respect to bystanders, however, "the law expects reasonable fortitude and robustness of its citizens and will not impose liability for the exceptional frailty of certain individuals." The trial judge below had applied this distinction in finding for the plaintiff. Justice Blair found that there should be no such distinction in Ontario law, and that the expectation of reasonable fortitude and robustness applies to primary victims as well as bystanders for three reasons: 1. To do otherwise is contrary to the principle of tort law that the very nature of the harm must be foreseeable; 2. The distinction between primary victims and bystanders is artificial; and 3. The "thin skull" plaintiff issue only applies "to quantum of damages once liability has already been established." In this case, in particular, it was difficult to say whether Mr. Mustapha was a primary victim or a bystander. Nobody had consumed the water, so there was no physical harm to foresee. Since bystanders in the case law were those who suffered harm from watching or learning about harm that occurred to someone else, Mr. Mustapha was not a bystander either. He was the only member of his family to suffer any serious consequences from seeing the fly, and his reaction "was based primarily on his concern about the impact that consuming contaminated water may have had on his family s welfare." Justice Blair found that the artificial distinction between primary victims and bystanders was merely a control mechanism to avoid opening the "flood gates" to an indeterminate number of plaintiffs. In Canada, however, there are control mechanisms in place already that make such a distinction unnecessary, namely the Anns/Kamloops test pronounced by the Supreme Court of Canada. The first limit from that test is the requirement of proximity between the parties such that, for the wrongdoer, carelessness might cause damage to the defendant. Certainly Mr. Mustapha met that part of the test. However, the second part of the test asks the court to consider whether there are any considerations that ought to fur-

4 4 WINTER 2007 ther limit the scope of the duty, the class to whom the duty is owed, or the potential damages. The court stated that the appropriate consideration in this case was: what is the ambit of liability in psychiatric harm cases where the harm suffered (a) is significantly disproportionate to the relatively inconsequential nature of the incident in question, and (b) is a function of the particular sensibilities of the plaintiff rather than a function of the sensibilities that a person of normal fortitude would demonstrate? This concern is accommodated, in my view, by factoring the "person of normal fortitude and robustness" principle into the reasonable foreseeability equation the test for the existence of a duty of care - and, therefore, for liability - in cases of psychiatric harm is whether it is reasonably foreseeable that a person of normal fortitude or sensibility is likely to suffer some type of psychiatric harm as a consequence of the defendant s careless conduct. Because Justice Blair found that Mr. Mustapha s unique and severe reaction was neither known nor foreseeable by Culligan, he overturned the trial decision. It is important to note, and the court stressed, this test is not to be confused with the "thinskull" principle. The foreseeability test is a threshold test to determine if liability exists. Once liability is found, the "thin-skull" principle still applies where, as a result of the defendant s breach of duty, the damages caused are greater than what one would normally expect because of the plaintiff s "thin-skull" condition. Conclusion This decision breaks new legal ground in cases of psychological harm. It appears to significantly reduce the possible liability of defendants for psychological harm in cases where no harm would be reasonably foreseeable had the plaintiff possessed "normal fortitude or sensibility". In addition, arguments that a plaintiff is "thin-skulled" must be carefully assessed to first see whether the threshold test of foreseeability, and thus liability, is met. Robin Squires Toronto Office (416) rsquires@blgcanada.com Ed. Note: We will monitor the case and report further in a future edition should the plaintiff seek leave to appeal to the Supreme Court of Canada.

