C.C.R. Fishing Ltd. v. British Reserve Insurance Co., [1990] 1 S.C.R. 814

C.C.R. Fishing Ltd. and Bank of Montreal Appellants

v.

British Reserve Insurance Co. Ltd.,

Mediterranean Reinsurance Co. Ltd.,

United Equitable Insurance Company Ltd.,

Symons General Insurance Company of Canada

and Ocean Reinsurance Corporation Respondents

indexed as: c.c.r. fishing ltd. v. british reserve insurance co.

File No.: 21362.

1990: February 21; 1990: April 12.

Present: Dickson C.J. and Wilson, La Forest, L'Heureux‑Dubé, Sopinka, Cory and McLachlin JJ.

on appeal from the court of appeal for british columbia

Insurance (maritime) ‑‑ Insured perils ‑‑ Perils of the sea ‑‑ Vessel sinking at dockside ‑‑ Sinking due to failure to close valve and due to corrosion of cap screws ‑‑ Whether or not loss proximately caused by "peril of the sea" ‑‑ Whether or not accident fortuitous ‑‑ Insurance (Marine) Act, R.S.B.C. 1979, c. 203, s. 56.

A fishing vessel, which had been safely berthed for more than a year, sank because of a sudden ingress of sea water caused by (1) the failure of cap screws due to corrosion; and, (2) the failure to close a valve which would have stopped the ingress of the sea water. The marine insurance policy, read with the Insurance (Marine) Act, provided coverage for "perils of the sea". The term, as defined in the Act, referred only to fortuitous accidents or casualties of the sea.

The trial judge found that the accident was fortuitous and so constituted a "peril of the sea". Both the failure to close the valve and the corrosion of the cap screws were found to be the consequences of negligence. A majority of the Court of Appeal concluded that the accident was not fortuitous: the sinking had to be a foreseeable consequence of the negligence. At issue here was whether the sinking of the vessel was a loss proximately caused by a "peril of the sea". That in turn depended on whether the sinking was a fortuitous accident within the definition of the Act.

Held: The appeal should be allowed.

A peril of the sea must be both fortuitous and of the sea. Fortuitous means the cause of the loss was not intentional or inevitable. A sinking resulting from the ingress of sea water due to a fortuitous act has always been found to be an accident "of the sea".

The loss resulted from an accident "of the sea". The defect which started the causal chain that led to the loss need not be one that could only occur at sea. Rather the accident itself must be one that could only occur at sea.

The failure of the cap screws did not result from "ordinary wear and tear", so as to be excluded from the definition of fortuitous, but from the negligent act of the repairers who installed them. Ordinary corrosion might fall within the definition of "ordinary wear and tear" but not corrosion caused by the negligent use of wrong materials.

The failure of the screws was not caused by an inherent vice ‑‑ loss stemming from qualities inherent in the thing lost. The cause was external and unrelated to those qualities because the screw caps were installed through the negligence of the repairers. The loss was not the inevitable produce of a quality inherent in the vessel and therefore was fortuitous.

Too much emphasis should not be placed on the distinction between proximate and remote cause. Section 56 of the Insurance (Marine) Act does not limit the cause of the loss to a single peril. Several factors may combine to result in loss at sea. That one of the causes of the loss was ordinary wear and tear or inherent vice did not matter, provided that an effective cause of the loss was fortuitous. Foreseeability of loss was not a necessary condition of recovery. It was not necessary to consider whether there would be liability apart from the negligence demonstrated here.

The following procedure should be followed in determining whether a loss was proximately caused by a peril of the sea. First, the cause or causes of the loss should be ascertained. It should then be determined whether the loss is fortuitous in that it would not have occurred but for an accident or unforeseen event brought about by negligence or adverse or unusual conditions. The loss will not be fortuitous if the exclusions in s. 56(2) or in the definition of "perils of the seas" in the schedule to the Act are established. If the loss is fortuitous then the policy applies.

Cases Cited

Referred to: Century Insurance Company of Canada v. Case Existological Laboratories Ltd. (The Bamcell II), 1983 CanLII 156 (SCC), [1983] 2 S.C.R. 47, aff'g (1982), 1982 CanLII 640 (BC CA), 35 B.C.L.R. 364; Thomas Wilson, Sons & Co. v. The Owners of the Cargo per the "Xantho" (The Xantho) (1887), 12 A.C. 503; Thames and Mersey Marine Insurance Co. v. Hamilton, Fraser, & Co. (1887), 12 A.C. 484.

