The assault on the distinct status that
Marine Insurance holds in the
Canadian (and Global) marketplace
Death by a thousand cuts
Presented by:
JERRY GIROUX
SubroGateway Inc.
JEAN-MARIE FONTAINE,
Borden Ladner Gervais
PETER JONES,
PM Law, Legal Counsel of CIFFA
1
JEAN-MARIE FONTAINE
Borden Ladner Gervais
Background
• Jean-Marie Fontaine is an associate at our Montréal office. Mr. Fontaine was admitted to the
Québec Bar in 2000 and graduated from the Faculty of Law of McGill University with
distinction. He is the recipient of both Common Law and Civil Law Degrees.
Areas of Practice
• Mr. Fontaine is a member of our Marine Group in Montréal.
• He practices in the area of Maritime Law and Transportation Law, in particular collisions, cargo
claims, charter party disputes, and arrest of vessels.
• Mr. Fontaine's transportation law practice extends to aviation matters involving a variety of
claims from manufacturer's liability to passenger and cargo claims.
• Mr. Fontaine has pleaded before the Superior Court of Québec as well as the Federal Court of
Canada at trial and on appeal, including the Supreme Court of Canada.
Professional and Community Activities
• Member of the Canadian Bar Association
• Member of the Canadian Maritime Law Association
• Member of the Association of Maritime Arbitrators of Canada
• Member of the Grunt Club Inc.
• Member of the Canadian Transportation Lawyers Association
2
PETER JONES
PM Law, Legal Counsel of CIFFA
• Year Admitted to Bar: 1962
• Education: Dalhousie University (B.Sc.1956), University of
•
•
Toronto (LL.B.1960)
Member: FIATA Advisory Body Legal Matters (1989- 2004,
Chair 1999 - 2004), Canadian International Freight
Forwarders Association (Legal Counsel), L'Association des
juristes d'expression française de l'Ontario (Vice-President
1988-90), Advocates Society (Secretary 1978-81), Canadian
Bar Association (Chair Maritime Law Section 1977-1979),
Canadian Board of Marine Underwriters, Author: FIATA
Legal handbook on Freight Forwarding, General Editor:
Forwarderlaw.com
Practice Areas: E-Commerce, Freight Forwarding, Marine
3
CBMU Constitution
Section 3
OBJECTS
3.01 The objects of the Association shall
be:
To promote, advance and protect the
interests of underwriters generally
4
Marine Insurance & Trade
• One-quarter of our national wealth is
derived from international trade
• One third of our jobs depend on
international trade
• Nine thousand new jobs result from every
billion dollars of additional exports
5
Summary
• What is marine insurance?
• Does marine insurance fall within federal or
provincial jurisdiction ?
• Is yacht insurance marine?
• Yacht premiums and taxation
• Alberta Insurance Act and marine insurance
• RST on marine premiums
• So What?.......Now What?
6
What is Marine Insurance ?
Jean-Marie Fontaine
Borden Ladner Gervais LLP
Lawyers • Patent and Trade-mark Agents
Lawyers · Patent and Trade-mark Agents
MARINE INSURANCE
Lawyers · Patent and Trade-mark Agents
Marine Insurance Act
 Defined in Marine Insurance Act:

Section 6 Marine Insurance Act – marine
insurance covers against:



Losses incidental to marine adventure or
adventure analogous to marine adventure
This includes losses arising from land or air peril
incidental to marine adventure if provided for in
contract or by usage of the trade
Losses incidental to building, repair or launch of
a ship
Lawyers · Patent and Trade-mark Agents
Marine Insurance Act
(Continued)

Marine Adventure:



any situation where insurable property is
exposed to maritime perils.
Includes situations were the earning of
freight, commission, profit or other
pecuniary benefit, or the security for any
advance, loan or disbursement, is
endangered by the exposure to maritime
perils, and
any liability to a third party may be incurred
by the owner or operator of insurable
property, by reason of maritime perils;
Lawyers · Patent and Trade-mark Agents
Marine Insurance Act
(Continued)
 Maritime Peril:

Perils consequent on or incidental to
navigation


Includes: perils of the seas, fire, war perils,
acts of pirates or thieves, captures, seizures,
restraints, detainments of princes and
peoples, jettisons, barratry and all other
perils of a like kind.
Also includes any peril designated by a
marine policy
Lawyers · Patent and Trade-mark Agents
Provincial Insurance Acts
 Defined in similar terms in provincial
legislation on marine insurance:

Ex: Art. 2505 Civil Code of Québec marine
insurance covers against:





