More Marine Ltd. v. Axa Pacific Insurance Company

2010 BCSC 88 More Marine Ltd. v. Axa Pacific Insurance Company

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: More Marine Ltd. v. Axa Pacific Insurance Company, 2010 BCSC 88 Date: 20100122 Docket: S087265 Registry: Vancouver Between: More Marine Ltd. Plaintiff And: Axa Pacific Insurance Company, Continental Casualty Company, Aon Reed Stenhouse Inc. and Doreen Egger Defendants Before: The Honourable Mr. Justice Macaulay Reasons for Judgment Counsel for the Plaintiff: M.L. Smith Counsel for the Defendants: Axa Pacific Insurance Company and Continental Casualty Company D.F. McEwan, Q.C. Counsel for the Defendants: Aon Reed Stenhouse Inc. and Doreen Egger J. Jansen Place and Date of Hearing: Vancouver, B.C. August 17-19 and 21, 2009 Place and Date of Judgment: Vancouver, B.C. January 22, 2010 [1] The plaintiff, More Marine Ltd. ("More Marine"), is a commercial marine enterprise and owns a fleet of ships and related marine equipment. The defendants, Axa Pacific Insurance Company ("Axa") and Continental Casualty Company ("Continental"), are marine underwriters. First Axa, and then Axa and Continental, provided Hull and Machinery ("H&M") insurance coverage for the More Marine fleet. The defendant, Aon Reed Stenhouse Inc. ("Aon"), is a marine insurance broker that acted from 2000 through 2007 as agent for More Marine in negotiating and placing the insurance coverage with Axa and Continental. The defendant, Doreen Egger, is the Senior Vice

President, Marine Practice Leader at Aon. [2] The dispute between More Marine and the underwriters, Axa and Continental, focuses on the latters' entitlement to charge a $250,000 deductible in relation to a constructive total loss ("CTL") claim arising out of the sinking of the vessel "GLENSHIEL" ("Glenshiel") in June 2007. Axa and Continental contend that clause 23 of the policy, H06/22129, includes an annual aggregate deductible ("AAD") of $250,000 that applies to total loss ("TL") and CTL claims. Aon, on behalf of More Marine, specifically agreed to the inclusion of clause 23 in the policy. [3] More Marine claims that clause 23 was added to the policy improperly, without its knowledge and absent any consideration. It seeks rectification and alternatively claims, in the event that it is bound by clause 23, against Aon and Ms. Egger for damages arising out of breach of contract, negligence and breach of fiduciary duty. [4] All the defendants seek summary dismissal of the More Marine claims under Rule 18A of the Rules of Court. More Marine agrees that the case, in spite of its complexities that will become apparent below, is suitable for final disposition under the rule and seeks judgment as set out above. [5] Before Axa began underwriting the H&M coverage, More Marine had coverage in place that included a per vessel deductible for each accident, as set out in clause 7 of the

Canadian Hulls (Pacific) Clauses ("C.H.P. Clauses"), which reads: The sum of $_____ shall be deducted from the total of all claims arising out of one accident or occurrence (including claims under the Running Down Clause). Nevertheless, the expense of sighting the bottom after stranding, if reasonably incurred specially for that purpose, shall be paid in full even if no damage be found. This paragraph shall not apply to Sue and Labour, Salvage Expenses, General Average nor to a claim for Total or Constructive Total Loss. [Emphasis added.] A deductible for claims arising from a single accident or occurrence is often referred to within the insurance industry as an "each and every deductible" since it applies to each and every claim. This was the only deductible in effect when Axa began underwriting and for a year or two after. [6] On September 1, 2001, More Marine suffered a CTL. Due to the exclusion at the end of clause 7, its claim was not subject to any deductible. [7] By 2003, More Marine had two H&M policies running in tandem. These policies included an each and every deductible as well as an AAD. An AAD shifts the responsibility for some losses to the insured and is a mechanism to keep premiums down when there is a history of large claims. As I set out later, an AAD is distinct from an each and every deductible and applies to all claims during the year until

exhausted. [8] Unlike an each and every deductible, there is no standard wording in the industry for an AAD clause. Instead, the insurance broker, on behalf of the insured, and the insurer negotiate the terms of the individual AAD clause. [9] In some of the documents referred to below, the AAD clause is termed an Aggregate Deductible Average clause. The plaintiff's expert, Mr. Wright, and the defendants' expert, Mr. Boucher, agree that "aggregate deductible average" and "annual aggregate deductible" refer to the same thing. [10] In 2003, policy H03/19257 had an each and every deductible of $10,000 as set out in clause 7 of the C.H.P. Clauses and was also subject to "an annual aggregate deductible of $100,000" with no exceptions noted. That policy was set to expire on August 22, 2004. The second policy, H03/19009, also had an AAD of $100,000 but it specifically excluded losses on a vessel named the Rivtow 50. [11] In 2004, More Marine still had two H&M policies running in parallel: H04/19311 and H04/19439. The policy period for the former was January 21, 2004 to January 21, 2005; it replaced H03/19009. The latter ran from August 22, 2004 to August 22, 2005; it replaced H03/19257. Effective on the January 21, 2005, renewal date for policy H04/19311, coverage for the entire fleet was rolled into policy H04/19439 due to expire August 22, 2005. Thereafter, More Marine had a single

H&M policy for its fleet. [12] Immediately before the rollover into a single policy, the respective deductibles clauses in the 2004 policies read: H04/19311: $10,000 each vessel as per Clause 7 of the C.H.P. Clauses, 1991 Item No. 4(b) and 9 $1,500 as per Clause 7 of the C.H.P. Clauses, 1991 Subject to an annual aggregate deductible of $100,000, except losses on Item No. 8 "RIVTOW 50" not included in annual aggregate deductible H04/19439: $10,000 as per Clause 7 of the C.H.P. Clauses, 1991 Subject to an annual aggregate deductible of $100,000 In late 2004, due to a pending claim, Aon decided to clarify what claims the AAD applied to. On November 25, 2004, Lisa Telford (now Lisa Julnes) sent an email to Lynn Davis of Axa and copied Rita Wong of Continental. She wrote: Hello Lynn, As you are aware there is currently and [sic] aggregate deductible on the above noted policies. There is however no wording/clause attached detailing what claims will be applied to the deductible and which ones won't. Could you please have a look at the following clause which forms a part of other policies in our office: Aggregate Deductible Average Notwithstanding the fact that each vessel is deemed to be a separate insurance, the following clause shall apply: (a) It is a condition of this Policy that the Insured shall absorb all claims up to an accumulated amount of One Hundred Seventy-Five Thousand

Dollars ($100,000) [sic], excess of the deductible average, the insurers shall thereafter pay one hundred percent (100%) of each adjusted claim after the application of the each and every deductible average. (b) The foregoing shall not apply to claims under the Collision and Towers Liability Clause, nor to claims under the Sue and Labour, Salvage, Salvage Charges and General Average Clauses, Constructive Total Loss and Total Loss. (c) We are hoping that we can apply this clause to both of the above noted policies [H04/19311 and H03/19257]. One policy has expired however we feel it would be prudent to add it [to] both policies. [Emphasis added.] [13] There is no evidence that Ms. Telford or either recipient noticed the discrepancy in the numeric and alphabetic amounts of the deductible. Ms. Telford may not have paid much attention to the content as she was relying on a precedent. She deposed that she was not aware of the appropriate wording for an AAD clause at the time she prepared her first draft and I infer that she just wanted to get the process underway. [14] In spite of the obvious error in the statements of the amount, both Ms. Davis and Ms. Wong responded by email on December 3, 2004, agreeing to the aggregate deductible wording. [15] Ms. Telford immediately prepared a draft endorsement by copying a different AAD precedent and handwriting an introductory paragraph at the