5 5 CANADIAN INSURANCE LAW ONTARIO COURT OF APPEAL UPHOLDS DENIAL OF INDEMNITY FOR BREACH OF DUTY TO COOPERATE The Ontario Court of Appeal, in its decision in Thompson et al v. ING Halifax (September 29, 2006), has affirmed an insurer s right to deny coverage to an insured who breaches the duty to cooperate in a Commercial General Liability ("CGL") policy. asked that ING confirm coverage. Upon contacting the lawyer, a representative of ING was advised by the lawyer that he had no retainer beyond delivering the Statement of Claim and that he would not assist in contacting the insured unless he was retained. ING was unable to obtain a telephone number for the The plaintiff, Bain Thompson, was a bouncer in the employ of premises known as Juliana in Paradise. Juliana in Paradise was insured by ING Halifax pursuant to a CGL policy. Mr. Thompson was assaulted by an unidentified gang of youths on May 2, 1998 while working at the bar. His counsel put Juliana in Paradise on notice of a potential claim by letter dated July 7, The insured failed to respond to that letter and two subsequent letters sent by Mr. Thompson s counsel. The insured also insured. Registered letters were sent to the insured and the principal of the insured company that were not returned. ING eventually retained an independent insurance adjuster to obtain a statement from the insured. The adjuster found evidence of commercial activity being carried on at the insured s premises but was never able to contact the insured. The insured had no further communication with ING beyond delivery of the Statement of Claim. failed to notify ING Halifax. ING elected not to defend the claim against Eventually, a Statement of Claim was issued against the insured as well as the principal of the insured company. Shortly thereafter, a lawyer representing the insured provided a copy of the Statement of Claim to ING and the insured. The plaintiff obtained a Judgment on June 22, 2000 in the amount of $176, The plaintiff then sued ING pursuant to Section 132 of the Ontario Insurance Act which allows a Judgment creditor

6 6 WINTER 2007 of an insured to bring a claim directly against the insurer subject to the same equities as the insurer would have against its own insured if the Judgment had been satisfied. RESULT AT TRIAL RESULT ON APPEAL The plaintiff appealed arguing that ING had taken insufficient steps to contact its insured in order to obtain its cooperation. The plaintiff also argued that the insurer had repudiated its insurance contract in its correspondence This action came on for trial before Justice McGarry of the Ontario Superior Court of Justice in July, Justice McGarry relied with the insured as the insurer had expressed concerns regarding coverage and not specifically asked for the insured s cooperation. on the Ontario Court of Appeal decision in Canadian Newspapers Company Ltd v. Kansa General Insurance Limited which provides that an insurer may refuse to defend an action and indemnify its insured where there has been a substantial breach of the duty to cooperate. The Ontario Court of Appeal indicated that it was satisfied that the trial judge had not made any material misapprehension of the facts and that the insured had breached the duty to notify the insurer of the claim. The trial judge found as a fact that the insured s solicitor would have advised the insured of his conversation with the adjuster at ING. He also found that the insured had received ING s correspondence. Finally, he found that ING required further information from the insured in relation to the nature of the employment of the plaintiff and the circumstances from which the claim arose. He therefore found that there had been a substantial and material breach of the duty to cooperate by the insured and he The court was also satisfied that the insured had breached the duty to cooperate. ING argued at trial and at appeal that the insured s lack of cooperation had been material as, otherwise, the plaintiff s claim would have been barred by virtue of worker s compensation legislation. The court did not seem to think that it was necessary for ING to go so far as to prove that the underlying action would have been dismissed. The court noted dismissed the plaintiff s action.

7 7 CANADIAN INSURANCE LAW that the insurer was unable to contact the insured, had little information regarding the claim, and that ING s correspondence had reached the insured but not been answered. William A. McClelland Toronto Office (416) wmcclelland@blgcanada.com The Court of Appeal therefore dismissed the appeal. Ed. Note: ING was represented at trial and appeal by William A. McClelland of BLG s Toronto office. R ECOVERY OF RISK PREMIUMS: COUNSEL TO SEEK F ROM CLIENTS NOT OPPOSING UNSUCCESSFUL P ARTY In Authorson v. Canada (Attorney General) (2006), plaintiffs class counsel was successful hours and rates for plaintiffs counsel resulted in a total of $2,171,877. in an action against the Government of Canada for failing in its fiduciary duty to invest the pensions of veterans rendered incompetent in the process of serving their country. The resulting damages were assessed by Justice Brockenshire of the Ontario Superior Court of Justice at $4.6 billion. With respect to costs, the parties mutually agreed that the appropriate In a costs decision of September 28, 2006, Justice Brockenshire awarded full indemnity costs to class counsel in the amount of $2,171,877 plus disbursements. In addition, he awarded a risk premium of $1 million. Justice Brockenshire qualified this decision by making it subject to possible amendment when

