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Summary Judgment Denied in Rail Accident Case
Published in the September 2009 issue of Transportation Notes - View Article
The Supreme Court of Nova Scotia recently had occasion to consider whether summary judgment was appropriate in a case in which damages were sought for losses occasioned by a train derailment which took place in British Columbia some 10 years ago. BC Rail operated a train which was derailed on December 10, 1999, with resulting loss of life, damage to the track and rolling stock, loss of freight, and loss of use of the track. It sought to recover damages on the theory that the accident was caused by the improper design or manufacture of the stabilization system of the undercarriage of newly acquired boxcars.
BC Rail commenced action against the lessor, Greenbrier Leasing Limited, as well as against the manufacturer of the undercarriage and the company which assembled the cars. Greenbrier brought an application for summary judgment raising two issues: the lease required BC Rail to obtain liability insurance for both itself and Greenbrier and the lease contained a waiver of claims against Greenbrier. With respect to the “waiver of claims” argument, we believe the matter was properly decided. However, in our view summary judgment would have been proper on the basis that the claim was a subrogated claim advanced by Greenbrier’s own insurer.
The lease agreement certainly includes wording which would appear to lend decisive support to Greenbrier's position. However, the Court found difficulty in the construction of the contractual arrangements and denied summary judgment. We will first describe the waiver issue and then turn to the question of insurance and subrogation.
After a lengthy discussion of the rules applicable to summary judgment motions as well as those relevant to the interpretation of contracts the Court undertook to interpret the lease agreement. The first difficulty is the absence of a certain exhibit. Clause 3 states that BC Rail approves a specification for the cars as found in Exhibit C.1. There was no such exhibit and this the Court found to be particularly important.
The same Clause 3 provides for two ways in which BC Rail could “accept” a car. One is delivery of a Certificate of Acceptance and the other is the decision to load a car with freight. The Court agreed that the car which is said to have caused the accident was loaded and that this loading “constituted an acceptance of the car by the Lessee”. Quoting from the lease, the Court found that this acceptance was “conclusive evidence of the fit and suitable condition thereof for the purpose of transporting commodities”. Having come this far however, the Court noted that it is not clear what the parties intended by the terms “acceptance” and “fit and suitable condition”. It emphasized that the specifications which were to appear in Exhibit C.1 are in fact not found in the lease and, in the absence of such specifications, it could not be said that BC Rail had accepted any “specifications”. This finding was carried forward by the Court in its following analysis of Clause 5, which deals with warranties and waiver of claims.
Clause 5 is not particularly well drafted. It begins with an acknowledgement by BC Rail that the cars are of a suitable “size and capacity”. Greenbrier then warrants that each car is “suitable for the general transportation of freight by rail and meets all Association of American Railroad Standards for such service”. Immediately following this, and introduced by a clause which appears to preserve the express warranty noted above, is a clause which disclaims all warranties. Finally, this is followed by a release of all claims in “contract, tort, or strict liability”. The difficulty was in reconciling the different parts of this contractual term. Greenbrier admitted that the express warranty would not be affected by the disclaimer of warranties or the general release. However, it relied upon the fact that BC Rail had “accepted” the cars by loading them and that this act of acceptance constituted a “satisfaction” of the warranty. This was not a particularly strong argument. The wording of Clause 3 does indeed provide that acceptance by loading is conclusive evidence that a car is “fit and suitable” for the purpose of transporting commodities. However, the express warranty given in Clause 5 that each car will be “suitable for the general transportation of freight” (which might well be addressed by Clause 3) is combined with a warranty that each car meets all AAR Standards. There was no evidence as to what these standards are and, particularly given the absence of the exhibit which was to set out the specifications of the cars, the Court was not willing to find that the express warranty of Clause 5 was satisfied by the act of acceptance.
This then concluded the analysis of one of Greenbrier’s arguments for summary judgment. The Court, rightly we believe, concluded that there remained significant factual issues respecting the scope of the release of Greenbrier and that accordingly summary judgment should be denied.
The Court then turned to the insurance issue and here, we believe, may have fallen into error. It was common ground that the action against Greenbrier was being maintained by a subrogating insurer to recover payments made for property losses and a fatality claim. It is also certain that the lease contains a clause which provides that BC Rail is to maintain comprehensive general liability coverage and all risk property damage insurance. Greenbrier is to be an additional insured and loss payee under these policies.
Greenbrier relied on clear case law to defeat the subrogated claim. However, BC Rail was able to persuade the Court that factual ambiguities relevant to the nature and extent of the insurance are fatal to the claim for summary judgment. In the first place, BC Rail argued that the “event leading to the loss claimed by it against Greenbrier in this action is not covered by comprehensive liability insurance”. The Court goes on to say, apparently paraphrasing BC Rail’s argument, that “such insurance only provides protection to a named insured for consequences to a third party caused by the named insured’s negligence”. This proposition is, in our view, clearly incorrect. The entitlement of an additional insured under a liability policy is not limited to circumstances in which the named insured was negligent.
BC Rail also argued that the obligation to provide liability insurance was limited and did not apply to claims of alleged latent defect. Given that the insurance clause of the lease provides that the liability insurance is to cover the contractual obligations assumed under the lease and is to include Greenbrier as an additional insured “in respect of risks arising out of the condition” of the cars, it is difficult to ascribe much weight to this argument.
On a fair reading of the insurance clause of the lease it appears to us that this is a case of an insurer—being the captive insurer of BC Rail—advancing a subrogated claim against its own insured. The claim ought not to be allowed to proceed. However, it appears that counsel bear some responsibility for the outcome. The Court specifically asked whether it could “resort to legal texts and case law on insurance law, not cited by counsel, to interpret the insurance provisions”. The decision states that “both counsel appeared to suggest that such was not permissible, and would constitute resort to extrinsic evidence” which, they submitted, was not allowable on this motion. This submission appears to us to be a plain error. Resort to classical texts on the subject should have been sufficient to displace the arguments advanced by the subrogating insurer and allow summary judgment to issue in favour of Greenbrier.
BC Rail Partnership v. Standard Car Truck Company,
2009 NSSC 240