top. The second precedent differed from the one that Ms. Davis and Ms. Wong had approved: it had a deductible of $375,000 and did not exempt CTL and TL claims in subparagraph (b). [16] On the same day, Ms. Telford carried this new language forward into Endorsement No. 2 which the underwriters eventually signed. According to Ms. Telford, someone else at Aon placed "ticks of apparent approval" on a copy of the final draft of Endorsement No. 2. [17] In its then final form, Endorsement No. 2 for policy H04/19439 read: Effective: August 22, 2004 IT IS HEREBY UNDERSTOOD AND AGREED THAT the following Aggregate Deductible Average Clause is added to the above noted policy: Aggregate Deductible Average Notwithstanding the fact that each vessel is deemed to be a separate insurance, the following clause shall apply: (a) It is a condition of this Policy that the Insured shall absorb all claims up to an accumulated amount of Three Hundred Seventy-Five Thousand Dollars ($375,000), excess of the deductible average, the insurers shall thereafter pay one hundred percent (100%) of each adjusted claim after the application of the each and every deductible average. (b) The foregoing shall not apply to claims under the Collision and Towers Liability Clause, nor to claims under the Sue and Labour, Salvage, Salvage Charges and General Average Clauses. (c) Notwithstanding the foregoing, the Insurers

shall be liable in full for all surveyors fees, adjustment expenses, legal expenses, and costs of sighting bottoms even if the claim does not exceed the Aggregate Deductible Average or is not a claim within the Policy Conditions. Surveyors fees, adjustment expenses, legal expenses and costs of sighting bottoms not to apply to the Aggregate Deductible Average. [18] Also on the same day, Ms. Telford issued endorsements for the other policy still in effect as well as the two expired policies from 2003. At that point, at least two of the endorsements set the deductible at $375,000. All were on the terms set out above. Ms. Telford sent the four endorsements to John King, an Aon Vice President. [19] In mid-January 2005, Ms. Telford reissued the endorsements for three of the policies with the deductible changed from $375,000 to $100,000 but otherwise remaining the same. The endorsement for the remaining 2003 policy was cancelled, presumably because there were no outstanding claims. [20] The explanation for the series of changes was limited and somewhat unsatisfactory. Ms. Davis has since died and her office file is unavailable. Ms. Wong, a junior and less experienced underwriter at the time, has no recollection of any discussions respecting the changes. Ms. Wong deposed that she simply followed the lead of Ms. Davis. Her cross-examination did not add anything of substance to her

affidavit evidence. [21] As a result, I am left with Ms. Telford's explanation. She deposed that, in late November 2004, Mr. King first passed on a request from the Aon Claims Manager that she "tie down the Aggregate Deductible wording due to a pending claim". Although Mr. King's message referred her to a particular file precedent, Ms. Telford stated in cross-examination that she could not recall if that is where she obtained the initial wording. [22] Ms. Telford also deposed in her affidavit that she was informed that the new wording was to apply to policies H03/19254 (presumably H03/19257) and H04/19439. In the result, Ms. Telford drafted the various endorsements to which I have already referred although, as already noted, she acknowledged that she was not aware of the appropriate wording for an AAD clause when she began drafting. [23] It is apparent that Ms. Telford overly relied on precedents and was careless about their content. She failed to query the appropriateness of the particular language or verify the deductible amount against the existing policies. This is evident from the changes found in the first two precedents that she relied on. CTL and TL claims were excluded from the reach of the AAD in the first precedent but not the second. The first precedent, ignoring the discrepancy in the numeric and alphabetic amount, correctly set the deductible at $100,000 but the

second erroneously increased the amount to $375,000. There is no evidence that the AAD deductible on any More Marine policy was ever $375,000 or that Aon ever negotiated that amount with the underwriters. [24] Ms. Telford did not fully address questions about the changes and obvious errors. Instead, she asserted that she would only have made changes "upon the direct instructions of a senior person at Aon such as the account executive or the marketing manager." She relied on the ticks placed on a copy of the draft Endorsement No. 2, based on the second precedent, as indications of "apparent approval" by someone unknown at Aon. [25] In cross-examination, she stated that senior personnel like Ms. Egger and Mr. King must have considered not exempting CTL and TL claims because "this was being examined very carefully" and if she "had made an error, they would have caught it." [26] As to the amount of the deductible, Ms. Telford was, at first, unwilling to accept that the amount was in error because "everybody had signed off" and Ms. Egger had reviewed it. Although Ms. Telford eventually conceded that setting the deductible at $375,000 rather than $100,000 was an error, her reluctance to concede such an obvious mistake did not inspire confidence in the reliability of her explanation. [27] I observe that Ms. Egger did not address these specifics in any of her affidavits. Mr. King did

not provide an affidavit. [28] Ms. Telford did produce an unsigned copy of Endorsement No. 2 with a line through the figure "$375,000" and below it a handwritten notation, "[$]100,000". She deposed that she was then instructed to amend Endorsement No. 2 to reflect the revised AAD of $100,000 rather than $375,000 but did not state who provided that instruction. [29] The wording of Ms. Telford's initial email, coupled with her evidence, leads me to conclude that she did not intend, at that point, to make a contractual proposal. Instead, she anticipated that if the underwriters agreed, she would then prepare an agreement in the form of an endorsement. She obviously viewed her work as subject to final approval by more highly placed personnel at Aon. It is also apparent, on the limited evidence available, that the underwriters did not pay attention to the actual content of the email in spite of their response stating that they agreed to the proposed wording. [30] After receiving the underwriters' emails, Ms. Telford prepared the endorsement with the differences that I described earlier. In the result, the underwriters signed endorsements setting the AAD at $375,000 and deleting the earlier inclusion of CTL and TL claims among those to be excluded. Sometime after the signing, someone other than Ms. Telford noticed the obvious discrepancy in the amount of the AAD because Ms. Telford

received instructions to amend the endorsements to rectify that. [31] As to the differences between the email draft that exempted CTL and TL claims from the reach of the proposed AAD clause and the later signed endorsements that did not, it is doubtful that anyone at Aon, other than Ms. Telford, saw her November 25 email or the December 3 responses. In part, that is understandable. The email exchange was preliminary and the participants could not have intended the exchange to constitute a final agreement. [32] I view Ms. Telford's email of November 25, 2004, as suggesting potential contractual language to be used but not as a formal offer open for acceptance. I observe that, in her email, Ms. Telford did not invite formal acceptance. I accept that the underwriters responded using language that signified agreement "to the aggregate deductible wording" but the exchange, in its entirety, did not constitute a final agreement. [33] Instead, the participants intended to proceed, as was industry practice, with Aon preparing the endorsements. In the ordinary course, Ms. Telford's superiors at Aon would scrutinize and authorize the final wording before Ms. Telford sent the endorsement to the underwriters. Again, in the ordinary course, the underwriters, if satisfied with the final wording, would sign and return the endorsement. [34] It is apparent that, immediately after receiving the

email transmissions of December 3, 2004, Ms. Telford turned to a similar but different precedent for an AAD clause. The second precedent included a significantly larger AAD amount and did not exclude CTL and TL claims. There is little question that if Aon had failed to catch and correct the error in the amount, as it eventually did, and More Marine had suffered a loss of coverage as a result of the error, More Marine could have claimed successfully in negligence against Aon for that mistake. [35] I will discuss later in my reasons whether Aon owed any duty to More Marine to inform it of the underwriters' stated agreement in the email exchange to language that excluded CTL and TL claims from the AAD clause. That analysis requires a more in-depth consideration of Aon's duty to negotiate, whether it breached its duty, and, if so, caused More Marine to suffer any losses. [36] In the end result, none of the endorsements, even in draft form, excluded CTL and TL claims from the reach of the AAD clause. In each case, the deductible applied to all claims except those that were expressly excluded. CTL and TL claims were not excluded. I am satisfied that was a deliberate decision, even if there is no direct evidence on the point. [37] Aon, Axa and Continental all agreed to the wording of the endorsements that were eventually signed. Apart from relying on the email exchange, More Marine

has not demonstrated that any of the defendants agreed to exclude CTL and TL claims from the reach of the AAD clause in the endorsements. [38] By mid-January 2005, there was a further development. On January 14, 2005, Ms. Telford spoke with Ms. Davis and Ms. Jones, another underwriter at Continental, and advised them that the More Marine account was "under attack" from another broker. By January 17, an Aon Marketing Manager successfully negotiated a reduction both in the premium rate and in the amount of the AAD from $100,000 to $75,000. Aon and the underwriters also agreed to let policy H04/19311 lapse on January 21, 2005, and to add the portion of the fleet covered by that policy to H04/19439 under the new terms. Endorsement No. 5 to policy H04/19439 reflected the change to the AAD amount. [39] Ms. Telford sent the endorsement to Mr. King on January 21, 2005. Mr. King sent the signed endorsement, in addition to other documents, to More Marine on April 6, 2005. By then, at the latest, More Marine knew, or ought to have known, the express terms of the AAD clause in the H&M coverage for its fleet. [40] Policy H05/21082 for the period from August 22, 2005 to August 22, 2006 was similar to policy H04/19439, except, for that year, the AAD was increased to $150,000. None of the More Marine policies and endorsements to this point excluded TL or CTL claims from the operation of the