8 8 WINTER 2007 the Supreme Court of Canada (SCC) decision in Walker v. Ritchie on the availability of risk would be directly counter to the policy which should be behind a costs scheme. premiums under the former Rule of the Rules of Civil Procedure became available. Justice Brockenshire also referred to the SCC s analysis that complexity, length, result, failure The SCC decision disallowing risk premiums was issued October 13, 2006 and Justice Brockenshire requested submissions from counsel to address the case. to admit, etc., and the experience and expertise of counsel are all matters to be taken into account in arriving at an award of costs and that compensating for these factors again through the addition of a risk premium As Justice Brockenshire read the decision of the SCC in Walker v. Ritchie, the court was not concerned with the particular details that might lead to the granting or the refusal of risk premium, but rather with what parts of the remuneration of successful counsel should be passed on to the loser as a claim for costs and what part should be handled by the successful litigant, either directly out of his or her pocket, out of an assistance scheme or out of the damage award. Justice Brockenshire relied on the SCC s reasoning that if it were otherwise, then the threat of a risk premium would incline defendants with meritorious defences to settle, which in turn would encourage plaintiffs to pursue the least meritorious claims. All of this arguably constitutes a double count in the costs award against the unsuccessful defendant. The SCC closed its decision in Walker v. Ritchie with the caveat that amendments to the Ontario costs scheme since the original cost award in Walker v. Ritchie may have changed the applicability of the reasoning of its judgment. Class counsel seized on this in their costs submissions. Justice Brockenshire rejected this, however, failing to see how the abandonment of the cost grid, or the specific importation in to Rule 57 of the principle of indemnity or the requirement that the reasonable expectations of the

9 9 CANADIAN INSURANCE LAW unsuccessful party be taken into account, both long established in the case law, would have any effect on the principles of which the SCC spoke in its decision. In his view, the specific proviso that full indemnity costs could be awarded, as had been done in this case, simply undertaking the financing of litigation, and the acceptance of the risks involved in the litigation, but that such compensation is to come from their own clients, rather than the losing parties, even though such compensation may be funded from the damage award. provided a further possible reason for not also having a risk premium awarded. In Justice Brockenshire s view, the decision of the SCC simply removed the basis in the case law upon which he had founded his decision Jennifer L. Radford Ottawa Office (613) jradford@blgcanada.com to award a risk premium payable to class counsel. He took the SCC decision in Walker v. Ritchie as enunciating on broad policy grounds, that successful plaintiff s counsel should be able to seek compensation for

10 10 WINTER 2007 SUPREME COURT OF CANADA REFUSES TO HEAR CASE CHALLENGING UPPER LIMIT ON DAMAGES FOR NON-PECUNIARY LOSS The Supreme Court of Canada has refused leave to appeal in Lee v. Dawson, a personal injury matter involving (among other things) a Charter based challenge to the upper limit established by the Supreme Court of Canada in 1978 on damages for non-pecuniary loss. a judge and jury. On 14 February 2003 the jury delivered a verdict that assessed over $3,000,000 in damages, including $2,000,000 in damages for non-pecuniary losses, $782,000 in damages for loss of future income earning capacity, and $88,000 for future special damages. In the 1978 trilogy of Andrews v. In 1997, the plaintiff was a passenger in a car travelling on the Trans Canada Highway in British Columbia. A transport truck hauling two trailers spilled its load of lumber as it rounded a corner. The lumber crushed a portion of the vehicle in which the plaintiff was riding. The accident caused the plaintiff a traumatic brain injury, dramatic personality changes, permanent psychological injury, major chronic depression, permanent facial scarring, and other physical injuries, causing permanent, constant and disabling pain. Grand & Toy Ltd., Arnold v. Teno and Thornton v. Prince George School District No. 57, the Supreme Court of Canada established an upper limit on damages for non-pecuniary loss. In light of that limit, the trial judge awarded the plaintiff damages for non-pecuniary loss in an amount equal to the prevailing value of the upper limit namely, $292,600. The defendants also sought an order that $68,000 of the $88,000 awarded for future special damages, and $500,000 of the award for loss of future income earning capacity be paid as a structured judgment under Section 55 of the British The plaintiff sued and the case went to trial in the Supreme Court of British Columbia before Columbia Insurance (Motor Vehicle) Act. The trial judge dismissed that application.

