1. 1 Subrogation CBMU Semi-Annual May 21, 2004 SubroGateway Inc.

2. 2 Subrogation Subrogation DEFINITION OF SUBROGATION An insurance carrier may reserve the "right of subrogation" in the event of a loss. This means that the company may choose to take action to recover the amount of a claim paid to a covered insured if the loss was caused by a third party. After expenses, the amount recovered must be divided proportionately with the insured to cover any deductible for which the insured was responsible. SubroGateway Inc.

3. 3 Subrogation Subrogation Porto Seguro Companhia De Seguros Gerais v The "Federal Danube" (January 31, 2001) The Defendant argued that under Canadian maritime law the Plaintiff ought to have commenced the action in the name of the cargo owners. Held the insurers became subrogated to the rights of their insured upon payment and were entitled to bring the action in their own name. SubroGateway Inc.

4. 4 Subrogation Subrogation Chubb Insurance Co. of Canada v Cast Line Ltd. [2001] payment by the insurer as a loan receipt. held that the payment by the insurer was a true insurance indemnity SubroGateway Inc.

5. 5 Subrogation - Why Bother? Claims staff “process recovery” early Claims staff “process recovery” early Improved cash flow……… How much? Improved cash flow……… How much? Underwriters write superior risks Underwriters write superior risks Rates up! Cover cut back! Deductible up! Rates up! Cover cut back! Deductible up! So what? Now what? Customer Service. So what? Now what? Customer Service. Demands on capital Funsizing? Demands on capital Funsizing? Large technology investments Large technology investments Do your people have the skill set Do your people have the skill set SubroGateway Inc.

6. 6 Subrogation Applicable Laws Subrogation Applicable Laws US COGSA HAGUE RULES HAGUE-VISBY HAMBURG RULES SubroGateway Inc.

7. 7 Subrogation Suit time Subrogation Suit time Vessel owner/charter – One year from the date the cargo was delivered of should have been delivered Railway – Two years from date when cargo was delivered or should have been delivered Truckers – Nine months USA/two years Ontario/three Quebec (note 60 notice or barred), from the date the cargo was delivered or should have been delivered Warehousemen – Two years in Ontario Stevedores – Two years in Ontario Freight forwarders – Nine months or conditions, Quebec three ye Quebec three years SubroGateway Inc.

8. 8 Subrogation Marine Liability Act (Formerly the Carriage of Goods by Water Act) Governs the carriage of goods by sea to or from Canada and within Canada. The Act implements the Hague-Visby Rules and provides for the possible future implementation of the Hamburg Rules. Pursuant to the Hague- Visby Rules the carrier of the cargo is liable for any loss of or damage to the cargo unless the loss or damage is caused by an excepted peril. SubroGateway Inc.

9. 9 Subrogation Forum Selection The Marine Liability Act 8 August 2001 Allows cargo claimants to commence proceedings in Canada notwithstanding the existence of a jurisdiction or arbitration clause in a bill of lading provided one of three conditions are met: Allows cargo claimants to commence proceedings in Canada notwithstanding the existence of a jurisdiction or arbitration clause in a bill of lading provided one of three conditions are met: A claimant may institute judicial or arbitral proceedings in a court or arbitral tribunal in Canada that would be competent to determine the claim if the contract had referred the claim to Canada, where A claimant may institute judicial or arbitral proceedings in a court or arbitral tribunal in Canada that would be competent to determine the claim if the contract had referred the claim to Canada, where – (a) the actual port of loading or discharge, or the intended port of loading or discharge under the contract, is in Canada; – (b) the person against whom the claim is made resides or has a place of business, branch or agency in Canada; – (c) the contract was made in Canada. SubroGateway Inc.

10. 10 Subrogation Subrogation Ecu-line N.V. v Z.I. Pompey Industrie, (January 25, 2001) No. A-29-00 (F.C.A.), [2000] F.C.J. No. 96 -Held that the Defendant was not entitled to rely upon the jurisdiction clause in the bill of lading -On appeal, held did not err by taking into the account the breach of contract by the Defendant -On further appeal the Court of Appeal upheld -The Court of Appeal held that the proper test to apply in stay applications is the tripartite test employed -Requires the court to consider; first, is there a serious issue to be tried; second, whether the party seeking the injunction (or stay) would suffer irreparable harm if the injunction (or stay) was not granted; and third, which party would suffer the greater harm as a result of the granting or refusal of the injunction (or stay) SEE MAGIC SPORTSWEAR SubroGateway Inc.

