In a 4-1 decision,1 the Supreme Court of Canada recently held that a statutory exclusion for loss attributable to "wilful misconduct" of the insured does not require proof that the insured intended to cause the loss. Rather, the Court held that it is sufficient if the insured had a "duty to know" and acted recklessly in the face of that duty, even if the insured in fact subjectively believed that there was no risk of harm.
In a strong dissenting opinion, however, Wagner J. held that a finding at trial, that the insured had no intention of causing harm, was determinative. In Wagner J.'s view, "wilful misconduct" requires proof of intent, and so the majority misconstrued the concept of recklessness by finding that it did not.
While Peracomo focuses on a specific statutory exclusion under maritime law, this decision nonetheless raises the question of whether some may argue that it has general application that expands the scope of intentional acts exclusions found in many other policy wordings.
It also bears mentioning that the majority did not refer to any of the oft-cited basic principles of policy interpretation, but instead chose to rely on cases interpreting the term "wilful misconduct" in the context of, among other things, the now-defunct "gratutitous passenger" doctrine. The majority's reasons for doing so – and its ramifications with respect to the development of the law in this area – remain unclear.
Réal Vallée is a crab fisherman who had fished on the St. Lawrence River near Baie-Comeau for about 50 years. He is the principal of his one-man company, Peracomo Inc., and operates the fishing boat Réalice.
M. Vallée's story begins in 2005. While fishing for crab aboard the Réalice, one of his anchors snagged something on the bottom of the river. It turned out to be a cable. It was, in fact, a fibre-optic telecommunications cable, co-owned by TELUS Communications Co. ("Telus") and Hydro-Québec, and also used by Bell Canada. Later that year, M. Vallée visited a local museum in located in a former church, where he had occasion to look at an old map or chart. It showed a line running through the area where he fished for crab. Beside the line, the word "abandoned" ["abandonné"] was handwritten. M. Vallée assumed that the line on the chart was the same cable he had snagged. As the trial judge put it,
[w]ithout giving [the matter] a second thought, [Mr. Vallée] concluded that this was what he was hooking with his anchor. He only glanced at it for a matter of seconds and cannot recall whether it was a marine chart, a topographical chart, or indeed what type of map it was at all.2
In 2006, M. Vallée snagged the cable again. This time, however, he cut the cable with an electric saw and buoyed one end of the cable. A few days later, while in the same area, his anchor caught the cable for a third time. He cut the cable again.
Of course, the cable was not "abandoned" at all. Telus, Hydro-Québec and Bell Canada sued M. Vallée, his company and his fishing vessel to recover the costs of repairing the cable. At trial in the Federal Court, it was established that M. Vallée knew that he was cutting a submarine cable at the time he cut it. It was also found, from his reliance on the museum chart, that he had adverted to the possibility that the cable could be in use, or, that it could also be abandoned. M. Vallée testified that he was aware that it was possible to "transmit electricity by means of a submarine cable" – thus, the lower court found that M. Vallée had actual knowledge of the risk that he could be cutting a "live" cable. Nevertheless, the lower court also found that M. Vallée believed that the cable was not in use at the time he cut it.
Ultimately, Harrington J. found M. Vallée liable in negligence for damaging the cable, because M. Vallée had breached his common law duty to be aware of the submarine cables in the areas in which he fished.3
In terms of damages, M. Vallée attempted to avail himself of s. 28 (now s. 29) of the Marine Liability Act4 and Article 4 of the Convention on limitation of liability for maritime claims, 1976,5 which together place a damages cap of $500,000 on marine liability for property damage caused by ships of the size and class of the Réalice. The cap, however, is inapplicable where a loss results from a person's intentional or reckless conduct. The trial judge held that because M. Vallée cut the cable on purpose, this limit did not apply. Ultimately, M. Vallée was found liable to pay $980,433.54.
To make matters worse for M. Vallée, the trial judge also found that M. Vallée had lost the benefit of coverage under his insurance policy with Royal & Sun Alliance Insurance Company of Canada ("Royal") (the "Policy"), because cutting the cable also fell within the wording of a statutory exclusion from marine liability insurance for "wilful misconduct", set out at s. 53(2) of the Marine Insurance Act.6
The Federal Court of Appeal dismissed an appeal, and M. Vallée was then granted leave to appeal to the Supreme Court of Canada.
On Appeal to the SCC
The Court dealt with three main issues on appeal: (i) was M. Vallée personally liable for the loss? (ii) could M. Vallée avail himself of the $500,000 limit found in the Marine Liability Act, despite Article 4 of the Convention? and (iii) was the loss caused by M. Vallée's 'wilful misconduct' so that it was excluded from coverage under the Policy?
Justice Cromwell, writing for the majority,7 dismissed the first issue in short order, finding that M. Vallée was indeed personally liable for the loss, having cut the cable himself.
Second, Cromwell J. turned to the question whether the $500,000 limit of liability under in the Marine Liability Act would apply. He noted that this limit does not apply if the loss "resulted from [M. Vallée's] personal act or omission, committed with the intent to cause such loss, or recklessly and with knowledge that such loss would probably result."8
After a lengthy analysis that touched on such issues as what M. Vallée actually intended or knew when he cut the cable, and the purpose of the Convention itself, Cromwell J. concluded that M. Vallée had not intentionally or recklessly caused the loss in question to the standard required by the Convention and the Marine Liability Act, in order to deny M. Vallée the protection afforded by the $500,000 cap. The second issue was thus decided in M. Vallée's favour.
Cromwell J. then went on to rule against M. Vallée on the remaining issue of whether the statutory exclusion under s. 53(2) of the Marine Insurance Act applied. Section 53(2) provides that "...an insurer is not liable for any loss attributable to the wilful misconduct of the insured..."