Losses incident to marine adventure
Risks of any adventure analogous to a marine
adventure
Land risks incidental to a maritime adventure
Risks incident to the building, repair and launch of a
ship
Ontario, B.C., Manitoba, Nova Scotia and New
Brunswick also have marine insurance acts.
Lawyers · Patent and Trade-mark Agents
Does Marine Insurance Fall within Federal or
Provincial Jurisdiction ?
 Triglav v. Terrasses Jewellers inc.,
[1983] 1 S.C.R. 283:



Strictly speaking, marine insurance is a
matter of provincial jurisdiction falling within
the ambit of “Property and Civil Rights”
(Subsection 92(13) Constitution Act, 1867)
However wrong to treat marine insurance
the same way as other forms of insurance
Marine insurance is first and foremost a
contract of maritime law
Lawyers · Patent and Trade-mark Agents
Does Marine Insurance Fall within Federal or
Provincial Jurisdiction ? (Continued)


Generally affairs maritime fall within the
scope of “Navigation and Shipping”
(Subsection 91(10) Constitution Act, 1864),
save that which remains within provincial
jurisdiction (i.e. purely local or intraprovincial maritime transport)
Since this case, scope of maritime law has
been broadened to include “local” marine
activities such as pleasure craft accidents,
even in non-tidal waters and man-made
lakes
Lawyers · Patent and Trade-mark Agents
Does Marine Insurance Fall within Federal or
Provincial Jurisdiction ? (Continued)

This means that:

Provincial marine insurance acts arguably
not applicable at all


Although never the subject of a constitutional
challenge, arguably they are inoperative as they
relate to navigation and shipping, which are
matters of exclusive federal jurisdiction
Provincial general insurance legislation does
not apply to marine insurance

Possible exception on issues of procedure
Lawyers · Patent and Trade-mark Agents
Ascertain Whether Nature of Risk / Claim
within Scope of Maritime Law
 Example 1:





Freight forwarder arranges transport of cargo
from Montreal to Calgary by rail and truck
Claim against freight forwarder for negligence in
arranging transport
Freight forwarder’s liability covered by E&O
insurance policy
Question : Is the nature of risk covered marine or
non-marine in nature?
Answer: Nature of risk clearly non-marine as no
relation to marine adventure
Lawyers · Patent and Trade-mark Agents
Ascertain Whether Nature of Risk / Claim
within Scope of Maritime Law (Continued)
 Example 2:




Shipping line contracts with stevedores for cargo
handling operations
Line seeks recovery in indemnity from stevedores for
damage to cargo occurring during discharge
Question : Is risk/claim of marine or non-marine
nature?
Answer: maritime in nature as operation of discharge
of removing goods from vessel and delivery to
consignee, whether effected by carrier or other, are
activities essential to carriage of goods by sea
Lawyers · Patent and Trade-mark Agents
Ascertain Whether Nature of Risk / Claim
within Scope of Maritime Law (Continued)
 Example 3:

Contract with terminal operator to store cargo
after discharge from vessel for indeterminate
period of time. Doing so permits prospective
purchasers of cargo to be identified and sales to
be concluded

Claim brought against terminal operator for
damage to cargo while in its care
Lawyers · Patent and Trade-mark Agents
Ascertain Whether Nature of Risk / Claim
within Scope of Maritime Law (Continued)
 Example 3 (cont’d):


Question: Is nature of risk/claim marine or nonmarine?
Answer: Dependent upon central purpose and
timeframe. Is terminal operator’s role as a
warehouseman an activity essential to the marine
adventure?
Lawyers · Patent and Trade-mark Agents
Ascertain Whether Nature of Risk / Claim
within Scope of Maritime Law (Continued)
 Example 4:






Transportation/chartering broker arranges transport of
cargo from Toronto to Geneva via the Ports of
Montreal and Antwerp
Instructions are to negotiate best terms on behalf of
cargo interests with all carriers
Arranges in-land carriage by rail in Canada and inland
transport by truck in Europe, ocean carriage by
reputable ocean carrier
Negotiates specific terms of voyage charter but fails to
forbid deck carriage
Liberty clause in ocean carrier’s standard form bill of
lading
Part of cargo stowed on deck and lost at sea
Lawyers · Patent and Trade-mark Agents
Ascertain Whether Nature of Risk / Claim
within Scope of Maritime Law (Continued)
 Example 4 (cont’d):


Question: Is nature of risk/claim marine or nonmarine?
Answer: Marine as error committed by broker in
failing to preclude deck carriage related to
responsibilities inextricably connected to carriage
of goods by sea
Lawyers · Patent and Trade-mark Agents
Ascertain Whether Nature of Risk / Claim
within Scope of Maritime Law (Continued)
 Example 5:




