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Global rules on foreign direct investment (FDI)
Cross-border acquisitions and investments increasingly trigger foreign direct investment (FDI) screening requirements.
Global | Publication | December 2017
Canada will soon require domestically operated commercial ships which have “passengers” on board to carry mandatory liability insurance to respond to passengers’ claims for injury or death. The regulations are expected to come into force before the end of 2017 or during early 2018 and there are a number of issues owners, operators and insurers will need to consider.
Under Canadian law, a passenger is defined very broadly. It includes anyone on board a commercial or public purpose ship other than crew, a person on board for the business of the ship, a sail trainee, or a rescued person or stowaway. Whether or not the person paid to be on board the ship is irrelevant. Very few types of commercial or publicly operated ships are excluded from the mandatory insurance regime. Therefore, the requirement to carry mandatory liability insurance will apply to almost all commercial ships in Canada even if they are not specifically intended or certified by Transport Canada to operate as a passenger ship.
The mandatory insurance regime is set out in the proposed Regulations Respecting Compulsory Insurance for Ships Carrying Passengers (the Regulations), to be enacted under the Canadian Marine Liability Act (the Act).
Under the Regulations, commercial and public purpose ships carrying passengers must carry proof of liability insurance coverage in an amount not less than C$250,000 multiplied by the passenger capacity of the ship.
Under the Act, a ship owner’s limit of liability for a passenger injury or death varies with currency exchange rates. The actual exposure to a claim can exceed C$350,000 per passenger. The ship should also have enough insurance to deal with collision, pollution, and property damage claims as well as salvage or wreck removal. Therefore, owners and operators of ships should consult a marine insurance professional when purchasing insurance coverage and not just rely upon the minimum mandatory requirements which may provide insufficient coverage. After more than 15 years of consideration and consultation by the Government, the Regulations were first published in the Canada Gazette, Part I on December 24, 2016, and since then feedback has been solicited from the industry groups and the public. Transport Canada has advised that final publication in the Canada Gazette, required for the Regulations to come into force, will likely take place in the coming months. The Regulations are being enacted in response to recommendations made by a coroner’s inquest jury following the foundering of a small passenger ship in rough seas, resulting in the drowning of two children, who were on a school field trip. The ship was uninsured and while liability insurance does not in and of itself prevent accidents, it is the Government’s view that ship owners may be motivated to improve the seaworthiness and safety of their ships to qualify for such insurance at reasonable rates.
There are some surprising examples of commercial ships which will have to carry mandatory liability insurance under the Regulations. Such examples include fishing boats with friends and family on board, any ship carrying government inspectors, ship agents or surveyors between shore and a deep sea ship, and even small craft used by realtors to take clients to view water access properties.
It is not an option to get around this mandatory insurance regime by characterizing all guests on the ship as “crew”, because then the owner of the ship must comply with the workers’ safety and compensation laws of the applicable province, and may be in breach of other obligations as an employer.
The Regulations do not apply to:
Once enacted, the Regulations will be applied via a two-stage process: (1) all ships subject to the regime with no existing liability insurance must obtain insurance within 60 days of the Regulations coming into force; and (2) ships with existing policies can wait until the expiration, modification, or cancellation of their existing policies to comply with any higher limits required under the Regulations.
An insured can set the passenger capacity of its ship for the purposes of the Regulations. This means that even if a ship has been certified by Transport Canada to carry 25 passengers, the insured may be certain that there are never more than 20 passengers on board and buy insurance for that lower figure. However, if the ship is ever found to have more persons on board than the allowance dictated by the proof of insurance, the insured will be subject to penalties under the Regulations. Insurance brokers may want to emphasize the importance of the accuracy of the passenger figure when discussing insurance needs with insureds.
Ships which are subject to the Regulations must carry a specified certificate of insurance on board as evidence of having the required coverage. Ships that do not have a feasible place to store the certificate on board may produce a certificate within 24 hours of a demand.
Where a ship is covered by a fleet policy, the original certificate of insurance only needs to be carried on board one ship in the fleet. Other ships in the fleet may carry copies of the certificate. Fleet certificates must state the amount of insurance applicable to each ship in the fleet, and must state that the policy provides the same coverage that would be provided if a separate policy had been issued for each ship listed.
Certificates of Entry from P&I Clubs that are members of the International Group of P&I Clubs are also permitted as evidence of insurance in lieu of a certificate of insurance.
Designated officers may board ships and request proof of compulsory insurance. If an acceptable certificate of insurance or Certificate of Entry with a P&I Club is not produced, the ship may be detained. In the alternative, the owner may be charged with breach of s. 131 of the Act, which provides that a person who contravenes the Regulations is guilty of an offence and liable on summary conviction to a fine not exceeding C$100,000.
When the liability insurance regime was first proposed by the Canadian government, the mandated minimum limits of liability insurance had to be dedicated solely to personal injury and death claims. Following extensive consultation with industry, it was recognized that an event which would result in the entirety of the policy limits being paid out on account of passenger claims was very unlikely. Therefore, it was reasonable that the mandatory minimum limits be subsumed into a general liability policy which would respond to all liability claims including causing damage to property and wreck removal.
Nevertheless, unless the ship is entered into a P&I Club, the insurer (or the broker involved) must provide the insured with some form of certificate confirming that the ship’s liability insurance is high enough to meet the mandatory minimums of C$250,000 multiplied by the passenger count for that ship.
Publication
Cross-border acquisitions and investments increasingly trigger foreign direct investment (FDI) screening requirements.
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