AAD clause. [41] When it came time to renew the policy in August 2006, another significant change had occurred. By that time, More Marine had accumulated a loss ratio of approximately 245% over five policy years. For that period, More Marine paid premiums totaling $579,240 but the underwriters paid out $1,420,169. [42] In each of January 2004, August 2004, August 2005 and January 2006, the underwriters paid out claims against which both the each and every deductible and the AAD for the year applied. Kerry Morris, the president of More Marine, was personally involved in the claims process and, accordingly, knew of the existence, the amounts and the practical application of the two types of deductibles to policy claims. [43] As a result of the claims history, the two underwriters seriously considered not renewing in 2006. In August, the underwriters stated that they would only renew if the each and every deductible increased from $10,000 to $25,000 on two vessels; the AAD increased to $250,000; and finally, the premium rate increased from 2.10% to 2.50%. [44] Eventually Aon negotiated a more favourable each and every deductible, at $10,000 for all vessels, and the inclusion of a profit commission clause. During the negotiations, Aon also tried to obtain a lower AAD of $175,000 but, in exchange, the underwriters required an increase in the premium rate to 4.41%. Aon did not agree,

thus leaving the negotiated amount of the new AAD clause at $250,000 in exchange for the lower premium rate. [45] Axa and Continental maintain that, because of the plaintiff's history of losses, even if asked, they would not have agreed to exclude CTL or TL claims from the AAD clause in the 2006 policy. In my view, the interconnection between the amount and terms of an AAD clause and the premium rate is amply demonstrated by these negotiations. Give and take is the essence of such commercial negotiations. [46] On August 31, 2006, More Marine received a cover note for new policy H06/22129. The cover note stated: This Cover Note evidences that, in consideration of payment to be made by the Insured of the premium specified, the insurance stated below has been placed with the Insurer(s) named subject to the terms, conditions, exclusions and provisions contained in the policy to be issued and any endorsements attached thereto. [Emphasis added.] One of the insuring conditions was an AAD clause, the same as on previous cover notes. However, rather than create an endorsement as in the past, Aon drafted a clause for inclusion in the policy itself. [47] The first draft of the policy clause read: Notwithstanding the fact that each vessel is deemed to be a separate insurance, the following clause shall apply: (a) It is a condition of this policy that the Insured shall absorb all claims up

to an accumulated amount of One Hundred Thousand ($100,000), excess of the deductible average, the Insurers shall thereafter pay one hundred percent (100%) of each adjusted claim, after the application of the each and every deductible average. The aggregate deductible also applies to claims for Total Loss or Construction [sic] Total Loss. (b) The foregoing shall not apply to claims under the Sue and Labour, Salvage, Salvage Charges and General Average Clauses. (c) Aon sent the draft to the underwriters in October 2006. There is no evidence that Aon noticed that the draft incorrectly set out the amount negotiated for the new AAD clause. [48] On October 16, 2006, Axa asked Aon to change the AAD to $250,000, as agreed, and to make two other corrections to the wording. Aon forwarded a new version in mid-January 2007 changing the amount but not addressing the other two requests. Axa followed up on January 15, 2007, requesting the further changes. In spite of Aon's continuing sloppiness, it is apparent that Axa was paying close attention to the drafting process. [49] Aon finally forwarded a revised version of the AAD clause on January 15, 2007. Clause 23 of policy H06/22129 read: Notwithstanding the fact that each vessel is deemed to be a separate insurance, the following clause shall apply: (a) It is a condition of this policy that the Insured shall absorb all claims up to an

accumulated amount of Two Hundred Fifty Thousand ($250,000), excess of the each and every deductible average, the Insurers shall thereafter pay one hundred percent (100%) of each adjusted claim, after the application of the each and every deductible average. The aggregate deductible also applies to claims for Total Loss or Constructive Total Loss. (b) The foregoing shall not apply to claims under the Sue and Labour, Salvage, Salvage Charges and General Average Clauses. (c) [Emphasis added.] Aon sent a final corrected and signed version of the policy to More Marine by mail on February 9, 2007. [50] The policy wording immediately above was in place on June 6, 2007, when More Marine suffered the CTL of the Glenshiel. The underwriters paid the CTL claim, less the AAD of $250,000. As set out in my introduction, More Marine maintains that the AAD clause does not apply to a CTL claim and seeks to recover the amount that the underwriters refused to pay. [51] Mr. Morris deposed in his first affidavit that he never received a copy of policy H06/22129 until he contacted Aon after the sinking of the Glenshiel in June 2007 to discuss the arising claim. He further deposed: I was shocked by this revelation [that clause 23 provided for a deductible on TL claims in the amount of $250,000] as I had never before heard of any deductible for Total Loss. Mr. Morris went on to describe the clause as

"a new term that had never been agreed." [52] Mr. Morris also deposed that, after the sinking of the Glenshiel, he spoke to Joan Smith at Aon and that Ms. Smith "stated that the full amount of the loss would be paid." He claimed that he only learned of clause 23 in the 2006 policy after Ms. Smith called him back to tell him that she had reviewed the 2006 policy. At that time, according to Mr. Morris, she "very apologetically stated that clause 23 of the Policy provided for a deductible on Total Loss claims in the amount of $250,000." This was the "revelation" that "shocked" Mr. Morris. [53] This evidence is somewhat ambivalent. It is possible that Mr. Morris means that he had understood from the language of the earlier endorsements that the AAD clause would not apply to TL and CTL claims but, as I set out later, if that was his understanding, it was incorrect. It is also possible that Mr. Morris meant to convey that his shock stemmed from not knowing that there would be an AAD in the increased amount of $250,000. If he intended the latter, I do not accept his evidence in such regard. [54] There is ample evidence that Mr. Morris, and accordingly More Marine, knew of the AAD in the increased amount of $250,000. Ms. Egger's evidence and the Aon business records demonstrate that Aon consulted with Mr. Morris about the negotiations and the end result. The evidence further

demonstrates, to my satisfaction, that Mr. Morris specifically authorized the increased amount of the AAD and that he later received written confirmation of the new policy and its content. [55] On August 18, 2006, Ms. Egger sent a fax to Mr. Morris. In it, she referred to a telephone conversation with Mr. Morris respecting the terms of the coverage expiring on August 22, 2006; the terms of the new coverage offered by the underwriters; and finally, the final terms as negotiated. The transmission ends: "Please confirm that it is in order for us to renew " [56] Among other things, the document discloses that the existing AAD of $150,000 was to be increased to $250,000 in the new coverage. It stated that the underwriters had considered not renewing at all due to the claims history and, as a result, sought an increased premium rate, increased each and every deductibles, and an increased AAD. Aon reported that in the final result the underwriters refused to adjust the rate or the amount of the AAD but did agree to forego the increase to the each and every deductibles and to provide, at the end of the policy term, a percentage of the gross premium less net paid claims. [57] It is noteworthy that the increase in annual premium costs was almost 20%, a significant amount. It is difficult to imagine that More Marine would not be actively involved in the decision to accept or reject the

available coverage. [58] Some of Mr. Morris's evidence is difficult to follow. In the same affidavit referred to above, Mr. Morris deposed that he received the fax dated August 18, 2006, but stated that he was confused by the reference to an "Aggregate Annual Deductible" clause. That is incorrect. In fact, the fax refers to an "Annual Aggregate Deductible", or an AAD clause. [59] Mr. Morris further deposed that he contrasted the language in the fax to a Cover Note "setting out the agreed terms of renewal for the 2006/2007 year." Unfortunately, the exhibit referred to is the Cover Note for the 2005/2006 policy year. Nonetheless, according to Mr. Morris, the Cover Note refers to an "Aggregate Deductible Average" clause, thus contributing to his confusion. [60] As the experts pointed out, there is no significance in the different terminology. I do not accept that Mr. Morris was confused as he describes. [61] I observe that the 2005/2006 Cover Note has two significant references. First, under the heading "Deductibles", it lists "Annual Aggregate 150,000", a clear reference to an AAD. Second, under the heading "Insuring Conditions", it lists an "Aggregate Deductible Average Clasue [sic]". Mr. Morris refers only to the latter in his affidavit although it is apparent from the context that the terms are interchangeable. [62] According to Ms. Egger, and corroborated by her notes, Mr.