Cromwell J. compared the standards of fault found in the Marine Liability Act/Convention and the Marine Insurance Act, and concluded that they were different. It was thus possible for one's conduct to exceed the standard set out in one of the provisions but not the other.
Justice Cromwell then discussed the meaning of "wilful misconduct" at length, noting that the SCC had never interpreted the phrase "wilful misconduct" in the context of a marine insurance exclusion. Referring to several old precedents dealing with "wilful misconduct" in the context of, among other things, the "gratuitous passenger" doctrine, he stated at para. 61:
...these statements accurately, although not necessarily exhaustively, describe types of conduct that fall within that description for the purposes of the exclusion of liability under the Marine Insurance Act. In short, wilful misconduct includes not only intentional wrongdoing but also other misconduct committed with reckless indifference in the face of a duty to know. [Emphasis added.]
Cromwell J. went on to hold that M. Vallée's actions in the circumstances were "so far outside the range of conduct" to be expected of him in the circumstances as to constitute misconduct. He held, at paragraphs 65 - 67:
...Mr. Vallée knew that what he was cutting was a submarine cable. [...] His reliance on the map, of unknown date or authenticity, which was not a marine chart and which he saw for only a few seconds, coupled with his duty to be aware of hazards to navigation and his failure to have up-to-date charts or make inquiries by radio from his vessel, amply bear out the trial judge's conclusion that Mr. Vallée's conduct was "reckless in the extreme": para. 84. [...] He thus committed an act of wilful misconduct: he ran an unreasonable risk with subjective knowledge of that risk and indifference as to the consequences.
The fact that Mr. Vallée, as the trial judge found, believed that the cable was not in use is beside the point. To hold otherwise is to conflate recklessness with intention. People like Mr. Vallée who take unreasonable risks of which they are subjectively aware often wrongly believe that the risk which they decide to take will not result in harm. That is the essence of recklessness.
While the threshold to break liability under the Convention requires intention or recklessness with knowledge that the loss will probably occur, wilful misconduct under the Marine Insurance Act does not require
either intention to cause the loss or subjective knowledge that the loss will probably occur. It requires, in the context of this case, simply misconduct with reckless indifference to the known risk despite a duty to know. The trial judge's reasons, read in light of the record, show that at the time he cut the cable Mr. Vallée, who had a duty to know better, subjectively adverted to the risk that the cable might be live and decided to cut it anyway on the sole basis of some handwriting that he had seen for a few seconds
on a map on a museum wall — a map which was not a marine chart and was of unknown origin or authen ticity. Cutting the cable in those circumstances constitutes wilful misconduct as that term is defined in all of the authorities to which I have referred.
In a strong dissent, Wagner J. agreed with the majority's presentation of the facts, but considered one particular finding of fact to be determinative: that M. Vallée sincerely believed the cable was not in use at the time that he cut it, and, consequently, could not have knowledge of the loss that would result.
Wagner J.'s view was that to hold, as the majority did, that "conduct exhibiting reckless indifference in the face of a duty to know" represents "willful misconduct", is to disregard the question of whether the person who committed the act had knowledge, at the very moment the act was committed, of the harmful consequences associated with it. Proving that certain conduct exhibits "reckless indifference" is the first step only; it must then be proven that this conduct was wilful. Wagner J. adopted the comment by Peter Cane in "Mens Rea and Tort Law",9 where he wrote (at page 538) that "recklessness necessarily implies subjective knowledge of the consequences of the act". Justice Wagner would have allowed the appeal in its entirety.
Notably, the majority's reasons do not discuss principles of policy interpretation. For example, there is no explanation why the Court would not consider and apply the plain and ordinary meaning of "wilful", and also why it would not apply the doctrine that requires exclusions to be read narrowly. Black's Law Dictionary, for example, defines "wilful" as follows:
A voluntary act becomes willful in law only when it involves conscious wrong or evil purpose on the part of the actor or at least inexcusable carelessness whether the act is right or wrong. The term willful is stronger than involuntary or intentional and is traditionally the equivalent of malicious, evil or corrupt.10
In other areas of insurance, policy exclusions aimed at excluding "intentional acts" may or may not contain the word "wilful". However, the concept behind those exclusions and the exclusion at issue in this case is the same: where an insured acts with the intention of causing the harm otherwise insured, the exclusion applies. Where an insured is negligent, (i.e. falls below the standard of care in the face of reasonably foreseeable consequences), coverage is provided by the policy.
Some may argue that Peracomo has unwittingly broadened the scope of the intentional act exclusions, since the Court has found that the term "wilful misconduct" does not require proof of intent. The decision carries with it potentially far-reaching and unintended consequences with respect to the interpretation of certain exclusions, as insurers may attempt to rely on the Court's analysis in Peracomo to assert a broader scope for their own policy exclusions. Only time will tell whether this proves to be the case, or whether the majority's analysis will remain limited to the statutory exclusions in marine insurance.
1 Société Telus Communications v. Peracomo Inc. 2014 SCC 29 (S.C.C.) [Peracomo].
2 See the trial judge's reasons at 2011 FC 494 (Eng.) (F.C.) at para. 40.
3 Notably, M. Vallée did not own or consult any of the maritime charts of Zone 17, as he was obliged by law to do.
4 S.C. 2001, c. 6.
5 1456 U.N.T.S. 221 [the Convention].
6 S.C. 1993, c. 22.
7 Justice Wagner filed a lone dissenting opinion, in which he would have allowed the appeal in its entirety, including with respect to M. Vallée's insurance benefits.
8 This language tracks Article 4 of the Convention, which is expressly given the force of law by s. 26 of the Marine Liability Act.
9 (2000), 20 Oxford, J. Legal Stud. 533.
10 Black's Law Dictionary, 10th edition, 2014: Thomson Reuters.
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