Library:
Waiver of Subrogation
Published in the May 2009 issue of Litigation Notes - View Article
The Federal court of Appeal confirms a decision of the Federal court of Canada to the effect that insurers had waived their rights of subrogation against the carriers of a cargo of logs
The Federal Court of Appeal recently released an interesting decision on the subject of waiver of subrogation. The claim arose from the loss of a cargo of Douglas fir logs worth approximately $1,000,000. The logs were owned by Timberwest Forest Corp. (Timberwest) of British Columbia and were being shipped to its customer Harwood Products Inc. (Harwood) of California.
At the time of the loss, the logs were on the barge Ocean Oregon, which was being towed by the tug Sea Commander. St. Paul Fire & Marine Insurance Company (St. Paul) paid Timberwest for the loss of the logs and commenced a subrogated action against the owners and time charterers of the tug, the owner and time charterers of the barge, the captain of the tug and two other individuals. All parties resisted the claim on the basis that they were entitled to a waiver of subrogation.
The contract between Timberwest and Harwood provided that Harwood would choose the shipper and arrange for the shipping. Harwood entered into a contract of carriage with the time charterer of the barge, Pacific Link Ocean Services Corporation (Pacific Link). The contract took the form of a letter of understanding from Pacific Link to Harwood which stipulated that standard towing terms and conditions would apply. One of those terms and conditions was that the standard form Pacific Link bill of lading would apply to the shipment. Harwood had been provided with a copy of the Pacific Link bill of lading prior to the loss but none of Timberwest, St. Paul or the insurance broker had received a copy. Nonetheless, the Court concluded that they were all bound by it.
The insurance policy issued by St. Paul named Pacific Link as an additional insured with waiver of subrogation, but did not name any other parties. However, the policy contained a clause providing that the underwriters waived their rights of subrogation against any person or corporation in respect of whom the insured had waived any right of recovery prior to loss or damage.
With respect to the contractual waiver of subrogation in favour of Pacific Link, St. Paul argued that it was void by reason of the application of the Hague-Visby Rules (Rules), as enacted by Section 42 of the Marine Liability Act. The Rules limit the ability of carriers and ships to contract out of the responsibilities and liabilities as set out in the Rules. St. Paul argued that the Rules precluded Pacific Link from limiting its liability. However, in the Federal Court, Justice Harrington concluded that the Rules only apply in the case of “goods” which, under the Rules do not include goods “which by the contract of carriage [are] stated as being carried on deck and [are] so carried”. As these logs were carried on deck with the knowledge of all parties, they were not included within the definition of “goods” and hence the Rules did not apply.
Justice Harrington also found and the Federal Court of Appeal agreed that the other parties were entitled to a waiver of subrogation by reason of the application of the Pacific Link bill of lading. That bill of lading provided that “in no event shall the Carrier be liable for any loss or damage in respect of cargo carried on deck…”. “Carrier” was defined as including “the ship, shipowner, operator, manager, charterer, master, officers, crew, stevedores and all others concerned in the carriage of the goods”. The word “ship” was defined to include “any tug, barge or other vessel used by the Carrier in the performance of the contract”. The Court therefore concluded that Timberwest had waived its right to make a claim against all of the named respondents for the loss of the cargo of logs and that this brought them all within the general waiver of subrogation in the contract of insurance.
Timberwest Forest Corp. v. Pacific Link Ocean Services et al, 2009 FCA 119