Morris spoke to her on August 22, 2006, and told her "it is okay to renew as quoted". On August 31, 2006, Ms. Egger wrote to Mr. Morris enclosing "renewal documentation evidencing insurance coverage for a further one year term with effect from August 22, 2006". The enclosed documents included a Cover Note for policy H06/22129. [63] The 2006 Cover Note is identical in form to the previous year's; it clearly sets out, among other things, an AAD of $250,000 as well as the premium amount quoted earlier. It also contains the same obviously interchangeable references to an annual aggregate deductible and an aggregate deductible average clause on the same page. [64] Ms. Egger discussed the sinking of the Glenshiel with Mr. Morris a few days after the loss occurred. It is apparent from her file note that, at that time, Mr. Morris's focus was on the correct legal interpretation and application of the deductible clauses rather than on the existence or amount of the AAD clause. [65] Ms. Smith is a Claims Consultant at Aon and the person with whom Mr. Morris spoke after the Glenshiel sank. Unlike Mr. Morris, she produced notes of their conversation. She denied telling Mr. Morris that the full amount of the loss would be paid and points out, reasonably, that the decision whether to pay a loss is for the underwriter to make rather than the broker. As in Mr. Morris's conversation with Ms.

Egger, it is apparent from Ms. Smith's contemporaneous notes that Mr. Morris was questioning the interpretation rather than the existence of the AAD clause. [66] Much of Mr. Morris's first affidavit consisted of argument or submissions disguised inappropriately as evidence. His second affidavit was similarly deficient. For example, in response to Mr. Morris's first affidavit, Ms. Egger deposed in a second affidavit that she forwarded a copy of policy H06/22129 by mail in February 2007. Mr. Morris then deposed in his second affidavit that More Marine "has no record of ever receiving such a letter" and goes on to state that the copy of the letter, albeit signed, is not on Aon letterhead. Accordingly, Mr. Morris doubted that it is a true copy of any letter sent and suggested that the document is "suspect" because a business would not file "a signed non-letterhead copy." [67] I do not accept Mr. Morris's improper submission. I am not misled by Ms. Egger's reference to the copy of the letter as a "true copy" in the circumstances and accept her evidence that Aon sent a copy of the 2006 policy to More Marine in February 2007. [68] The significance of this review of the evidence is as follows. More Marine knew the specific terms of policy H06/22129, including the content of the AAD clause, well before it suffered the loss of the Glenshiel. I am also satisfied that More Marine received

the endorsements on previous policies that set out the various AAD clauses dating back to January 2005. I doubt that Mr. Morris failed to read them. [69] I do not accept More Marine's contention that the inclusion of the AAD clause in policy H06/22129 was an unpleasant surprise that it discovered only after the loss of the Glenshiel. [70] Instead, I am satisfied that, in August 2006, More Marine knew that the underwriters were only prepared to offer H&M coverage for the fleet on the terms set out in the August 18, 2006, fax and that More Marine, however reluctant it may have been, agreed to the terms that Aon negotiated on its behalf as set out in the fax. The amount of the AAD was then set out in the Cover Note and later the full terms were set out in the copy of the policy that Aon forwarded to More Marine. More Marine received those materials long before it incurred the loss of the Glenshiel but never challenged either the amount or the terms of the AAD clause until after the loss. [71] I turn next to an overview of the various legal submissions advanced by the parties relating to the inclusion of the various AAD clauses in the endorsements and policy H06/22129. Axa and Continental claim the right to charge a deductible of $250,000 against the loss of the Glenshiel based on clause 23 in policy H06/22129, which specifically applies the AAD to CTL claims. The underwriters,

with the support of Aon, submit that, in spite of the change in wording, the clause and earlier endorsements are consistent and result from negotiations and enforceable agreements between the underwriters and Aon, on behalf of More Marine. [72] More Marine contends that the clause was added to the policy midway through the term without its knowledge and without fresh consideration for what amounted to a reduction in coverage. More Marine further submits that the endorsements to the 2004 and 2005 policies differed from clause 23 and that the former never extended the deductible to CTL claims. Alternatively, More Marine contends that the changes in the endorsements were added without fresh consideration as required. [73] In addition, More Marine says that the endorsements, and eventually clause 23, are inconsistent with the agreement reached by the email exchange on December 3, 2004, that expressly excluded CTL and TL claims from the reach of the AAD clauses. In the further alternative, More Marine contends that if the endorsements extended to TL and CTL claims, the wording is a mistake requiring rectification. [74] More Marine's contention that clause 23 was added midway through the term of the policy without its knowledge and without fresh consideration for what amounted to reduced coverage is answered by my earlier findings of fact. More Marine knew that the underwriters

required an AAD of $250,000 as a condition of providing coverage and authorized Aon to agree. The terms of coverage coupled with the payment of the negotiated premium constituted the necessary consideration. The next contention is that the endorsements to the 2004 and 2005 policies differed in their application to CTL and TL claims from clause 23. In my view, they did not. Both the endorsements and clause 23 applied to CTL and TL claims. [75] More Marine suggests that the deductibles clauses in the 2004/2005 policies, even before the email exchange in late 2004, did not apply to TL and CTL claims because clause 7 of the C.H.P. Clauses specifically excluded TL and CTL claims. In addition, More Marine suggests that the language of the later endorsements never extended the AAD to TL and CTL claims as clause 23 in the 2006 policy did. [76] Axa, Continental and Aon all contend that the two deductibles in place before the email exchange are distinct. The first is an each and every deductible that does not extend to TL and CTL claims as a result of the exemption in clause 7 of the C.H.P. Clauses; the second is an AAD applicable to all claims, except those that are specifically excluded, until the amount is exhausted. [77] The evidence indicates that in late 2004 Aon concluded, and the underwriters accepted, that there was some ambiguity relating to the application of the AAD and, as a

result, Aon suggested the endorsements in order to clarify the ambiguity. The defendants say that parties may amend a contract by agreement without fresh consideration if there is a benefit to both parties. They say that the more specific wording in the endorsements was beneficial to both the plaintiff and the defendant insurers. [78] A brief discussion of the applicable legal principles is necessary. Can an insurance policy be amended after the terms of the contract are fixed and effective? In some instances, the answer is yes. George R. Strathy & George C. Moore, Law & Practice of Marine Insurance in Canada (Markham: LexisNexis Canada, 2003) at 20, note that a policy may be forwarded to the underwriters for signatures "some considerable time after the risk ha[s] attached and the insurance ha[s] become effective." At the time the insurance contract is created only the material terms must be agreed to; the material terms are: (a) the risk to be covered (i.e. the subject matter of the insurance and the perils against which there is coverage); (b) the duration of the insurance; (c) the amount and mode of payment of the premium; and (d) the amount of insurance payable in the event of a loss: Craig Brown, Insurance Law in Canada, vol. 1, looseleaf (Toronto: Thomson Carswell, 2002) at 6-3. Thus non-material terms can be added to the policy later even if they were not explicitly

agreed to at the time of contract formation. [79] Further, in regard to changing the terms of a marine insurance contract, Strathy and Moore state at 23: No party to a contract may alter it without the agreement of the other party. A broker cannot unilaterally alter the contract, except to the extent permitted by the policy, without the insurer's agreement Similarly, the insurer cannot amend the contract without the consent of the insured. An amendment to the contract must be made in writing in order to be effective. Clearly, a contract, and by extension an insurance policy, can be amended after the date the contract is created. In the case at bar, both Aon, acting as agent for More Marine, and Axa and Continental, as underwriters, agreed to alter the policy. Aon eventually reduced this agreement to writing in the form of an endorsement, and Axa and Continental signed to indicate their acceptance of the terms. [80] Although there are no Cover Notes for the 2004 policies in evidence, the Cover Note for the 2006 policy is illustrative. It states that the insurance is "subject to the terms, conditions, exclusions and provisions contained in the policy to be issued and any endorsements attached thereto." This indicates that the parties contemplated the use of endorsements from time to time and incorporated them by reference into the contract. [81] Was More Marine's express approval required before the endorsements became effective? There is no doubt that there is an agency relationship between an insured and an independent broker: Adams-Eden Furniture Ltd. (Whitehorse Furniture Ltd.) v. Kansa General Insurance Inc. (1996), 141 D.L.R. (4th) 288 at 292 (Man. C.A.), aff'g (1995) 103 Man. R. (2d) 284, leave to appeal ref'd [1997] S.C.C.A. No.