Marina offers to store the members’ yachts
during the off-season
Fire breaks out in the storage yard and
several yachts are total losses
Claims are made by the yachts owners
against the marina who claims in turn from
liability insurance policy
Question: Is the risk a incidental to a
maritime adventure?
Lawyers · Patent and Trade-mark Agents
Ascertain Whether Nature of Risk / Claim
within Scope of Maritime Law (Continued)
 Example 5 (cont’d):

Answer: The storage of the yachts is
incidental to the main function of the marina
which is marine in nature

What if the storage was in a warehouse
along with other goods?
THANK YOU!
Lawyers · Patent and Trade-mark Agents
RST on Marine Premiums
January 12, 2006
The Honourable Dwight Duncan
Ministry of Finance,
Re: Request for an Interpretation Letter as to the application of the Retail Sales Tax Act to Marine Insurance Premiums
Dear Minister:
……. In November of this year, our member, xxxxxx xxxx xxxxx, requested a Policy Ruling on the taxability of marine insurance
premiums under the Ontario Retail Sales Tax Act. We have noted that the request arose in connection with premiums on cargo
insurance on goods in an ocean container transported continuously under one Multimodal Contract from a foreign country to a
destination in Ontario.
We can confirm that the practice of marine insurers is to rate premiums for marine insurance covering containerized goods in
transport by following general principles of risk assessment. Whilst rating practices of individual insurers may vary; it is normal
practice that once a rate has been nominated it will be assessed on a country to country basis. For Pacific Rim-North
American trades (in this case China) the policy would normally read – “Ports and/or Places in China to Ports and/or Places in
Canada”. Under this scenario, a Shanghai – Vancouver transit would generate the same premium as a Beijing – Toronto transit.
In our opinion the entire voyage is exempt from taxation under the current definition of marine insurance. The jurisdiction of
Marine Insurance is in the Federal domain and the Marine Insurance Act is presumably the defining Federal statute. The
definition is in any event consistent with the definition contained in the Marine Insurance Act of the Province of Ontario:
…………
These definitions support the argument that the exemption of marine insurance from taxation should be applicable to the
entire voyage which constitutes the “marine adventure”. Both the insurance contract and the custom of the trade include the
incidental land or air transit as part of the “marine adventure” contemplated under the Marine Insurance Acts.
The added practical reason for not applying tax is that the overseas suppliers of goods can provide the insurance coverage,
door to door, without the application of Canadian taxes. Attempts to tax the premium in Canada will simply result in the
coverage being written by foreign insurers, with adverse impact on the Canadian insurance industry and ultimately on 25
Government tax revenues.
Gordon E. Gibbons, C.I.P.
Minister’s Reply Hyperlink
Duncan_Letter-Feb_24_2006.pdf
26
Industry Under Attack
Presentation to the
CBMU Annual Meeting
Halifax, 15 June 2006
Peter Jones
Paterson, MacDougall LLP
27
Background
Over the last 25 years the forwarding industry
has expanded and prospered
• significantly related to forwarders’ ability to
provide one-stop shop
– import export
– letter of credit
– insurance
• during this time largely free from unnecessary
regulation and taxation
BUT, the last year has seen attempts to erode this
favourable business environment
28
Two Misguided
Government Initiatives
• Recovery of PST on marine
insurance premiums in Ontario
• Regulation of forwarders in Alberta
as ‘brokers’ of marine insurance
29
Ontario - PST on
insurance premiums
PST has been around for decades and never
applied to marine insurance - a specific legislative
exemption
• Those who make the service available must now
collect PST on a portion of the premium
– the law hasn’t changed
– the government interpretation of the law has changed
30
The Tax Man is
Reasonable
Tax administrators are fundamentally business
people who want to legislate clearly and
effectively
BUT
• they don’t understand our industry
• they expect complaints from all parties
exposed to new taxation
They are expert at ignoring those complaints!
31
We can take steps to
educate them
There are ways to
address these
issues if we have:
– cohesion
– willingness
– representation
BUT
Tax authorities have
significant resources
available to fight
this issue
– it must be our job
to persuade them
that this tax is
counterproductive
32
The business case
against regulation
Revenue generation
– a tax that will
generate relatively
small revenues is
intrinsically
questionable
– a tax that costs more
to enforce and
administer than it
brings in is prima facie
counter-productive
Policy considerations
– This tax will potentially
prejudice domestic
forwarders relative to
their international
competition
– Customers requiring
marine insurance will
seek off-shore service
providers
33
The letter arrives
• Following a routine audit, one client
broker received a letter indicating that
revenues made on sales of marine
insurance for the past four years would be
taxable
– $400,000 owing and accumulating interest at
the government rate