Statutes and Regulations Cited

Insurance (Marine) Act, R.S.B.C. 1979, c. 203, s. 56(1), (2), Schedule (s. 7).

Authors Cited

Arnould, Sir Joseph. Arnould's Law of Marine Insurance and Average, vol. II. Sixteenth ed. by Sir Michael J. Mustill and Jonathan C. B. Gilman. London: Stevens, 1981.

APPEAL from a judgment of the British Columbia Court of Appeal (1988), 1988 CanLII 3225 (BC CA), 34 B.C.L.R. (2d) 1, allowing an appeal from a judgment of Murray J. (1986), 1986 CanLII 7804 (BC SC), 21 C.C.L.I. 297, [1986] B.C.W.L.D. 3107. Appeal allowed.

Peter D. Lowry and J. William Perrett, for the appellants.

Christopher Harvey and Stephen C. Best, for the respondents.

//McLachlin J.//

The judgment of the Court was delivered by

McLachlin J.--

Introduction

This appeal concerns the construction of a policy insuring a vessel against "perils of the sea".

The fishing vessel, "La Pointe", was laid up at a safe berth in Vancouver harbour from April 1981 to July 1982, when she sank. The sinking occurred suddenly as a result of the ingress of sea water due to two causes: (1) the failure, due to corrosion, of cap screws which permitted sea water to enter the engine room; and (2) the failure to close a valve which would have stopped the ingress of the water.

The insurance policy in place defined the coverage in terms which have been used in marine insurance for two centuries:

Touching the Adventures and Perils which we the Assurers are contented to bear and do take upon us in this Voyage, they are, of the Seas, Men-of-War, Fire, Enemies, Pirates, Rovers, Thieves, Jettisons . . . and of all other Perils, Losses and Misfortunes that have or shall come to the Hurt, Detriment, or Damage of the said Goods and Merchandises and Ship . . . .

The Insurance (Marine) Act, R.S.B.C. 1979, c. 203, in British Columbia contains provisions reflecting the application of this provision as it has been interpreted over the years. Section 56 provides:

Included and excluded losses

56. (1) Subject to this Act, and unless the policy otherwise provides, the insurer is liable for any loss proximately caused by a peril insured against, but, subject as aforesaid, he is not liable for any loss which is not proximately caused by a peril insured against.

(2) In particular

(a)the insurer is not liable for any loss attributable to the wilful misconduct of the assured, but, unless the policy otherwise provides, he is liable for any loss proximately caused by a peril insured against, even though the loss would not have happened but for the misconduct or negligence of the master or crew;

(b)unless the policy otherwise provides, the insurer on ship or goods is not liable for any loss proximately caused by delay, although the delay is caused by a peril insured against;

(c)unless the policy otherwise provides, the insurer is not liable for ordinary wear and tear, ordinary leakage and breakage, inherent vice or nature of the subject matter insured or for any loss proximately caused by rats or vermin or for any injury to machinery not proximately caused by maritime perils.

The policy, read with s. 56 of the Act, provides coverage for "perils of the sea." That term is defined in the Schedule to the Act as follows:

7. The term "perils of the seas" refers only to fortuitous accidents or casualties of the seas. It does not include the ordinary action of the winds and waves.

The trial judge found that the accident was caused by the failure to close the valve and the corrosion of the cap screws. Both these failings were, in his view, consequences of negligence. The valve ought to have been closed while the vessel lay in berth, and the wrong type of screws had been negligently used during repairs two years earlier. He concluded that the cause of the accident was "fortuitous" and constituted a "peril of the sea". Accordingly, he held that the policy covered the loss.

The Court of Appeal proceeded on a different basis. They accepted that negligence had been established in respect to both the leaving open of the valve and the use of the wrong type of cap screw. But they held that there was a further requirement before the policy was applicable -- the sinking must have been a foreseeable consequence of the negligence. At this point the majority and minority judges parted company. The majority concluded that the proximate cause of the loss was the corroded condition of the cap screws, but that this loss was not a foreseeable consequence of the negligence. They concluded that the loss was not due to a fortuitous accident or casualty of the seas. The dissenting judge agreed that the use of corrodible cap screws did not involve the foreseeable risk of the vessel sinking. However, he found that the proximate cause of the accident was leaving the valve open, which did meet this test. Accordingly, he would have found coverage.