42. As principal, the insured is responsible to the insurer for its agent's actions: Adams-Eden Furniture at 296. Further, Helper J. in Adams-Eden Furniture at 296 found: when an insured engages a broker to conduct the negotiations of an insurance contract, the insured is bound by and is also responsible for all statements made by the broker which concern the subject matter of the insurance. [82] In Russelsteel Ltd. v. Consolidated Northern Drilling & Exploration Ltd., [1981] 4 W.W.R. 113 (Alta. Q.B.), the court reviewed the basic principles of agency. Feehan J. stated at 115: Where a principal holds out to a third party that an agent has been authorized to act on behalf of the principal, the principal is bound by the acts of the agent, although the agent may, in fact, have no authority or only a limited authority, on the grounds that the agent has apparent or ostensible authority and the principal knows that the third party may rely on such holding-out and the principal is thereby estopped from denying the agency Accordingly, while an insured may have a claim against a broker for acting outside of his authority, the insurer is entitled to rely upon the broker's agreement to a particular term. [83] Further, even if an agent exceeds his authority, the principal may ratify the agent's acts. Taking any of the benefits from the agent's acts is strong evidence of ratification:

Russelsteel at 116. Here, More Marine filed claims from 2004 through 2006. That rendered Axa and Continental liable for certain expenses. More Marine accepted the insurers' payment of these expenses, thereby taking a benefit from Aon's actions. [84] There is also evidence that More Marine received copies of at least some of the endorsements. More Marine did not, at any time before commencing this action, complain about the terms of the endorsements. This further acquiescence also demonstrates ratification. [85] A related question is whether fresh consideration was necessary before the endorsements became effective. In my view, as I will address below, More Marine benefited from the clarification of the terms of the AAD clause as it was necessary to assist with processing claims. [86] More Marine relies on several cases respecting the need for consideration before altering terms of a contract but all of those related to employment contracts. They reflect the principle that continued employment by itself does not constitute consideration for unilateral changes to the employment contract that are only beneficial to the employer. This would be akin to the insurer unilaterally changing the terms of insurance midway through the policy and arguing that continued coverage constituted consideration. [87] With specific reference to insurance contracts, the Court of Appeal in Singh v.

Empire Life Insurance Co., 2002 BCCA 452, 4 B.C.L.R. (4th) 38, at para. 13, accepted that "modification of a pre-existing contract will not be enforced unless there is a further benefit to both parties." In this case, Aon, as agent for More Marine, and the underwriters agreed to the changes. The changes benefited all parties. [88] This is because before the endorsements the AAD clause was not very detailed and, as a result, ambiguous. In 2003, as earlier set out, policy H03/19257 had an each and every deductible of $10,000 as set out in clause 7 of the C.H.P. Clauses and "an annual aggregate deductible of $100,000" with no exceptions noted. Policy H03/19009 also had an AAD of $100,000 but specifically excluded losses on the Rivtow 50. [89] Mr. Boucher, in his affidavit, and Mr. Wright, in cross-examination, agreed that the above wording lacked detail as to how to apply the AAD. Finally, Mr. Wright further agreed that the industry practice is to specifically list any exceptions to an AAD clause. [90] It follows, in my opinion, based on the wording of the AAD clauses set out directly above, that one could not say with certainty whether or not the AAD clause applied to all claims including CTL and TL claims, although it probably was intended to. Without further clarification to list exceptions, the AAD clause appears to apply to all claims after the application of the each and

every deductible. [91] I am also satisfied that clause 7 of the C.H.P. Clauses, along with its exclusions, is not incorporated by reference into the AAD clause. Contrary to his affidavit, Mr. Wright agreed in cross-examination that clause 7 of the C.H.P. Clauses applies in practice to an each and every deductible but not to an AAD clause. This is because clause 7 only applies to claims arising out of one accident or occurrence. Both experts stated that an each and every deductible and an AAD are separate and distinct. [92] I do not accept the oral submission of plaintiff's counsel respecting the operation of the deductibles clauses. Counsel contends that the two deductibles operate in tandem so that, for example, an insured pays the first $10,000 (the each and every deductible) of all non-excluded claims to a maximum of $100,000 (the AAD) in the policy year. Once the insured has paid that maximum, the insurer pays 100% of all further claims. If correct, this would mean that the each and every deductible would run out and no longer apply to further claims if the insured had more than ten. This interpretation further suggests that if the insured had two non-excluded claims, each for $100,000, the only applicable deductible would be $10,000 per claim and the insurer would cover the balance of $180,000. [93] This interpretation is artificial and runs contrary to the purpose of an

AAD, addressed elsewhere in my reasons. It instead turns the AAD into a limitation of the each and every deductible. The AAD was not applied in this manner between 2004 to 2006 when the plaintiff had claims to which both deductibles applied. The plaintiff did not challenge the operation of the AAD then. While I do not accept counsel's interpretation, it serves to highlight the ambiguity that originally arose when considering how to apply the deductibles clauses to actual claims. [94] Ultimately, More Marine benefitted from Aon seeking clarification by means of the endorsements because the endorsements specified that the AAD was subject to particular exclusions. It thereby clarified the losses that were covered in spite of the AAD. The extent of the coverage was not reduced because it was not clear, before the creation of the endorsements, what claims, if any, the AAD would not apply to. [95] Do the endorsements extend the AAD to TL and CTL claims? As discussed above, clause 7 of the C.H.P. Clauses does not apply to the AAD. In my view, the wording of the endorsements implicitly extends the AAD to TL and CTL claims. [96] For convenience, and solely as the first example of the wording to illustrate the application of the clause, I set out below Endorsement No. 2 for policy H04/19439. All other endorsements used the same wording. Only the amounts differed. Endorsement No. 2

reads: Effective: August 22, 2004 IT IS HEREBY UNDERSTOOD AND AGREED THAT the following Aggregate Deductible Average Clause is added to the above noted policy: Aggregate Deductible Average Notwithstanding the fact that each vessel is deemed to be a separate insurance, the following clause shall apply: (a) It is a condition of this Policy that the Insured shall absorb all claims up to an accumulated amount of Three Hundred Seventy-Five Thousand Dollars ($375,000), excess of the deductible average, the insurers shall thereafter pay one hundred percent (100%) of each adjusted claim after the application of the each and every deductible average. (b) The foregoing shall not apply to claims under the Collision and Towers Liability Clause, nor to claims under the Sue and Labour, Salvage, Salvage Charges and General Average Clauses. (c) Notwithstanding the foregoing, the Insurers shall be liable in full for all surveyors fees, adjustment expenses, legal expenses, and costs of sighting bottoms even if the claim does not exceed the Aggregate Deductible Average or is not a claim within the Policy Conditions. Surveyors fees, adjustment expenses, legal expenses and costs of sighting bottoms not to apply to the Aggregate Deductible Average. As Mr. Boucher observed in his affidavit, subparagraph (a) requires the insured to "absorb all claims up to an accumulated amount" after the application

of the each and every deductible (emphasis added). Subparagraph (b) then explicitly exempts certain types of claims from being subject to the AAD. TL and CTL claims are not listed in subparagraph (b). [97] Reading the two subparagraphs together, it becomes clear that the AAD is applicable to all claims not mentioned in subparagraph (b), including claims for TL and CTL. While Mr. Wright originally disputed this, he agreed on cross-examination that the wording of the endorsement, as set out immediately above, extends the AAD to TL and CTL claims. [98] I find no ambiguity in the wording of the endorsement or in its application to the policy. I am able to discern the intention of the parties. Therefore, I need not apply other rules of interpretation such as the contra proferentum rule: Brissette Estate v. Westbury Life Insurance Co., [1992] 3 S.C.R. 87 at 92, 96 D.L.R. (4th) 609; see also Brown at 8-9. [99] Earlier, I set out More Marine's further contention that the endorsements, and eventually clause 23, are inconsistent with the alleged agreement reached by the email exchange on December 3, 2004, that expressly excluded CTL and TL claims from the reach of the AAD clauses. If the email exchange constituted an agreement to exclude CTL and TL claims from the reach of the AAD clauses, it would follow that both the endorsements and clause 23 of the 2006 policy materially reduced the