11 11 CANADIAN INSURANCE LAW The defendants appealed from (among other usual practice, the Court did not pronounce reasons for that denial of leave. things) the award of damages for non-pecuniary loss and the trial judge s refusal to order a structured judgment. On cross appeal the plaintiff sought a substituted award of damages for non-pecuniary loss in the amount of $2,000,000, to conform with the jury s assessment. The plaintiff sought that relief primarily on the basis that the common law upper limit on such damages is inconsistent with Charter equality values and was in need of reconsideration. The Court of Appeal for British Columbia dismissed both the defendants appeal and the plaintiff s cross appeal. The plaintiff sought leave to appeal to the Supreme Court of Canada, and the defendants Angus M. Gunn, Jr. Vancouver Office (604) agunn@blgcanada.com Ed. Note: Patrick G. Foy, Q.C., Angus M. Gunn, Jr., and Ryan W. Parsons of BLG s Vancouver office acted as counsel for the defendants on application to the British Columbia Court of Appeal and on the crossappeal to the Supreme Court of Canada. sought leave to cross-appeal (conditionally upon a grant of leave). On 19 October 2006 the Supreme Court of Canada dismissed the applications for leave. In accordance with its

12 12 WINTER 2007 DISCLOSURE OF AN EXPERT S FINDINGS, OPINIONS, C ONCLUSIONS AND "FOUNDATIONAL INFORMATION" P RINCIPLES REVISITED BY THE ONTARIO COURT OF APPEAL In Horodynsky Farms Inc. v. Zeneca Corp. (c.o.b. Zeneca Agro), the Ontario Court of Appeal recently had occasion to revisit the issue of the scope of disclosure of information underlying an expert s report pursuant to Rule 31.06(3) of the Ontario Rules of Civil Procedure. While cross-examining Dr. Grafius at trial, counsel for the plaintiffs requested production of his notes and records, including any report that may have been prepared for the defendant s former counsel. According to the transcripts, counsel for the defendants advised that there was no report on the file and no note that former counsel had spoken to Dr. Grafius In this case, four onion farmers in Holland Marsh, Ontario sued a pesticide manufacturer following the loss of their onion crops in 1995 as a result of an onion maggot infestation. The defendant manufacturer s original counsel [counsel recalled saying that there was "a" note, as opposed to "no" note, although the court reporter declined to revise the transcripts to reflect this]. Counsel for the plaintiffs did not pursue production any further. retained an expert, Dr. Grafius, to assist with By judgment dated June 11, 2004, the plaintiffs claim was dismissed with costs. The plaintiffs losses were held to be attributable to "unusual or unique environmental factors [which] in 1995 caused the onion maggot damage". the defence of the claim. There was a lengthy telephone conversation between them, which was transcribed into a 24 page single spaced memorandum. That memorandum, which was not produced during the course of the litigation, became the central issue in the ensuing proceedings. During the course of providing material to the plaintiffs in support of the defendant s claim

13 13 CANADIAN INSURANCE LAW for costs, the existence of the memorandum of former counsel came to light. The plaintiffs moved before the trial judge for its production and requested, among other things, that the trial be re-opened. Justice Wright dismissed the motion holding that even if he had ignored Dr. Grafius evidence, he would have come to the same conclusion. The plaintiffs appealed the trial decision and, by way of supplementary notice of appeal, the decision to dismiss their post-trial motion for production. It was agreed among counsel that the latter could be heard by a single judge of the Court of Appeal. By judgment dated July 26, 2006, Justice Eileen Gillese allowed the appeal and ordered production of the memorandum. party being examined need not disclose the information or the name and address of the expert where, (a) the findings, opinions and conclusions of the expert relating to any matter in issue in the action were made or formed in preparation for contemplated or pending litigation and for no other purpose; and (b) the party being examined undertakes not to call the expert as a witness at the trial. Dr. Grafius was called at trial as an expert. As a result, in accordance with Rule 31.06(3), no privilege could attach to the findings, opinions and conclusions given by him to counsel for the respondents. The question remained, however, whether privilege attached to the memorandum. At issue was the scope of Rule 31.06(3) which provides: (3) A party may on examination for discovery obtain disclosure of the findings, opinions and conclusions of an expert engaged by or on behalf of the party being examined that relate to a matter in issue in the action and of the expert s name and address, but the Not having seen the memorandum, Justice Gillese was unable to conclude that it contained preliminary findings, opinions or conclusions. However, she held that it was fair to assume that it contained "foundational information" for Dr. Grafius final findings, opinions and conclusions. She held that the applicable case law supported a broad interpre-