– broker unable to collect premiums from clients
34
The tax man’s
rationale
On an insurance premium governing a risk
inside Ontario and outside Ontario, the party
with the obligation to remit the tax must
apportion the premium charged as between
those risks inside and outside
• If not apportioned, then 100% taxable
• Apportionment makes sense in some
environments (e.g. interprovincial freight)
35
Apportionment of
Premiums
• They are now considering that a marine
insurance premium can be divided into a
portion that is marine, and a portion that
is cargo/property
• If not apportioned, then 100% taxable
– therefore it MUST be apportioned
– the apportionment must be reasonable
36
A practical example
• Cargo originating in Beijing
– By land to Shanghai
– Ocean voyage Shanghai to Vancouver
– From YVR to YYZ by rail
• 0.15% of value; cargo = 20K; premium
$300
• If no apportionment, 8% = $24
37
Example continued
• If not apportioned, 8% of total
– Is it too late to apportion after the fact?
– Sums could be large because of failure to
apportion at the beginning
• If everyone apportions meticulously, the
amounts become very small
– each voyage must be analyzed based on
transit miles and/or duration of voyage,
e.g. on our shipment, approx 3% or $0.72
38
The forwarder’s dilemma
• Relative to taxes recover (75 cents), effort
to apportion and collect is uneconomic
• As forwarders are inherently international,
every service they provide may be
obtained offshore
– forwarders can place insurance offshore
– if not, they may lose entire business to
offshore competitors
39
The Fundamental Flaw in
Government’s Position
• There is a reason Marine Insurance has
long been exempt!!
• The main premise is that if insurance is
marine insurance premium, the entire risk
is one that is or is incidental to a marine
voyage
– the regulation requiring apportionment of
domestic/foreign risks is inapplicable
40
Where do we go from here?
• CBMU has clearly stated their position to
the Ontario government
– Tax authorities have repeated their initial
rationale for taxation and apportionment
• Ontario government did not address
negative impact of the tax on international
business
CBMU has an opportunity to educate
government on unique business
environment
41
Alberta Regulation of Brokers
The government of Alberta has introduced
changes to regulations under the Insurance
Act requiring that all insurance brokers be
licensed and bonded
– Alberta superintendant of insurance requires
compliance by forwarders issuing certificates
of marine insurance
– Licensing and bonding requirements are
prejudicial to full service facility
42
EU Experience
EC introduced a similar measure in 2003 as
a response to concerns about the integrity
and financial stability of insurance brokers
serving consumers
• UK forwarders fought this requirement for
two years without success
• Result: UK forwarders have substantially
withdrawn from the market
43
Alberta’s attitude:
“Please confirm that CIFFA will be advising
its members to comply with s. 465 of the
Act.”
“Any other arrangements would be in
violation of the Act.”
-Quoted from enforcement letter
31 May 2006
44
Copycat Actions
• Will other provinces take the same
position?
• Will forwarders abandon the market as in
UK?
• Do provincial brokers have expertise and
understanding in international trade and
insurance requirements?
45
Yacht Premiums! Taxable?
• Does Yacht Insurance = Marine Insurance
• MIA, “incidental to a sea voyage”
• Hull? P&I? Lay-up? Personal Effects on Board?
• XYZ Insurance Company Pays $XXX,XXX/YEAR
• ABC Insurance Company Pays $0
• Don’t let your rebate time bar!
46
GST “Zero Rated” On Freight Services
• Example
A shipment arrives in Halifax, Nova Scotia, from London,
England, on an ocean bill of lading. The shipper has
specified on the original bill of lading that the goods are
destined for Montréal, Quebec. A rail carrier is given a
separate contract to deliver the goods to the consignee
in Montréal. The rail carrier can zero-rate the domestic
service if it has a copy of the original bill of lading. If the
rail carrier cannot get a copy of the original bill of lading,
he could rely on a certification from the ocean carrier or
the ocean carrier's agent that the cargo originated
outside Canada as specified on the shipper's bill of
lading.
RC4080(E) Rev. 02
47
GST “Zero Rated” on Marine Premiums
• Insurance
If you act as an agent for an insurance company to
arrange insurance coverage on your client's goods, you
do not collect GST/HST on premiums paid to the
insurance company. Carriers often provide their clients
with some protection against losses or damages. You
can self-insure your clients' goods by including a risk
premium in your charge or by charging a separate
amount to your client for risk protection. In these cases,
you are self-insuring against claims for losses or
damages. The charge to your client for this protection
takes the same status as the freight charge for GST/HST
purposes.
48
CBMU Business Plan Delivery of Products
• Formation of an Association of all interested parties
• Incorporating CBMU, MIABC, CIFFA, CMLA, CRIMs,
Average Adjusters, Canadian Importers / Exporters
• Ensures that we have maximum participation, no
duplication of efforts, more efficient costs, more
comprehensive content, expanded distribution
• Canadian Association of Logistics Professionals
49