SCC Limits Fisher’s Liability – But Denies Insurance Coverage
April 24, 2014
By Daniel Watt, Partner at McInnes Cooper,
Thomas Hart, former lawyer at McInnes Cooper
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On April 23, 2014 the Supreme Court of Canada clarified the standard of care that commercial fishers and shipowners must meet to both stay entitled to limit their liability, and to avoid losing insurance coverage under Canadian maritime law.
Peracomo Inc. v. TELUS Communications Co. involves a relatively common occurrence: Vallee, an experienced commercial fisherman, operated a fishing vessel that his company, Peracomo Inc., owned. While fishing, Vallee hooked his gear on a cable. He believed it was abandoned, but made no real effort to confirm this. The cable location was marked on charts and mariner notices, but Peracomo’s charts were out of date. Vallee cut the cable to free his gear. The “abandoned” cable was actually a live fibre optic cable that Telus and Hydro-Quebec co-owned and Bell Canada used. Telus, HQ and Bell sued Vallee and Peracomo for the $1M damage to the cable. The SCC decided:
- Vallee and Peracomo could limit their liability to $500,000 pursuant to the Convention on Limitation of Liability for Maritime Claims, 1976, as codified in the federal Marine Liability Act – even though Vallee intentionally cut the cable.
- But their insurer could deny coverage. Under the Marine Insurance Act, insurers are not liable for losses attributable to an insured’s wilful misconduct – which includes conduct that is intentional, or is reckless in the sense the insured was under a duty to know the facts but remained uninformed. Vallee’s misconduct was therefore “wilful”.
- Vallee was personally liable for the loss – notwithstanding that his corporation owned the vessel.
The decision likely leaves everyone but the insurer unsatisfied: Vallee is personally liable and without insurance coverage – and as a result, Telus’ recovery prospects are likely slim. It also provides some certainty – and some warning – to shipowners, commercial fishers, and marine insurance underwriters:
Limitation of Liability. The decision gives certainty to shipowners, commercial fishers, and their underwriters, that limitation of liability for maritime claims is “virtually unbreakable”,except where there is deliberate or reckless wrongdoing reaching a very high level of fault. It’s not enough that Vallee intended to cut the cable; he had to have intended to cause the loss that actually occurred, or to have acted recklessly with knowledge that such a loss would actually occur. An insured who acts negligently – even egregiously so – but truly didn’t understand the consequences of the act may still limit his liability.
Denial of Coverage. The upshot of the SCC’s decision of the meaning of “wilful conduct” under the Marine Liability Act for fishers and other shipowners: the insurer may deny coverage if the shipowner fails to comply with applicable navigational standards or regulations, acts based on that failure, and damage results.
Personal Liability. A fisher using a corporation as the registered owner of his vessel, a common structure, may not be protected from personal liability if he personally committed the wrongful act: Vallee’s cutting of the cable gave rise to Peracomo’s liability, not the other way around.
You can read the SCC’s decision in Peracomo Inc. v. TELUS Communications Co. 2014 SCC 29.
Please contact your McInnes Cooper lawyer or any member of our McInnes Cooper Insurance Defence Team or our Maritime Law Team to discuss this topic or any other legal issue.
McInnes Cooper has prepared this document for information only; it is not intended to be legal advice. You should consult McInnes Cooper about your unique circumstances before acting on this information. McInnes Cooper excludes all liability for anything contained in this document and any use you make of it.
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