Analysis

The issue is whether the sinking of the vessel was a loss proximately caused by a "peril of the sea." That in turn depends on whether the cause of the sinking was a fortuitous accident or casualty of the sea within the definition of the Act.

The elements of what constitutes a peril of the sea have long been recognized as dual. The cause of the loss must be "fortuitous" and it must be "of the seas." The British Columbia Court of Appeal, in Case Existological Laboratories Ltd. v. Century Insurance Company of Canada (The Bamcell II) (1982), 1982 CanLII 640 (BC CA), 35 B.C.L.R. 364, at p. 372, a judgment approved by this Court, 1983 CanLII 156 (SCC), [1983] 2 S.C.R. 47, put it this way:

The accident must be "fortuitous", first in the sense that it is not caused intentionally by the assured and, second, in the sense that it is not the inevitable result of deterioration caused by normal action of wind, waves and time . . .

In addition, the accident must be "of the seas" in the sense, at least, that the damage is damage that would not have occurred in an accident on land, such as damage by sinking or by foundering following a collision at sea or striking a rock. . . . [Emphasis added.]

The requirement that the cause of the loss be "fortuitous" excludes the natural and inevitable action of wind and waves, ordinary wear and tear, inherent defects and intentionally caused losses. Events which are not fortuitous, as defined in the cases, are reflected in the exclusions found in s. 56 of the Act and the definition in the Act of "perils of the seas". In general, the word "fortuitous", as interpreted by the cases, carries the connotation that the cause of the loss not have been intentional or inevitable. As Lord Herschell put it in Thomas Wilson, Sons & Co. v. The Owners of the Cargo per the "Xantho" (The Xantho) (1887), 12 A.C. 503 (H.L.), at p. 509:

There must be some casualty, something which could not be foreseen as one of the necessary incidents of the adventure.

The second requirement, that the loss be "of the sea", excludes losses which could have occurred in an accident on land: see "The Bamcell II", supra. The sinking of a ship as a result of the ingress of sea water due to a fortuitous act has without exception been considered to be an accident which is "of the sea": The Bamcell II; Thames and Mersey Marine Insurance Co. v. Hamilton, Fraser, & Co. (1887), 12 A.C. 484 (H.L.)

In the case at bar the loss resulted from the sinking of the ship due to the ingress of sea-water. This loss would not have occurred on land. The requirement that the accident be "of the sea" is therefore met. The respondents argue that the cause of the loss was corrosion and that this could have occurred anywhere, including on land. But the test is not whether the defect which started the causal chain that led to the loss is one that could occur exclusively at sea, but rather whether the accident itself -- in this case the sinking of the ship -- is one which could only occur at sea. Many sinkings result from causes which could occur on land -- for example, the piercing of the hull of the ship with a rock could occur on land. No one would suggest that coverage under insurance for "perils of the sea" would not lie where a ship founders and sinks at sea for that reason. I conclude that this accident was "of the sea."

The real issue in this case, as I see it, is whether the cause of the accident was "fortuitous." It is fortuitous if it was neither intentional nor inevitable and does not fall within any of the exclusions referred to in s. 56 of the Act and the Act's definition of "perils of the sea."

What was the cause of the sinking in this case? The trial judge found there were two causes but did not decide which of them was the "proximate cause" because he regarded both as being the result of negligence and viewed negligence as necessarily being "fortuitous." He did not expressly consider whether any of the exceptions in s. 56 or the definition of "perils of the seas" in the Act apply.

The thrust of the respondent's submissions before us was that the loss here in question was not fortuitous in that it fell within the exceptions of ordinary wear and tear or inherent vice.

At this point it is useful to summarize the parties' arguments. The respondents' argument may be summarized as follows:

(1)The proximate cause of the accident was the failure of cap screws;

(2)The failure of the cap screws amounts to either ordinary wear and tear or inherent vice;

(3)Thus the cause of the loss is not a "peril of the sea."

