The Federal Court of Appeal held that the Federal Court erred in holding that the insured bore the onus of proving that damage to goods being transported was a fortuitous loss, but nevertheless dismissed the appeal on the basis that the loss was excluded by an exclusion for insufficient or unsuitable packing of the goods being shipped.

[2012] F.C.J. No. 1036

2012 FCA 215

Federal Court of Appeal

Létourneau, Pelletier and Mainville JJ.A.

July 30, 2012

The appellant was an insured under an all-risks marine insurance policy issued by the respondent for a shipment of goods that were damaged by rust in the course of transit. The respondent denied coverage for the loss on the basis of the following exclusion:

4. In no case shall this insurance cover …

4.3 loss, damage or expense caused by insufficient or unsuitability of packing or preparation of the subject matter insured …

At trial, the Federal Court accepted expert evidence that the damage was caused by heavy condensation within the shipping containers during transit due to high moisture content in lumber used to immobilize the goods. The goods were not wrapped and were therefore exposed to the condensation. The Federal Court concluded that there was no coverage for the claim because the insured had not shown that the loss was caused by a fortuity. The Federal Court further concluded that the loss was excluded on the basis that the packing and preparation of the cargo was insufficient.

On appeal, the issues to be considered were whether the Federal Court erred in concluding that the insured bore the onus of showing the loss was caused by a fortuity and whether the exclusion with respect to packing applied to the loss. With respect to the first issue, the Federal Court of Appeal held that in order to give full effect to the terms of the policy, it was necessary to treat the exclusions for non fortuitous losses as an undertaking by the insurer to assume the burden of proving that the loss was not fortuitous, thereby relieving the insured of the obligation to do so. In the result, it was held that the Federal Court erred in law in imposing on the insured the burden of proving that the loss was caused by a fortuity. The insurer had not pleaded that the loss was caused by a non fortuitous event and, therefore, the remaining issue to be determined was whether the exclusion for insufficiency of packing relieved the insurer of liability under the policy. The exclusion required that the loss or damage be caused by the insufficiency or unsuitability of packing. The Court of Appeal agreed with the conclusion of the Federal Court that the wood used was a packing material and was unsuitable and that the unsuitability of the packing was the cause of the loss.

In the result, the appeal was dismissed