CA019997 Vancouver Registry Court of Appeal for British Columbia BETWEEN: CATHERWOOD TOWING LTD. PLAINTIFF (RESPONDENT) AND: COMMERCIAL UNION ASSURANCE CO. PLC. DEFENDANT (APPELLANT) AND: SEDGWICK LIMITED DEFENDANT (RESPONDENT) Before: The Honourable Mr. Justice Carrothers The Honourable Mr. Justice Goldie The Honourable Madam Justice Prowse William M. Holburn, Q.C. and Counsel for the Appellant T.R. Davies Commercial Union Assurance Co. PLC Murray M. Blok Counsel for the Respondent Catherwood Towing Ltd. Eric A. Dolden Counsel for the Respondent Sedgwick Limited Place and Date of Hearing: Vancouver, British Columbia June 20, 1996 Place and Date of Judgment: Vancouver, British Columbia July 17, 1996 Written Reasons by: The Honourable Mr. Justice Goldie Concurred in by: The Honourable Mr. Justice Carrothers The Honourable Madam Justice Prowse Court of Appeal for British Columbia CATHERWOOD TOWING LTD. v. COMMERCIAL UNION ASSURANCE CO. PLC. and: SEDGWICK LIMITED Reasons for Judgment of Mr. Justice Goldie: 1 The defendant below, Commercial Union Assurance Co. PLC (to which I will refer as the "Insurer") appeals from a judgment of the Supreme Court of British Columbia pronounced 30 January 1995 by Mr. Justice Sigurdson after a summary trial. The declaration sought and obtained by the respondent Catherwood Towing Ltd. ("Catherwood" or the "Insured") was, as set out in the entered order; THIS COURT ORDERS and declares that Protection and Indemnity Insurance Policy number 92/2045 provides insurance coverage to the Plaintiff, its master, Robert Peters, and the tug "Sea Imp VIII" in respect of the claim by Meeker Log & Timber Ltd. and Meeker Ceder (sic) Products (1967) Ltd. in connection with loss and damage to cedar blocks that are the subject matter of Action No. C931756, Vancouver Registry; 2 The Insurer contends the coverage in question was excluded. The Insured and the respondent Sedgwick Limited (the "Broker") say coverage was provided by an endorsement to the policy. The issue is to be determined by the true construction of the policy, as endorsed. Facts 3 On 16 November 1992 the Insured's tug, Sea Imp VIII, had in tow a laden dumb barge. The barge took ground with resulting damage to barge and cargo. As owners of the barge and cargo Meeker Log and Timber Ltd. and Meeker Cedar Products (1967) Ltd. (collectively "Meeker") sued the Insured, the vessel Sea Imp VIII and its master. Catherwood claimed indemnity under the protection and indemnity policy 92/2045 issued by the Insurer. The Insurer admitted coverage for damage to the barge and to a loader aboard the barge. Coverage was denied for the cargo of cedar blocks claimed to be worth in excess of $300,000. The Policy provisions 4 The Insured relied on the following endorsement: TOWER'S LIABILITY In consideration of an additional premium of $ INCLUDED it is understood and agreed that if the vessel hereby insured shall cause her tow to come into collision with any other vessel, craft or structure and/or any other object, floating or otherwise or shall cause any other loss or damage to her tow or the freight thereof or to the property on board, and the Assured in consequence of his undertaking shall become liable to pay and shall pay by way of damages to any other person or persons any sum or sums in respect of any one such casualty, Underwriters shall indemnity the Assured for such. In cases where the liability of the vessel has been contested or proceedings have been taken to limit liability with the consent of the Underwriters, Underwriters will also pay the costs, which the Assured shall thereby incur or be compelled to pay; but when both vessels are to blame, then, unless the liability of the owners of one or both of such vessels becomes limited by law, claims under this clause shall be settled on the principle of cross liabilities as if the owners of each vessel had been compelled to pay to the owners of the other of such vessels such one half or other proportion of the latters' damage as may have been properly allowed in ascertaining the balance or sum payable by or to the Assured in consequence of such casualty. It is further agreed that the principles involved in this clause shall apply to the case where two or more of the vessels involved are the property, in part or in whole, of the same owners, all questions of responsibility and amount of liability between such vessels being left to the decision of a single arbitrator, if