available coverage for such claims. [100] More Marine contends in written argument that the email exchange culminated in an executed agreement with consideration. I disagree. [101] It is apparent that the exchange was a preliminary step in reaching an agreement on the terms of an endorsement to form part of the policies. As set out earlier, there is an obvious error in the two inconsistent statements of the amount of the AAD. While it is true that the form of precedent included CTL and TL claims in the list of exceptions, I am not persuaded that was intended or that anyone put their minds to that aspect of the matter at the time of the exchange. Aon and the underwriters eventually negotiated different terms as evidenced by the language of the endorsements. Ultimately Aon renegotiated the amount of the AAD, in conjunction with the rollover into a single fleet policy later in January 2005. [102] More Marine concedes that a renewal with the reciprocal premium and coverage constitutes consideration. More Marine argues, however, that the renewal was consideration for the alleged December 2004 email agreement. I reject that argument. It imposes an artificially limited scope on consideration. As I have already observed, the early drafting process was riddled with errors. I am unable to accept that the parties entered into a final agreement at the time of their email exchange in

December. [103] I accept the contention of Axa and Continental that the purpose of the email exchange was to clarify the application of the existing AAD clauses. The existing clauses did not list or implicitly suggest any exclusion apart from claims relating to the Rivtow 50. There was, in fact, no new consideration, such as a higher premium rate, in exchange for an AAD clause with more limited reach. Nor was there, at that time, any discussion of changing the amount of the AAD clause. [104] In light of my findings and conclusions, it is not necessary for me to address More Marine's alternate submissions respecting rectification, mutual mistake or unilateral mistake. More Marine says that allowing the underwriters to benefit would be tantamount to equitable fraud. All those submissions depend on a finding that the December email exchange represented the true agreement of the parties. I reject the alternate submissions. [105] In case I err, and by operation of rectification, the endorsements should exclude CTL and TL claims from the AAD clause, it does not follow that clause 23 of policy H06/22129 should also be changed by deleting the addition to subparagraph (a) stating: "The aggregate deductible also applies to claims for Total Loss or Constructive Total Loss." [106] I accept that by 2006 the underwriters, in order to limit their exposure, would not have agreed to a policy

that excluded TL and CTL claims from the reach of the AAD clause, especially since the underwriters had considered not renewing coverage on any terms due to the claims history and the loss ratio. It is obvious that such claims are the largest and would be of the most concern for the underwriters. [107] Continental just followed Axa's lead to ensure that the wording of clause 23 exactly reflected the agreement that had been negotiated with Aon. As earlier set out, Axa returned two previous drafts to Aon noting changes that needed to be made. In the end result, there was no mutual or unilateral mistake. Both Aon, on behalf of More Marine, and the underwriters ended up with exactly the agreement they negotiated. I would not rectify the 2006 policy based on any of the grounds that More Marine raises. In my view, the underwriters were entitled to rely on clause 23. [108] More Marine also contends that there is ambiguity in the following words of clause 23: "[T]he aggregate deductible also applies to claims for Total Loss or Constructive Total Loss." This ambiguity, as I understand the contention, arises from the alleged conflict with the exclusion of TL and CTL claims under clause 7 of the C.H.P. Clauses, which I have found only applies to the each and every deductible. [109] Further, even if there is a conflict between clause 7 of the C.H.P. Clauses, which excludes TL and CTL

claims, and clause 23 of the policy, which expressly includes TL and CTL claims, the conflict must be resolved in favour of the latter. This is because the parties specifically drafted clause 23, as opposed to simply incorporating the standard form clause 7 of the C.H.P. Clauses. [110] Strathy and Moore, at 41, state: It is presumed that, in the case of ambiguity, the clauses which the parties have taken the trouble to write out reflect their true intention more than the printed form itself. In Morrison Mill Co. v. Queen Insurance Co. of America, [[1925] 1 D.L.R. 1159] the British Columbia Court of Appeal stated: It was strongly contended, and I think rightly, that the written matter in the printed forms used should be given the controlling weight when there is any doubt or ambiguity [111] Accordingly, Axa and Continental were entitled to apply the AAD to More Marine's CTL claim arising out of the loss of the Glenshiel. [112] It is not necessary, having regard to the outcomes above, for me to address in any detail the More Marine claim that the underwriters acted in bad faith before and during the course of the litigation. According to More Marine, the bad faith arises from the underwriters' "unjustified" reliance on the AAD clause in the face of uncertainties associated with the undisclosed 2004 email exchange and the wording of the deductibles clauses. Those arguments depend

on a finding that the reliance was unjustified. There is no merit to that contention. The further allegations of bad faith relate to conduct in the course of the litigation. Those are best addressed, in my view, later in deciding costs issues. [113] In the result, More Marine's claims against Axa and Continental are dismissed. So too is its claim against Aon for its legal fees as consequential damages since this required the action against the underwriters to succeed. [114] I turn next to More Marine's allegations that Aon was negligent, breached an implied term of contract, or breached a fiduciary duty owed to More Marine. I propose to briefly set out the allegations and then deal with them. [115] The first two claims are closely connected. In its amended statement of claim, More Marine alleges an agency contract with both Aon and Ms. Egger containing three implied terms: (1) Aon and Ms. Egger "would obtain a policy of insurance that included only terms agreed by [More Marine]"; (2) More Marine "would be notified of any material changes in the policy from the previous year"; and (3) Aon and Ms. Egger would "exercise reasonable care and skill in undertaking the work to which the contract related." [116] The alternative allegations of negligence in the pleadings add flesh to the bare bones above. I paraphrase them as follows: (1) failing to obtain the best coverage

available; (2) failing to adequately warn that the sentence in clause 23 of policy H06/22129 at issue was a material change; (3) misrepresenting that there were no material changes from the previous policy beyond those brought to the attention of More Marine; (4) failing to advise that the underwriters agreed on December 3, 2004, to exclude CTL and TL claims from the AAD clause; and (5) failing to carry forward the terms of that agreement into the endorsements to the policies. [117] I have already concluded there was no material change in clause 23 of policy H06/22129. Aon and the underwriters did not reach a final agreement to exclude CTL and TL claims from the AAD clause in December 2004. To the contrary, the final agreement, as evidenced by the endorsements, was that the AAD applied to all claims except those that were specifically excluded. CTL and TL claims were not specifically excluded in any of the endorsements. As earlier stated, the terms of a policy may be clarified or amended by endorsement after the date of renewal so long as both parties benefit and consent. In the result, clause 23 only made explicit that which was implicit, namely that CTL and TL claims were subject to the operation of the AAD. [118] The remaining allegations require me to address the issues relating to the December 3, 2004, email exchange that I identified earlier. I consolidate them into what

I consider to be the central question that More Marine raises in this regard. Particularly in light of the underwriters' agreement to proposed wording excluding CTL and TL claims from the reach of the AAD clause, did Aon fail to exercise reasonable care and diligence in securing the best coverage available for More Marine? [119] Before proceeding further, I observe that there is no evidence that Ms. Egger was personally a party to the contract between More Marine and Aon. There is also very little evidence that she had any active involvement with the More Marine account in the November 2004 to January 2005 period. According to Ms. Egger, she took over the duties of account manager from Mr. King in 2006. More Marine did not contest that evidence. [120] The only other evidence on the point is that of Ms. Telford. Ms. Telford deposed, in effect, that she received instructions from and communicated with Mr. King respecting the changes to the AAD clauses and the endorsements. However, in cross-examination, she listed Mr. King and Ms. Egger among the people who would have looked at the endorsements. [121] Based on the paucity of this evidence, I would not impose liability personally on Ms. Egger for breach of contract or negligence. My additional findings will be restricted to the alleged liability of Aon in contract, negligence and for breach of fiduciary duty. [122] I refer briefly