The appellants, on the other hand, argue that:

(1)The proximate cause of the accident was the failure to close the valve, which is clearly fortuitous;

(2)If the proximate cause were the failure of the cap screws that would also be fortuitous, in that it was caused by the negligent use of soft metal bolts rather than non-corrodable [sic] bolts in earlier repair work and constitutes neither ordinary wear and tear or inherent vice;

I turn first to the question of whether the failure of the bolts can be viewed as "ordinary wear and tear." In my view it cannot. There was nothing ordinary about the failure of the cap screws. Their failure was extraordinary, resulting, as the trial judge found, from the negligent act of the repairers who installed them. As stated in Arnould's Law of Marine Insurance and Average, vol. II, (16th ed. 1981), ordinary wear and tear is "merely the result of ordinary service conditions operating upon the hull or machinery, as for example when the relevant part wears out. . . ." Ordinary corrosion might well fall within this definition. But corrosion caused extraordinarily by the negligent use of the wrong materials does not.

The next question is whether the failure of the screws can be considered due to an inherent vice. This defence, it may be noted, was raised for the first time on this appeal. Below, the underwriters' case rested solely on ordinary wear and tear.

The concept of inherent vice in the context of marine insurance refers to loss stemming from qualities inherent in the thing lost. The failure of the cap screws in the case at bar cannot be said to result from purely inherent qualities of the ship. The unfortunate installation of these parts in the ship was a result of the negligence of the repairers, an external cause unrelated to those qualities. The loss was fortuitous, in the sense that it was not the inevitable product of a quality inherent in the vessel.

I conclude that even if one were to assume that the proximate cause of the sinking was the failure of the cap screws, that would not assist the respondents, since the cause of that failure was not ordinary wear and tear or inherent vice, but the fortuitous negligence of the repairers.

I have approached the matter thus far on the assumption made in the Court of Appeal below that there can only be one proximate cause of the loss, concluding that even on that basis, there is coverage. However, I am of the view that it is wrong to place too much emphasis on the distinction between proximate and remote cause in construing policies such as this. Generally speaking, the authorities do not follow such a course. I do not read s. 56 of the Insurance (Marine) Act as limiting the cause of the loss to a single peril. Realistically speaking, it must be recognized that several factors may combine to result in a loss at sea. It is unrealistic to exclude from consideration any one of them, provided it has contributed to the loss. What is essential in order to establish that the loss is "fortuitous" is an accident caused by the intervention of negligence, or adverse or unusual conditions without which the loss would not have occurred. This is the shared idea which underlies the exclusion from coverage of damage due to ordinary wear and tear or inherent vice.

The cases and the textbook writers confirm this approach. Thus Arnould's (p. 655) suggests that a ship which founders in fair and calm seas due to unseaworthiness caused by an earlier fortuitous event will be covered, stating that "In such cases it is the entry of the sea-water, fortuitous by reason of the earlier happenings which gave rise to that occurrence, which constitutes the operation of a peril of the seas." The authors go on to state:

The position is otherwise if the loss is due to unseaworthiness at the start of the voyage, and no adverse or unusual conditions occurred thereafter. [Emphasis added.]

On this reasoning, it does not matter if one of the causes of the loss is ordinary wear and tear or inherent vice, provided that an efficient or effective cause of the loss -- one without which the loss would not have occurred -- was fortuitous. That is certainly so in the case at bar. It is not disputed that had the valve been closed, as it should have been, the vessel would not have sunk. Thus the loss, viewed in all the circumstances of the case, was fortuitous. The trial judge was right to take the view that he need not analyze which of the two causes of the loss was proximate, given that it was clear on his findings that the sinking of the ship would not have occurred but for the unusual and fortuitous event of the valve being negligently left open.

This broader approach has much to recommend it, in my view. The question of whether insurance applies to a loss should not depend on metaphysical debates as to which of various causes contributing to the accident was proximate. Apart from the apparent injustice of making indemnity dependent on such fine and contestable reasoning, such a test is calculated to produce disputed claims and litigation. It should be sufficient to bring the loss within the risk if it is established that, viewed in the entire context of the case, the loss is shown to be fortuitous in the sense that it would not have occurred save for an unusual event not ordinarily to be expected in the normal course of things.