the parties can agree upon a single arbitrator, or failing such agreement to the decision of arbitrators, one to be appointed by the Assured and one to be appointed by Underwriters, the two arbitrators so chosen to choose a third arbitrator before entering upon the reference, and the decision of such single or of any two of such three arbitrators, appointed as above to be final and binding. Provided always that the liability of the Underwriters to indemnify the Assured pursuant to this clause is subject to the insuring conditions and the limit of liability of the policy. (emphasis added) 5 Alternatively, it relies on condition E of the Insuring Conditions: INSURING CONDITIONS The Assured is protected and indemnified as Shipowner in respect of liabilities and/or expenses which he shall have become liable to pay and/or shall have in fact paid in respect of the vessel(s) named herein, incurred without his willful misconduct, for the following: ... E. Damage other than by Collision - Loss of or damage to any other vessel or craft, or to property on board such other vessel or craft, not caused by collision of the Insured vessel(s) with another vessel or craft, provided such liability does not arise by reason of a contract made by the Assured. 6 The Insurer relies upon an exclusion clause stated in these terms: This insurance excludes all liability in respect of Crew and all liability in respect of Cargo. 7 The risk accepted is extended to vessels named in a schedule, one of which was the Sea Imp VIII. The limitation of liability was expressed as follows: PROTECTION & INDEMNITY LIMIT OF LIABILITY: $1,000,000.00 ONE MILLION DOLLARS (CANADIAN FUNDS) SUBJECT TO TERMS & CONDITIONS OF PROTECTION AND INDEMNITY POLICY AS ATTACHED INCLUDING INSTITUTE RADIOACTIVE CONTAMINATION EXCLUSION CLAUSE. 8 The terms and conditions of the policy includes the following: 1. The exclusion clause referred to earlier; 2. The Insuring Conditions (of which Condition E is one) and the General Conditions; 3. The Schedule of vessels; 4. Special Conditions, one of which extends coverage to Masters, Mates, Mariners and Crew; 5. Trading warranties (the geographic areas of operation); 6. Deductibles and additional Named Insureds; 5. The vessels to which the Tower's Liability endorsement extends. Analysis 9 The acceptance of liability for damage to the barge and the load carried thereon arises from words in the Tower's Liability endorsement in respect of the barge - "loss or damage to her tow" in respect of the loader - "loss or damage ... to the property on board". 10 The Insured says the policy extends to the barge's cargo by reason of the words "loss or damage to her tow or the freight thereof". 11 The trial judge interpreted the exclusion clause to refer to cargo aboard the insured vessel, that is, the Sea Imp VIII. 12 I agree. 13 The language of the standard policy of marine insurance has been scrutinized by the courts and the industry for many years. Settled meaning given to its description of the perils insured against is not to be interfered with lightly, if at all. The speech of Lord Roskill in Shell International Petroleum Co. Ltd. v. Tibbs, The Salem, [1983] 1 All E.R. 745 (H.L.) especially at 750, is more than sufficient authority for this. 14 I have no doubt the standard policy contemplates all perils of the seas (which includes stranding) to which the insured vessel may be exposed worldwide, subject to the exclusions, conditions and trading warranties. Coverage of the thing towed is dependent on an endorsement as the standard policy contemplated trading vessels, not towing vessels. 15 I am also in no doubt that the exclusion of liability for cargo refers to the cargo of the insured vessel. These are conclusions formed from a review of the policy language and the scope of the standard policy in light of the amendments effected to it. 16 Mr. Holburn, for the Insurer, contends that otherwise plain wording must be read in light of the circumstances known to the contracting parties - what the "... circumstances were with reference to which the words were used ...": Prenn v. Simmonds, [1971] 3 All E.R. 237 at 240. He says a critical circumstance known to both Insurer and Insured was the fact that the latter's tugs, including the Sea Imp VIII, were neither designed to, nor did they, carry cargo or freight. In this circumstance, he suggests the exclusion could only refer to towed cargo. But the context in which this circumstance was relevant was the Insured's desire to avoid the cost of insuring its own cargo when it had no need of such protection. On the other hand, it had every interest in protecting itself from claims made with respect to what its tugs towed. 