11. 11 Subrogation USA Subrogation USA The Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972 The "Eleftheria", [1969] 1 Lloyd’s L.R. 237 The US Supreme Court in the SKY REEFER decided that forum selection clauses were presumptively valid. This decision created concern about potential abuse by carriers who could rely on jurisdiction clauses to refuse to settle smaller legitimate claims. The US Supreme Court in the SKY REEFER decided that forum selection clauses were presumptively valid. This decision created concern about potential abuse by carriers who could rely on jurisdiction clauses to refuse to settle smaller legitimate claims. Under the AMLA Rules a forum selection clause is invalid if goods are loaded or discharged in a US port, or if the carrier receives or delivers the goods in the US. Under the AMLA Rules a forum selection clause is invalid if goods are loaded or discharged in a US port, or if the carrier receives or delivers the goods in the US. The American International Marine Underwriters Association supported the AMLA Rules as too often recoveries against carriers were not pursued because of expenses of suit in a foreign jurisdiction. AIMU stated that insurers were closing substantial claims of the order of $100,000 without subrogation attempts. The American International Marine Underwriters Association supported the AMLA Rules as too often recoveries against carriers were not pursued because of expenses of suit in a foreign jurisdiction. AIMU stated that insurers were closing substantial claims of the order of $100,000 without subrogation attempts. SubroGateway Inc.

12. 12 Subrogation US Forum Selection “Sky Reefer” Clause must be: –Exclusive and mandatory –Reasonable and enforceable –Not conflict with a clause paramount Be careful! SubroGateway Inc.

13. 13 Subrogation Freight Frwd’r Liability Liability of Freight Forwarder Canusa Systems Ltd. v The “Canmar Ambassador” 1998 issued a "Combined Transport Bill of Lading“ Prima USA Vs. Panalpina US (no B/L issued) A Freight Forwarder Which Makes Arrangements For Cargo Is Not Responsible For Loss Or Damage The staff of Cargo Law first coined the term "travel agent for freight" SubroGateway Inc.

14. 14 Subrogation Subrogation Ocean Cargo Limits of Liability Damage Limit U.S. COGSA: $500 per package or customary freight unit for shipments to/from the U.S. Damage Limit U.S. COGSA: $500 per package or customary freight unit for shipments to/from the U.S. Damage Limit Hague-Visby Rules: (Modification of Hague not adopted in U.S.) Notice of loss or damage must be given at port of discharge before or at the time of removal of the goods unless loss or damage is not apparent, in which case it must be given within 3 days of delivery. Limit is 666.7 SDR per package or unit or 2 SDR per kilo of weight, whichever is higher. Damage Limit Hague-Visby Rules: (Modification of Hague not adopted in U.S.) Notice of loss or damage must be given at port of discharge before or at the time of removal of the goods unless loss or damage is not apparent, in which case it must be given within 3 days of delivery. Limit is 666.7 SDR per package or unit or 2 SDR per kilo of weight, whichever is higher. Hamburg Rules: Limit of 835 SDR per package or 2.5 SDR per kilo of gross weight for damage. In the case of delay, 2 and 1/2 times the freight charges for delayed goods. Adopted by only about 2% of the world. Hamburg Rules: Limit of 835 SDR per package or 2.5 SDR per kilo of gross weight for damage. In the case of delay, 2 and 1/2 times the freight charges for delayed goods. Adopted by only about 2% of the world. SubroGateway Inc.

15. 15 Subrogation Proper Issuance of B/L Road Carriage $4.41 per kg? Paine Machine Tool Inc. v Can-am West Carriers Inc. 2001 The Defendant argued that its liability was limited to $4.41 per kilogram (Motor Vehicle Act) The Defendant argued that its liability was limited to $4.41 per kilogram (Motor Vehicle Act) Held that the Defendant was not entitled to avail itself of the limitation provisions since the bill of lading did not substantially comply with the requirements of the Regulations and, therefore, was never “issued” Held that the Defendant was not entitled to avail itself of the limitation provisions since the bill of lading did not substantially comply with the requirements of the Regulations and, therefore, was never “issued” See Arnold Bros. Transport Ltd. v Western Greenhouse Growers Cooperative (1992) and Corcoran v Ehrlick Transport (1984) SubroGateway Inc.

