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Claim for Status of Insured Fails
Published in the April 2006 issue of Litigation Notes - View Article
Maxwell Aero Maintenance performed maintenance and storage services for the lessors of a Dassault Falcon 200 aircraft. The aircraft was operated by Chell, a company associated with the infamous investment banker, Mark Valentine who was arrested in the summer of 2002 on charges of securities fraud. Not surprisingly, the fortunes of Chell declined and by early 2003 it committed various breaches of a security agreement under which the aircraft was the prime collateral.
As the creditor bank was not paid, it sought an order permitting it to take possession of the aircraft which, at that time was still in the possession of Maxwell. Although the bank had a registered mortgage covering the aircraft, Maxwell asserted a lien in respect of services performed. Maxwell’s unpaid account at this point was approximately $250,000.
There is no doubt that Maxwell’s lien took priority over the mortgage, but the interests of the parties was complicated by the fact that aircraft parts valued at $325,000 went missing while the aircraft was in the possession of Maxwell. The creditor therefore claimed a right of equitable set-off, arguing that it should be entitled to set-off against Maxwell’s accounts the value of its negligence claim against Maxwell.
The creditor met all the requirements of the right of set-off. Maxwell’s undoubted negligence and the loss which this caused the creditor constituted a strong equitable claim for resisting Maxwell’s demand. This equitable cross-claim was so clearly connected with the subject matter of Maxwell’s demand that it would have been manifestly unjust to allow Maxwell to enforce its claim without taking the equitable cross-claim into consideration.
Maxwell however raised two additional issues in its attempt to get paid: an oral agreement which precluded suit and prevention of double recovery.
Maxwell alleged a verbal agreement between itself and Chell to the effect that the latter would obtain insurance covering the aircraft while it was in the shop for maintenance. Counsel relied upon a line of cases which make it clear that where one party takes out insurance in circumstances which make it plain that the whole purpose of the insurance is to protect a third party, that third party should have the benefit of the insurance. The intention to confer the benefit of insurance on the third party can be either explicitly stated or implied from all the circumstances. In this case, the evidence of intention to benefit Maxwell was very thin. There was evidence that a pilot employed by Chell discussed the matter with Maxwell and agreed that Chell would obtain insurance to cover any loss while the aircraft was in Maxwell’s possession. However, there was no evidence that the pilot had authority to enter into such an agreement on behalf of Chell. There was also an affidavit sworn by a principal of Maxwell which expressed the legal conclusion that no claim could be asserted against Maxwell.
The court found there was no explicit agreement to place insurance for the benefit of Maxwell and found as well that the purpose of the insurance could be understood without assuming that it was intended to protect Maxwell.
Maxwell’s alterative argument failed as well. It argued that as the creditor bank had recovered under a policy of insurance it should not be allowed double recovery. For reasons which are not clear the case was argued without any indication of whether the insurers were subrogating. The court found it was not necessary to know whether the insurers had, or asserted, a right of subrogation. The prohibition of double recovery which applies as between insurer and insured has no application to a claim by an injured party against a tort feasor. The creditor prevailed.
The Provident Bank v. Wells Fargo
Ontario C.A. March 22, 2006. Docket C43933