14 14 WINTER 2007 tation of Rule 31.06(3) and a corresponding narrowing of litigation privilege. The memorandum was held to not be part of counsel s work product protected by litigation privilege, but producible pursuant to Rule 31.06(3). On the assumption that the memorandum contained foundational information for Dr. Grafius final opinion, the court held that the plaintiffs had the right on discovery, but not after trial, to obtain that information. It was not an answer to say that the plaintiffs did not The defendants moved before a panel of the Court of Appeal to set aside the order of Justice Gillese. know of the existence of the memorandum until after trial. Rule 31.06(3) does not entitle them to production of the memorandum, but only to obtain discovery of the foundational By judgment dated September 20, 2006, the Court of Appeal (Justices Goudge, Blair and information for the findings, opinions and conclusions contained in the memorandum. Juriansz) allowed the appeal. The court held that Rule 31.06(3) deals with information a party may obtain on discovery concerning the The plaintiffs are currently seeking leave to appeal to the Supreme Court of Canada. findings, opinions and conclusions of another party s expert. It speaks to the right to obtain disclosure, whether or not the information to be disclosed is contained in a document. It does not speak to production of a document, Michael G. Massicotte Calgary Office (403) mmassicotte@blgcanada.com and the privilege attaching to a document is not erased simply because some or all of the information in it must be disclosed if asked for on discovery. Ed. Note: We will report further on this case in a future edition, should leave to appeal to the Supreme Court of Canada be granted.

15 15 CANADIAN INSURANCE LAW RECENT DEVELOPMENTS CONCERNING ONTARIO S LIMITATIONS ACT, 2002 Tolling Agreements Bill 14, which included proposed amendments to the "Tolling Agreement" provision in Ontario s Limitations Act, 2002, passed third reading and received Royal Assent on October 19, 2006, and is thus new law. The amendments, which revive the use of "Tolling Agreements" in certain circumstances, will be welcomed by many in the insurance industry given that the pre-existing prohibition necessitated the commencement of many proceedings for the purpose of preserving limitations when such could have been avoided by a simple letter agreement. The amendments are not retroactive to January, 1, 2004 and only take effect for agreements made on or after October 19, The following briefly summarizes the relevant amendments to Section 22 of the Limitations Act, 2002: 1. The basic two year limitation may be "suspended or extended" by an agreement made on or after October 19, 2006: Subsection 22(3). 2. The 15 year ultimate limitation period may be "suspended or extended" by an agreement made on or after October 19, 2006 but only if the relevant claim has been discovered: Subsection 22(4). 3. Additional specific and more liberal rules (Subsections 22(5) and (6)) apply in the case of "business agreements" which are defined as "an agreement made by parties none of whom is a consumer as defined in the Consumer Protection Act, 2002". That Act defines "consumer" as "an individual acting for personal, family or household purposes and does not include a person who is acting for business purposes". With respect to "business agreements": (a) The basic two year limitation may be "varied or excluded" ("vary" is defined to include "extend, shorten and suspend") by an agreement made on or after October 19, 2006; and