17 I do not think the history of the preceding policy and of the binder issued to effect the policy in place at the time of the loss assist the Insurer. 18 In my view the issue is to be decided by the terms of the policy, the schedule, the terms and conditions appended and the endorsement. 19 I have already indicated why I think the cargo exclusion clause applies only to cargo on board the Sea Imp VIII. Crew coverage, while excluded under the standard policy, became an accepted risk under a special condition which commences with the words "Notwithstanding anything herein to the contrary ...". 20 This brings me to the Tower's Liability endorsement. The Insurer's contention here is that while "freight" may have more than one meaning what is meant in marine insurance law and the endorsement is the charge made by the ship owner to the owner of the cargo under a contract of affreightment where the owner of the vessel agrees with the owner of the cargo carried to hire the vessel for the carriage of the latter's goods. However, the word may also describe the goods transported in a vessel. It is in this sense that it is used in the endorsement. This is apparent when the whole of the clause "... or shall cause any other loss or damage to her tow or the freight thereof or to the property on board ..." is examined. It may be only awkward to speak of "damage" to a right to money but the exclusion of this meaning is confirmed by the word "thereof" in the phrase "the freight thereof". Grammatically, the sense of the phrase which reflects the intentions of the parties is that the tug owner is indemnified if damage occurs to the barge owner's goods through the fault of the tug. 21 Mr. Holburn's submission comes to this: "freight thereof" should read "freight therefor". In my view, this is strained, having regard to the context of the contract of insurance as a whole. 22 It is unnecessary to go into the construction of the phrase "... or to the property on board" as the Insurer admits coverage under this clause for the loss or damage to the loader on the barge. I would say only this: it is hardly consistent to admit coverage of the barge owner's loader as "property on board" and to deny it to the barge owner's goods making up the cargo. 23 We were referred to s-s.572(1) of the Canada Shipping Act, R.S.C. 1985, c. S-9 and the schedule referred to in s-s.31(2) of the Insurance (Marine) Act, R.S.B.C. 1979, c. 203 in support of the Insurer's submission on the meaning to be given "freight" in the clause "freight thereof". Neither of these compel the usage of the alternative meaning advocated by the Insurer nor do any of the other authorities we were referred to. In short, I am of the view there was no ambiguity here and resort to neither extrinsic evidence nor the contra proferentem rule was necessary. 24 The counterclaim, based on Condition E of the Insuring Conditions need not be considered in light of the conclusion I propose. 25 Nor is it necessary to consider the aids to construction referred to by Mr. Dolden on behalf of the Broker. 26 The case presented here is in some respects the converse of that recently considered by this Court in Burrard Towing Co. v. Reed Stenhouse Limited and others (B.C.C.A., unreported, 7 May 1996, Vancouver Registry CA019659) where the ship owner supplied the tug and barge and contracted to lift and deliver the goods of another. For the cargo owner the tug and tow were one and the contract for the carriage of his goods did not exclude the liability of the "vessel" owner for loss of the cargo. 27 Here, as I have endeavoured to show, there is neither conflict nor ambiguity if the cargo exclusion is construed as being limited to the cargo on the tug and the tower's liability clause is construed as covering the loss or damage suffered by the owner of the barge and the freight thereof. 28 I would dismiss the appeal with costs payable to the respondent and to the Broker. I would vary the order below by directing the Insurer pay the Broker's costs. I would dismiss the counterclaim without costs. "The Honourable Mr. Justice Goldie" I AGREE: "The Honourable Mr. Justice Carrothers" I AGREE: "The Honourable Madam Justice Prowse"