16. 16 Subrogation Couriers Boutchev v D.H.L. International Ltd., 2000 (Alta. Prov. Ct.) Small claims matter was whether the Defendant courier could rely upon terms in its waybill limiting its liability Small claims matter was whether the Defendant courier could rely upon terms in its waybill limiting its liability The Court found that the terms on the waybill had not been properly brought to the attention of the Plaintiff and that the totality of the terms and conditions were "neither plain nor unambiguous" and were "quite simply legal gobbledygook" The Court found that the terms on the waybill had not been properly brought to the attention of the Plaintiff and that the totality of the terms and conditions were "neither plain nor unambiguous" and were "quite simply legal gobbledygook" In result, the Plaintiff was awarded judgment In result, the Plaintiff was awarded judgment SubroGateway Inc.

17. 17 Subrogation Applicable Laws MONTREAL PROTOCOL # 4 WARSAW CONVENTION MONTREAL CONVENTION 1999 –EFF NOVEMBER 2003 –DEFENSE TOOK ALL REASONABLE STEPS! SubroGateway Inc.

18. 18 Subrogation MP4 Changes Subrogation MP4 Changes WILLFUL MISCONDUCT: Eliminated the concept of "willful misconduct" where air cargo is concerned. Under the original Warsaw Convention, a carrier stood to lose its US$20.00 per kilo damage limitation if found responsible for such things as fraud, misrepresentation or intentional misconduct. The drafters of MP4 removed all such considerations. Eliminated the concept of "willful misconduct" where air cargo is concerned. Under the original Warsaw Convention, a carrier stood to lose its US$20.00 per kilo damage limitation if found responsible for such things as fraud, misrepresentation or intentional misconduct. The drafters of MP4 removed all such considerations. Potential moral risk of there being no consequences whatsoever for intentional misconduct. Potential moral risk of there being no consequences whatsoever for intentional misconduct. Even setting fire to cargo intentionally would not result in a loss of the damage limitation protection under Montreal Protocol 4. Even setting fire to cargo intentionally would not result in a loss of the damage limitation protection under Montreal Protocol 4. "The limit may not be exceeded whatever the circumstances which gave rise to liability". SubroGateway Inc.

19. 19 Subrogation MP4 THE DUTY TO PROVIDE EVIDENCE: In the past you were subjected to a legal presumption that cargo had been received in good order and condition, just because the air waybill said so., it was the carrier's obligation to prove it did not damage the cargo. In the past you were subjected to a legal presumption that cargo had been received in good order and condition, just because the air waybill said so., it was the carrier's obligation to prove it did not damage the cargo. Under MP4, the rule is reversed. Under MP4, the rule is reversed. Only exception to this rule is where the air waybill specifically says that the freight has been "CHECKED BY THE CARRIER IN THE PRESENCE OF THE CONSIGNOR" Only exception to this rule is where the air waybill specifically says that the freight has been "CHECKED BY THE CARRIER IN THE PRESENCE OF THE CONSIGNOR" So, sealed ULD's "said to contain" certain goods which then arrive "short" at destination without any obvious record of tampering... it will be the obligation of the claimant to prove that the cargo was actually delivered to you in good order and condition. So, sealed ULD's "said to contain" certain goods which then arrive "short" at destination without any obvious record of tampering... it will be the obligation of the claimant to prove that the cargo was actually delivered to you in good order and condition. SubroGateway Inc.

20. 20 Subrogation MP4 Subrogation MP4 LEGAL TECHNICALITIES ARE DISMISSED: Article 8 of the Warsaw Convention required that the air waybill contain: Names and addresses of shipper and consignee Names and addresses of shipper and consignee Number of packages Number of packages Weight - dimensions Weight - dimensions Nature of goods being shipped Nature of goods being shipped Type of packaging Type of packaging Marks and numbers Marks and numbers SubroGateway Inc.

21. 21 Subrogation MP4 Subrogation MP4 “No more agreed stopping places" Tai Ping Insurance Company v. Northwest Airlines. SubroGateway Inc.

22. 22 Subrogation MP4 Damaged Weight? Article 22. "... when the loss, damage or delay of a part of the registered baggage or cargo, or of an object contained therein, affects the value of the other packages covered by the same... air waybill, the total weight of such package or packages shall also be taken into consideration in determining the limit of liability." SubroGateway Inc.

23. 23 Subrogation Links http://www.imf.org/http://www.insurance-marine.com/http://www.cargolaw.com/cases_mp4.htmLhttp://tetley.law.mcgill.ca/http://lp.findlaw.com/http://www.admiraltylaw.com/ http://www.insurance-marine.com/ http://www.forwarderlaw.com SubroGateway Inc.

24. 24 Subrogation Fresh Topics ONTARIO’S NEW LIMITATIONS ACT –15 years? Economics of small files Package vs. pallet SubroGateway Inc.