16 16 WINTER 2007 (b) The 15 year ultimate limitation period may be "varied" (given the following words and the definition of "vary", this would appear to only mean "shorten") by an agreement made on or after October 19, 2006, except that it may only be "suspended or extended" if the relevant claim has been discovered. 4. Tolling Agreements entered into before January 1, 2004 continue to have full force and effect and are unaffected by these amendments. Agreements entered into between January 1, 2004 and October 19, 2006 will continue to be unenforceable. Although regard to these statutory requirements will be necessary in each case, the validity of the use of "Tolling Agreements" in Ontario has clearly been revived. Ultimate Limitation Period Subject to specific exceptions including, but not limited to, undiscovered environmental claims of any claim after the 15th anniversary of the day on which the act or omission on which the claim is based took place. Based on the transition provisions in Section 24 and the general rule against legislation having retroactive effect in the absence of clear language to the contrary, it was generally believed that the 15 year ultimate limitation period would start to run from January 1, 2004, the effective date of the Limitations Act, The decision of Justice Ground in York Condominium Corporation No. 382 v. Jay-M Holdings Limited (2006) cast that assumption aside in that His Honour held that the ultimate limitation period had retroactive effect and commenced to run from the date on which the act or omission on which the claim is based took place, even if prior to January 1, 2004 and even if the 15 years expired prior to January 1, In this case, an action based on an alleged act of negligence in 1978 that had not been discovered until after January 1, 2004, was held to be statute barred. and certain proceedings arising out of sexual assault, Subsection 15(2) introduced a 15 year ultimate limitation period which provides that no proceeding shall be commenced in respect On January 29, 2007, the Ontario Court of Appeal clarified this issue and confirmed that the 15 year ultimate limitation period only

17 17 CANADIAN INSURANCE LAW applies to claims discovered after January 1, 2004 and that the 15 year period starts to run Limitations Act, The effect of the decision was to allow the claim based on a - negligent act in 1978 to proceed by way of action some 27 years later. In ruling on the point, the court confirmed, of course, that once the claim is discovered, the basic two year limitation applies in place of the ultimate limitation period. from the January 1, 2004 effective date of the Keith N. Batten Toronto Office (416) kbatten@blgcanada.com SUPREME COURT OF CANADA PUTS THE BRAKES ON THE EXPANSION OF MARITIME LAW The extent of Canadian maritime law is limited only by the constitutional division of powers between the federal government and the provinces. The federal government has jurisdiction over "navigation and shipping" and this has been interpreted to mean that where the activity is "integrally connected to maritime matters" it fell under the ambit and was subject to the rules particular to maritime law. This is occurred on water or on land. By way of example, short-term storage by a stevedoring company in the port area is subject to Canadian maritime law. Nor is Canadian maritime law limited to commercial shipping matters. Recreational sailing is also subject to the same set of rules, and marine incidents involving pleasure craft will be considered to be part of maritime law. so regardless of whether the activity itself

18 18 WINTER 2007 In the recent decision of Isen v. Simms, the Supreme Court of Canada drew some boundaries on the ever-expanding ambit of Canadian maritime law. In essence, the court reiterated that it is the activity and not the object which Mr. Isen replied with a declaratory action in the Federal Court seeking to limit his liability pursuant to the Canada Shipping Act [these provisions have since been replaced by the Marine Liability Act] to the sum of $1,000,000. gives rise to the application of Canadian maritime law. The issue before the Supreme Court of Canada was whether this incident fell under the ambit Mr. Isen owned a 17-foot pleasure craft with a gross tonnage of less than 300 tons. When he needed to bring the boat from one lake to another, he would put it on a trailer and tow it by road. In order to prevent the engine cover of maritime law and whether, therefore, Mr. Isen, as shipowner, was entitled to limit his liability or whether this was a land-based tort subject to provincial law to which no limits of liability applied. from blowing upwards and flapping in the wind while the boat was on the highway, a bungee cord was used to secure the engine cover. Mr. Isen and Mr. Simms had been boating on Lake Muskoka, Ontario. At the end of the day, after having taken the boat out of the water and placing it back on the trailer, and while Mr. Isen was securing the bungee cord around the engine cover, his grasp on the bungee cord slipped and the hook at the end of the bungee cord struck Mr. Simms in the eye. Justice Rothstein, formerly of the Federal Court of Appeal, commented that this was "in essence a line drawing exercise". The court reiterated that while it was necessary for the federal government to have jurisdiction over the tortious liability of pleasure craft for negligent navigation so that a uniform set of rules could be applied to all users of the waterways, the federal government did not have jurisdiction over pleasure craft per se. That is to say, that the mere involvement of a pleasure craft in an incident is Suit was taken by Mr. Simms in the Ontario Superior Court of Justice for some $2,000,000. not sufficient for the matter to fall under the federal government s jurisdiction. Indeed,