to some additional evidence before proceeding. There is unchallenged evidence from Mr. Morris that he began using Aon, as a marine broker, to purchase marine insurance in 2000. At the beginning, his contact at Aon was Dennis Wotherspoon. In 2000, according to Mr. Morris, he raised a concern with Mr. Wotherspoon about requiring "insurance to the full value of the vessels insured in the event of a Total Loss and Mr. Wotherspoon explained that every H&M policy incorporates the [C.H.P. Clauses] which specify full coverage without deductible for [TL or CTL]." [123] That evidence is not contradicted but must be considered in context. None of the More Marine policies had an AAD clause until 2002. Accordingly, there is no demonstrable inaccuracy in Mr. Wotherspoon's statement in 2000 about the extent of the coverage. It is clear that, by the time of the 2002 policy year, More Marine had already suffered a CTL that the underwriters were obligated to, and did, pay without any deduction. In 2001 the insurers paid $669,794.09 for this CTL in addition to $81,277 for other losses, while only receiving $43,706 in premiums from More Marine. That claims history was undoubtedly a factor that led to the underwriters requiring an AAD clause commencing in 2002. More Marine did not lead any evidence respecting its discussions with Aon about the terms of coverage that were available at that time or

about what information it received from Aon regarding the underwriters imposing for the first time, an AAD clause in 2002. [124] The law relating to the standard of care that Aon, as agent, owed to More Marine is clear. Aon owed a stringent duty to provide both information and advice to More Marine. [125] In discussing marine insurance, Halsbury's Laws of England, 4th ed., vol. 25 (London: LexisNexis, 2003) at 162, para. 284, states: All agents, whether paid or unpaid, skilled or unskilled, are under a legal obligation to exercise due care and skill in performance of the duties which they have undertaken, a greater degree of care being required from a paid than from an unpaid, and from a skilled than from an unskilled, agent. The question in all these cases is whether the act or omission complained of is inconsistent with that reasonable degree of care and skill which persons of ordinary prudence and ability might be expected to show in the agent's situation and profession. [Citations omitted.] [126] The Supreme Court of Canada in Fletcher v. Manitoba Public Insurance Co., [1990] 3 S.C.R. 191 at 214-17, 74 D.L.R. (4th) 636, reviewed the duty imposed on private brokers. There, the Court, at 216, quoted Professor Snow in "Liability of Insurance Agents for Failure to Obtain Effective Coverage: Fine's Flowers Ltd. v. General Accident Assurance Co." (1979), 9 Man. L.J. 165, who

stated at 169: Consumers who place their faith in insurance agents holding themselves out as competent and find their faith misplaced, will frequently be able to find recourse against the agent. ... [T]he extent of the duty owed by an insurance agent, both in placing insurance and in indicating to the insured which risks are covered and which are not, as set out in this case, is a fairly stringent one for the agent. Moreover, given the general situation of the principal relying very heavily on the expertise of the agent, it does not seem to be an unreasonable burden for an insurance agent to bear. [Emphasis in original.] At 217, in summary, Wilson J. wrote: In my view, it is entirely appropriate to hold brokers to a stringent duty to provide both information and advice to their customers. They are, after all, licensed professionals who specialize in helping clients with risk assessment and in tailoring insurance policies to fit the particular needs of their customers. Their service is highly personalized, concentrating on the specific circumstances of each client. Subtle differences in the forms of coverage available are frequently difficult for the average person to understand. Agents and brokers are trained to understand these differences and to provide individualized insurance advice. It is both reasonable and appropriate to impose upon them a duty not only to convey

information but also to provide counsel and advice. These extracts set out the applicable standard of care that Aon was obligated to meet. [127] More Marine relies on Crown West Steel Fabricators v. Capri Insurance Services Ltd., 2001 BCSC 449, 89 B.C.L.R. (3d) 151, for the proposition that a broker who fails to warn the client of a material risk or alteration in coverage is negligent. There, the broker failed to advise the insured of the various forms of business interruption coverage that might be appropriate for the insured's business and to adequately inform the insured of the potential effect of co-insurance upon a partial business interruption loss. The court found that this constituted negligence and that the plaintiff had suffered damages from the application of the co-insurance penalty. However, "in failing to seek clarification of coverage when acting under a coverage misapprehension known only to itself", the plaintiff was contributorily negligent (at para. 68). [128] In Crown West, the plaintiff also sought an award for being underinsured. However, there was evidence that the plaintiff did not always take the broker's advice when determining its insurance needs and was willing to risk being underinsured. The plaintiff did not prove that it would have purchased more than a certain amount of coverage even if it had been fully informed of the types of coverage

available. [129] The circumstances in Crown West differ significantly from the present case. I have already rejected More Marine's contention that the wording of the AAD clause in the endorsements was unclear. The deductible applied to all claims unless specifically excluded. Aon was not obligated to explain the meaning of the clause in that regard. As I later point out, there is no evidence, apart from the late 2004 email exchange, that alternate coverage excluding CTL and TL claims from the reach of the AAD clause was available, whether from Axa and Continental or elsewhere. [130] In my view, the initial introduction of the AAD clauses into the insurance policies materially affected coverage. It follows that the individualized language of an AAD clause listing categories of claims to be excluded also impacts coverage. But it must be remembered that the purpose of the clause is to keep premiums more affordable than would otherwise be the case given the insured's loss record. [131] The exclusion of CTL and TL claims from the operation of an AAD clause is an important factor from the insured's perspective, although so too are the increased premium costs likely to be associated with any such exclusion. The converse is obvious. By including CTL and TL claims within the reach of the AAD clause, the underwriters have the benefit of it applying to a broader range of claims including

the most costly. In exchange, however, the insured receives the benefit of a lower premium rate than would otherwise be the case. [132] It is apparent from the evidence that the parties negotiate the express terms of AAD clauses so that the underwriter can provide insurance at an affordable cost even when there is a poor claims history. I am satisfied, on the evidence, that there was significant communication between Ms. Egger and Mr. Morris before Aon committed More Marine to the new amount of the AAD in 2006. Apart from that, there is little or no evidence of the communications about the introduction or the relevant terms of the various AAD clauses. [133] Neither More Marine nor Aon led any direct evidence of the circumstances that resulted in the initial introduction of an AAD clause into the policies in 2002. Nor did More Marine raise any issue in its pleadings arising out of the introduction of the clause. In the circumstances, More Marine must have known and agreed to the inclusion of the AAD clauses in the policies. [134] Instead, the focus in More Marine's pleadings is on the alleged material change to coverage in December 2004 and the subsequent effect of later differences in the wording of the AAD clauses. More Marine has not succeeded on any of those points. [135] There is no evidence that, in late 2004 and early 2005, Aon discussed the proposed exclusions to the AAD

clause with More Marine, or even with the underwriters. Instead, the defendants invite me to infer that negotiations about the matter must have taken place at a higher level within Aon. [136] Mr. Morris's evidence that he did not learn about the December 2004 email exchange until the parties were well into the litigation appears true. I find that More Marine had no opportunity to discuss with Aon the possible implications of the email exchange as it related to the scope of the existing coverage or the negotiations for future coverage. The course of events in January 2005 that culminated in a negotiated reduction in the amount of the AAD indicates that the terms of the clause were still open to further negotiation, at least in relation to the amount. [137] I am left with considering the implications of Aon not discussing the proposed exclusions to the AAD clause with More Marine in late 2004 and January 2005, keeping in mind that More Marine knew of the final result no later than April 2005. There are significant problems linking that failure to the specific losses that More Marine claims arising out of the sinking of the Glenshiel in 2007, when a later policy was in effect. More Marine did not proffer any other evidence of loss apart from the loss of the deductible that it was required to pay in the Glenshiel claim. [138] Even if More Marine lost the opportunity to pursue

negotiations to exclude CTL and TL claims from the 2004 and 2005 endorsements, I am satisfied that, by the time of the 2006 negotiations, the underwriters were not prepared, under any circumstances, to agree to any different terms to the AAD clause. Further, there is no evidence that another underwriter would have offered different coverage in the circumstances having regard to More Marine's loss record. [139] More Marine incurred the loss of the Glenshiel while the 2006 policy was in effect. The AAD clause at issue was part of the policy. I find no causative link between the specific loss that More Marine claims and the earlier events of late 2004 and January 2005. [140] There is also insufficient evidence that the underwriters would have agreed at any time after the December 2004 email exchange to an AAD clause that excluded CTL and TL claims from its application and, as I have already found, the underwriters had not turned their minds to the specific wording during the email exchange. [141] I am unable to conclude that Aon's failure to discuss the content of the December 2004 email exchange with More Marine caused the latter to suffer any loss at all. More Marine did not claim that it suffered any loss for which it did not recover during the periods when the 2004 and 2005 endorsements applied. [142] Who bears the onus to prove injury and causation with respect to the