It is true that a number of the older English authorities debate the issue of proximate cause in connection with the exclusion of ordinary wear and tear. The authors of Arnould's, however, suggest that these cases would be open to review in circumstances where the vessel sinks suddenly from an undetected failure. They state at pp. 655-56:

. . . the authorities in which unseaworthiness or wear and tear has been held the proximate cause of loss would, it is submitted, be open to review were this point to arise for decision. It was stated by Lloyd J. in The Hellenic Dolphin that the incursion of sea-water through an undetected defect in the ship's basic plating is a classic case of damage by perils of the sea. Although this observation was made in the context of a claim for cargo damage under contracts of affreightment, and a claim under a hull policy would no doubt give rise to different considerations, because of the doctrine of inherent vice, there is much to be said for the view that a loss by foundering due to a sudden failure in the ship's structure should be regarded as a fortuitous casualty, even in the absence of any adverse weather or sea conditions at or near the time of the occurrence. [Emphasis added.]

At page 659, the authors of Arnould's conclude:

It is submitted that the better view is probably that a defence of wear and tear or inherent vice is applicable to cases where the loss is attributable to a general debility of the vessel such as to make it plain that the loss was a certainty, whatever the state of the weather or the sea, but that the defence is unlikely to prevail in cases where there is a sudden failure of a part of the structure, even though this may have long-standing causes, or be due merely to metal fatigue, and though the weather and sea conditions at the time may be in no way unusual or extreme.

These excerpts suggest that quite apart from the fortuitous happening of someone's negligently leaving the valve open in the case at bar and quite apart from the fact that the failure of the cap screws was the result of negligence, the policy there at issue would have applied merely by reason of the fact that the sinking of the vessel was sudden and due to an undetected and unexpected defect. In view of my earlier conclusion that there is coverage, I need not consider whether there would be liability apart from the negligence demonstrated in the case at bar. These passages, however, serve to illustrate a non-technical approach to the question of causation, which is quite at odds with the respondents' submissions.

I cannot conclude without alluding to the insistence in the Court of Appeal below that the loss of the ship must have been the foreseeable result of negligence in order for there to be coverage in this case. There is no suggestion in the authorities that foreseeability of loss is a condition of recovery, with the possible exception of The Bamcell II, where Lambert J.A., in a passage affirmed by this Court, spoke of the foreseeable risk of harm resulting from a negligent act as being sufficient to bring the case within the category of "fortuitous accident". While this is doubtless sufficient to establish coverage, I do not take the passage as suggesting that the existence of a negligent act which foreseeably may cause harm is a necessary condition of recovery under the policy. Indeed, as the authorities amply demonstrate, neither negligence nor foreseeability is necessary to bring a claim within the concept of "perils of the seas." As noted earlier, The Bamcell II itself affirms that the only two conditions for recovery are (1) "a fortuitous accident or casualty" which is (2) "of the sea".

In summary, it is my view that the following procedure should be followed in determining whether a loss was proximately caused by a peril of the sea. First, the cause or causes of the loss should be ascertained. It should then be asked whether the loss is fortuitous in that it would not have occurred but for an accident or unforeseen event brought about by negligence or adverse or unusual conditions. The loss will not be fortuitous if the exclusions in s. 56(2) or in the definition of "perils of the seas" in the schedule to the Act are established. If the loss is fortuitous in this sense then the policy applies.

Conclusion

I am of the view that regardless of how the cause of the loss is analyzed, the loss here was the result of a "fortuitous accident" related to or "of the sea", and hence within the coverage for perils of the sea. Having said that, it is my view that in determining whether a loss falls within the policy, the cause of the loss should be determined by looking at all the events which gave rise to it and asking whether it is fortuitous in the sense that the accident would not have occurred "but for" or without an act or event which is fortuitous in the sense that it was not to be expected in the ordinary course of things. This approach is preferable, in my view, to the artificial exercise of segregating the causes of the loss with a view to labelling one as proximate and the others as remote, an exercise on which the best of minds may differ. On this approach, the loss here at issue falls within the policy because it would not have occurred but for the negligent act of leaving open the valve.

I would allow the appeal with costs, and restore the judgment of the trial judge.

Appeal allowed with costs.

Solicitors for the appellants: Campney & Murphy, Vancouver.

Solicitors for the respondents: Russell & DuMoulin, Vancouver.