19 19 CANADIAN INSURANCE LAW unless the pleasure craft is involved in the act of navigation it does not fall within the definition of "navigation and shipping" as set out in the Constitution Act. trailer boat while it is on the highway. It would be anomalous that provincial law would not apply in such a situation simply because the good being carried happened to be a boat. The court found that there were no specialized The court then focused on the allegedly negligent act, namely the securing of the engine cover with a bungee cord. While the court conceded that the launching of a pleasure craft into the water and its removal are an integral part of navigation and that a uniform federal law is necessary as such admiralty laws, rules, principles, or practices applicable. The accident occurred on land. There was no contract for the carriage of goods by sea. Consequently, there was no necessity for a uniform federal law prescribing how to secure an engine cover prior to transportation by road. activities can pose a hazard to, and interfere with, the navigation of other vessels using the waterway, the same cannot be said for the securing of the pleasure craft on a road trailer. This case sets some limits to the types of situations where the specialized rules of admiralty law, such as limitation of liability, would apply. In a more commercial context based on this The court held that, once the boat was being secured for transportation on the highway it was no different from any other type of cargo that is carried by road. Bungee cords and other devices are often used to secure cargo prior to road transport and the rules concerning the reasoning, the failure to properly secure a container to a trailer for road carriage would also fall outside the ambit of maritime law. One could also wonder whether the storage of pleasure craft at marinas or warehouses could be considered part of maritime law. standard of care in such situations should be the same as that for other users of Ontario highways who prepare to transport some form of cargo. It is the other users of the road who would be affected by an improperly secured Jean-Marie Fontaine Montreal Office, (514) jfontaine@blgcanada.com

20 WINTER 2007 I NSURANCE LAW GROUP LEADERS: Calgary Michael Massicotte (403) Toronto Robert L. Love (416) Montréal Vancouver Jeremy Bolger Vince Orchard (514) (604) Ottawa Bryan Carroll (613) EDITOR - KEITH N. BATTEN TORONTO OFFICE This newsletter is prepared as a service for our clients and other insurance professionals. It is not intended to be a complete statement of the law or an opinion on any subject. Although we endeavour to ensure its accuracy, no one should act upon it without a thorough examination of the law after the facts of a specific situation are considered. No part of this publication may be reproduced without prior permission of Borden Ladner Gervais LLP. This newsletter has been sent to you courtesy of Borden Ladner Gervais LLP. We respect your privacy, and wish to point out that our privacy policy relative to newsletters may be found at If you have received this newsletter in error, or if you do not wish to receive further newsletters, you may ask to have your contact information removed from our mailing lists by phoning BLG-LAW1 or by ing subscriptions@blgcanada.com Copyright 2007 Borden Ladner Gervais LLP Borden Ladner Gervais LLP Lawyers Patent & Trade-mark Agents C algary 1000 Canterra Tower 400 Third Avenue S.W. Calgary, Alberta, Canada T2P 4H2 tel: (403) fax: (403) Montréal 1000 de La Gauchetière Street West Suite 900, Montréal, Québec, Canada H3B 5H4 tel: (514) fax: (514) Ottawa World Exchange Plaza 100 Queen St., Suite 1100 Ottawa, Ontario, Canada K1P 1J9 tel: (613) legal fax: (613) IP fax: (613) Toronto Scotia Plaza, 40 King Street West Toronto, Ontario, Canada M5H 3Y4 tel: (416) fax: (416) V ancouver 1200 Waterfront Centre 200 Burrard Street, P.O. Box Vancouver, British Columbia, Canada V7X 1T2 tel: (604) fax: (604) Waterloo Region 508 Riverbend Drive, Suite 303 Kitchener, Ontario, Canada N2K 3S2 tel: (519) fax: (519) Borden Ladner Gervais LLP is an Ontario Limited Liability Partnership Printed in Canada