negligence claim? I am satisfied that More Marine does. In Markal Investments Ltd. v. Morley Shafron Agencies Ltd. (1990), 67 D.L.R. (4th) 422, 43 B.C.L.R. (2d) 348 (C.A.), the court addressed the question of onus. First, in dealing with a claim in negligence against an insurance broker, Wallace J.A., for the majority, applied the ordinary law relating to the plaintiff's obligation to prove all three independent elements of negligence: fault, injury, and causation. He then overturned the trial judge's finding that an exception arose in the particular circumstances of the case (at 426-27). [143] The trial judge in Markal erred in relying on Fine's Flowers Ltd. v. General Accident Assurance Co. of Canada (1977), 81 D.L.R. (3d) 139 (Ont. C.A.), because that decision, according to Wallace J.A., flowed from an insurance agent agreeing to obtain full coverage. When the agent failed to do so, the agent was prima facie in breach of contract and the onus shifted to the agent to demonstrate that coverage was not available and could not be obtained. As Wallace J.A. stated at 427: The ruling supports the proposition that the onus of proving that a contract is impossible to perform rests upon the party who raises that as a defence to a claim for a breach of contract. It does not, in my view, deal with the question of whether or not in a negligence case the onus to prove damages, due to the

alleged negligent act of the insurance agent, has been shifted to the insurance agent, who is thereby required to assume the burden of disproving that the plaintiff has suffered the damages claimed. Unlike Fine's Flowers, there is no evidence in the present case that Aon ever agreed to obtain coverage that excluded CTL and TL from all deductibles for More Marine. [144] Here, the coverage before 2004 already included an AAD clause. The email exchange in late 2004 occurred because the terms of the clause were ambiguous. This ambiguity needed to be resolved so that the parties would know whether individual claims were inside or outside the reach of the deductible. While the evidence demonstrates that Aon did not review the content of the email exchange with More Marine, nothing meaningful turned on that. [145] Indeed, the logical inference from the evidence available is that, even if Aon had pursued the issue in its effort to obtain the best coverage available, it would have failed. The underwriters already required an AAD clause. The clauses were introduced after More Marine sustained a CTL that was not subject to any deductible. It is difficult to imagine why the underwriters would agree in late 2004 to exclude CTL and TL claims from the reach of the AAD clause as this would roll the policy clock back to 2001 and leave the underwriters once again exposed to the costs of those

claims not being subject to any deductible. It is, in my view, evident that the underwriters would not have agreed to exclude CTL and TL claims from the AAD clause in late 2004 or thereafter. [146] This inference is also consistent with the drafting changes, apart from the amount, that quickly surfaced in the endorsements, none of which excluded CTL or TL claims from the reach of the AAD clause. While the amount of the AAD was itself subject to negotiation and change, along with premium rates, there is no evidence, apart from the email exchange, that the underwriters were prepared at any time to change the reach of the AAD clause. Indeed, the later changes to the 2006 policy made it express that CTL and TL claims were to be subject to the AAD clause. [147] Although I accept that Aon should have communicated with More Marine about its negotiations with the underwriters in late 2004 and January 2005, I am not persuaded that More Marine suffered any loss as a result. Although counsel did not directly refer to it, I note that in Markal, Southin J.A., in a concurring judgment, observed, in dicta, that the negligence of a broker which is also a breach of contract "entitles the innocent party to damages albeit the damages may be nominal." This is because "[d]amage is not the gist of an action in contract but it is the gist of an action in tort for negligence" (at 431). [148] At most,

any award for breach of contract against Aon would be nominal. Counsel for More Marine did not seek such an award. If he had, an appropriate nominal award would have been $100. I point out that an award of nominal damages would not entitle More Marine to costs. Overall, it would still be the unsuccessful party: see Anglo-Cyprian Trade Agencies v. Paphos Wine Industries, [1951] 1 All E.R. 873 at 874, quoted in Fisher v. Pemberton, [1975] B.C.J. No. 389, at para.

5. In the circumstances, I decline to make an award of nominal damages. [149] More Marine also claims for breach of fiduciary duty but, even if Aon breached its fiduciary duty in failing to review the content of the late 2004 email exchange with More Marine or by not pursuing the exclusion of CTL and TL claims during the course of negotiations with the underwriters, the losses that flow must be caused by the particular breach: see Canson Enterprises Ltd. v. Boughton & Co., [1991] 3 S.C.R. 534 at 578, 85 D.L.R. (4th) 129. In Hodgkinson v. Simms, [1994] 3 S.C.R. 377 at 440, 117 D.L.R. (4th) 161, La Forest J. reiterated that the purpose of damages for breach of fiduciary duty are to make restitution. That is, the plaintiff must be put in the same position as it would have been had the breach not occurred. Here, I am satisfied that any breach was inconsequential; it had no effect on More Marine. In order to obtain insurance coverage, More Marine would have had to agree to the inclusion of CTL and TL claims within the reach of the AAD clause. There was, accordingly, no loss requiring restitution. [150] There is one further aspect of More Marine's damage claims that requires comment. More Marine contends, relying on Zahab v. Salvation Army in Canada, [2008] CarswellOnt 4933 (S.C.J.), that I should draw a negative inference against the defendants for wrongly suppressing evidence of

the late 2004 email exchange. Further, relying on G.D. Nokes, An Introduction to Evidence, 4th ed. (London: Sweet & Maxwell, 1967) at 294, More Marine says that suppression may be regarded as an admission by conduct that the entire position of a party is false. [151] Counsel for More Marine contends that these principles apply in relation to damages because the defendants': [w]rongful acts have made it difficult for the Plaintiff to prove the loss. Any uncertainty in ascertaining what would have happened had it not been for the Defendants' wrongful conduct engages the evidentiary principle that all things are to be presumed against the wrongdoer. According to counsel, I should infer, as a result, that More Marine could have obtained other insurance. In effect, More Marine alleges spoliation [152] This is not a case in which the plaintiff's claim is based on an allegation of spoliation. There is an interesting question as to the extent to which spoliation gives rise to an evidentiary presumption but it does not arise, in my respectful view, in the present case. The defendants did not destroy evidence relating to the late 2004 email exchange. At most, document disclosure occurred later than More Marine says it ought to have but More Marine knew of it before the summary trial began. If More Marine needed more time to address any issues arising from the late disclosure, including

determining the availability of alternate coverage, it could have sought that opportunity. [153] I am not persuaded that there was any spoliation in the present case. When spoliation is found to exist, any adverse evidentiary presumption arising should, in my view, be logically connected to the content or probable content of the missing evidence. There is nothing in the content of the late 2004 email exchange that assists in determining the availability from other underwriters in 2006 of an AAD clause excluding CTL and TL claims. I am not prepared to draw the adverse inference that More Marine invites me to make. [154] I am satisfied that More Marine's claims against Aon, whether framed as breach of contract, negligence or breach of fiduciary duty, must be dismissed. [155] The final questions relate to costs. Subject to considerations that may arise from the delivery of any formal offers to settle under the Rules of Court, the successful defendants appear entitled to their costs on Scale B. I am not persuaded that the defendants' late delivery of the email exchange has any proper bearing on costs in the circumstances. It resulted in More Marine recasting its issues for determination but More Marine was unsuccessful in such regard. I would not deprive the defendants of their normal entitlement to costs for successfully defending against the revised position. [156] Axa and

Continental seek special costs because, according to them, More Marine alleged fraud and bad faith without any support. The underwriters say the conduct of More Marine is reprehensible as set out in Garcia v. Crestbrook Forest Industries Ltd. (1994), 119 D.L.R. (4th) 740, 9 B.C.L.R. (3d) 242 (C.A.). More Marine's claims had little merit, but I do not accept that its pleadings were a form of egregious misconduct deserving of rebuke by way of an order for special costs. I dismiss the claim for special costs. [157] Absent any formal offers to settle, the defendants are entitled to their party and party costs on Scale B. Counsel may substitute a different order as to costs in the event they agree on the effect of any offer to settle. Absent agreement, I grant leave to address the effect of any offer to settle by written submissions. "M.D. Macaulay, J." The Honourable Mr. Justice Macaulay