By Glen Krueger
A Vancouver lawyer with Bernard LLP
On June 16, 2000, the True North II sank in Georgian Bay, resulting in the drowning of two children. An inquest by the Ontario government found that the owner-operator of the vessel was not insured and recommended that commercial ships carrying passengers be required to have liability insurance.
Although in place for nearly two decades, the liability regime created by the Marine Liability Act for all commercial and public-purpose ships engaged in the carriage of passengers did not, unto itself, require maintenance of insurance towards this liability. Thus, passengers may not have been able to receive compensation in the event of a marine incident resulting in liability on a ship owner or operator.
Mandatory insurance coverage for third-party liability claims is an uncontroversial aspect of daily life. Drivers are required to insure their vehicles with serious consequences for failure to do so. Such requirements also already exist in the air and rail fields. It is the norm in most fields of transportation.
The MLA did allow for regulations to be enacted requiring insurance coverage; this begs the question of why it took so long for such regulations to come into place. The Minister of Transport announced plans to proceed with implementation of regulations in 2003 and consultations occurred with marine stakeholders and insurers over 2003/2004.
The MLA as it existed then would have caused the adventure tourism industry significant difficulties and so the matter was dropped. Specifically, adventure tourism owner-operators could not find insurance without “waivers of liability” but the MLA prohibited such waivers. In 2009, the MLA was amended in a way that could exempt the adventure tourism industry from these regulations. Of course, that still does not explain the nearly 10-year delay in the enactment of these regulations.
Regulation SOR/2018-245 came into effect on January 11, 2019. While some provinces such as Quebec have enacted laws that require insurance, B.C. did not. Contracts of marine insurance are specifically exempted from the B.C. Insurance Act.
Under the new regulations, all commercial and public-purpose ships engaged in the domestic carriage of passengers are required to maintain liability insurance in a minimum amount of $250,000 for each passenger the ship has the capacity to carry. It is important to note that this does not mean that specific dedicated marine insurance is required; prior general liability insurance would be sufficient as long as the coverage meets the $250,000 per passenger threshold.
Ships are also required to keep a certificate of insurance or certificate of entry on board where feasible; in any event, the certificates must be produced within 24 hours. Failure to provide this proof of insurance could also lead to the detention of the vessel and/or a fine of up to $100,000.
There are some exceptions including the adventure tourism industry. To fall within the adventure tourism exemption, the activity must meet several conditions:
- The participant must be exposed to an aquatic environment;
- The activity normally requires safety equipment and procedures beyond those normally used in the carriage of passengers;
- The participants must be exposed to greater risks than the risks normally exposed in the carriage of passengers; and
- The risks must have been presented to the participants and the participants must have accepted the risks in writing.
The regulations also do not apply to pleasure crafts as defined in the Canada Shipping Act. Critically, these vessels must be used exclusively for pleasure and guests on board must be carried without remuneration or any object of profit.
Some other exemptions exist including for carriage of a sail trainee, search and rescue operations carried out by the Canadian Coast Guard Auxiliary, carriage performed by the federal government, a provincial government or by entities entitled to indemnification and for ships operating between Canada and the United States.
The benefits of this regulation are clear — liability is transferred from individual ship owners to pooled insurance groups with passengers and their families now able to rest easy knowing there is a much greater likelihood of there being assets to collect should a claim arise. Government analysis also indicates an expected reduction in the number and severity of marine accidents, as operators now are incentivized to maximize the safety of their vessels so as to minimize liability insurance costs.
Cost-wise, the estimate is that, over 10 years, the regulations will cost approximately $24.18 million for approximately 1,756 ship operators. Insurers could see a corresponding increase in revenues. If the 1,756 number seems low, bear in mind that previously, while insurance was not mandatory, it was nonetheless available.
It seems likely that larger ship owners and operators would have insured their vessels regardless of whether such insurance was mandatory. It is not uncommon though for smaller operators to have insufficient insurance coverage or none at all. However, the cost of this regulation would also likely be proportionate to the size of the operation — smaller vessels and fewer passengers would presumably lead to lower costs for insurance as the total coverage sought would be lower. As well, the additional costs for this coverage could be passed on to the consumer at negligible costs. It is difficult to imagine consumers complaining about a mild increase in ticket prices if it meant insurance coverage protecting them.
The $250,000–per–passenger required minimum does not actually cover the full potential liability of an owner-operator. Under the MLA, there is a limit of liability in the amount of 175,000 Special Drawing Rights per passenger, which currently equates to approximately $324,000CAD. It is good practice to ensure you are covered for the full potential liability, not just the minimum amount required by the regulation.
The regulation does not stipulate how an operator must determine a vessel’s passenger capacity. Note that all operators of vessels that carry passengers must comply with the Canada Shipping Act. Some vessels may have a certificate specifying the maximum number of passengers permitted while in other cases no maximum may be stipulated. Transport Canada has advised that the operator must get insurance to the certified number of passengers or to whatever number of passengers the operator knows will be the maximum number ever carried, if that figure is lower than the amount specified on the ship’s certificate or capacity place.
It is probable that the bar here will be high. If an operator under insures based on the number of passengers, claiming ignorance may not be enough to defend against penalties. The operator must know the maximum passengers ever to be carried if it is lower than the amount certified.
Transport Canada has advised that TC Marine Safety Inspectors will be enforcing this regulation and will require operators of applicable ships carrying passengers to produce a certificate of insurance. If no certificate is produced, or if the number of passengers is in excess of the number indicated on the insurance certificate, the Inspector will have the power to impose the penalties noted above.
If you already have insurance covering potential passenger liabilities, you may have some time. Such owners or operators are required to comply with the regulations when their current policy expires, is altered or is cancelled. Owners and operators should speak with their broker to ensure compliance. Otherwise, all other carriers had 60 days after January 11, 2019 to comply.
Glen Krueger can be reached at Krueger@bernardllp.ca.