Please take notice of new limits of liability pertaining to passenger vessels which will take effect August 8th, 2001.

The Canadian Board of Marine Underwriters recently held a conference in which this Bill was discussed in detail.

For your information and ready reference please see below the text of the presentation given at the conference.

Canadian Board of Marine Underwriters Legislative Committee
Industry Notice Regarding Bill S-2 Marine Liability Act
New Limitation of Liability

Introduction

On May 10th, 2001 Bill S-2 the Marine Liability Act was given Royal Assent. The Bill brings into force in Canada the Athens Convention (including its 1990 Protocol) effective August 8th, 2001. The purpose of this notice is to alert insurers, agents, brokers and other interested persons to the impact of the new regime governing carriage of passengers on vessels used for commercial purposes.

Prior to the introduction of Athens, passenger claims were subject to the same limits of liability as other third party claims. From an insurance standpoint the most important change is the introduction of a separate liability regime for "passenger" claims, including limits of liability which are in addition to the limits for (non-passenger) bodily injury and property damage claims.

Although the bill does not make insurance compulsory at this stage, much higher limits of coverage will have to be carried to cover vessel owners for claims which may arise after August 8th. The following chart shows a comparison between the current limits of liability and those which will be in force after August 8th.

Registered Tonnage

The limitation is based on the gross registered tonnage as measured under the regulations of the 1969 Internal Convention on Gross Tonnage Measurement of Ships. It is a measure of the carrying capacity of a vessel and therefore varies considerably with he ship's configuration. It would be quite unusual for a passenger ship less that 25 meters in length to reach 300 gross registered tons, and all of the passenger vessels currently registered in Canada under 25 meters are below 300 grt. The "passenger" limits are not affected by this measure but the "non-passenger" limits jump from $1,500,000 to $6,000,000 above 300 grt.

Luggage and Vehicles

Separate limits of liability apply to passengers' luggage and vehicles but these are only significant for large passenger vessels and ferries.

Special Provisions

The Athens Convention contains some provisions giving passengers added protection:

• Article 3 makes the carrier liable for passenger injuries due his fault and, in certain situation - shipwreck, collision, stranding, fire, explosion or defect in the ship, creates a presumption of fault.
• Article 13 removes the right to limit liability if the damage resulted from an act or omission of the carrier done with the intent to cause damage, or recklessly, and with the knowledge damage would probably result.
• Article 18 invalidates any waiver or limitation of liability or any provision shifting the burden or proof, signed prior to the occurrence. The carrier cannot reduce his liability even with the written agreement of the passenger.

Application

The Athens regime applies to any vessel carrying passengers for a commercial purpose. In addition to the obvious situation of ticketed passengers on an excursion vessel, commercial activities might include a hotel which takes guests out for tours on a lake, transportation of guests to and from hunting or fishing lodges, charter of a boat for employee seminars, etc. etc. The law does not define what commercial use means. While the regime is not intended to apply to pleasure craft, the use of a pleasure craft for "commercial" purposes could trigger the regime. It is not clear whether taking clients on board a pleasure craft for business promotion purposes would constitute such commercial use, but charging passengers for the use of the craft undoubtedly would.

Performing Carrier

The Convention applies to anyone who concludes a contract of carriage in addition to the actual shipowner if they are not the same person. Someone chartering a vessel, for example, may be jointly and severally liable with the shipowner and is subject to the terms of the Convention, including limitation. If the vessel does not carry sufficient coverage, the charterer might well have to pick up the difference.

Special Drawing Rights

Special Drawing Rights (SDR's) are defined by the International Monetary Fund and are converted into local currencies at the rate of conversion effective on the date limitation is applied for. The rate is calculated by the IMF based on a "basket" of world currencies. The conversion to Canadian dollars is currently at approximately $2.00 per SDR. Some allowance should be made for fluctuations in the Canadian dollar which could change the rate, although the $2/SDR rate has remained stable for some time.

For a full decription of SDR's visit the IMF website http://www.imf.org/ (Search using "SDR").

Compulsory Insurance

While no requirement for insurance is contained in the Convention, the MLA provides that the Minister of Transport may introduce compulsory insurance by order in council. In fact, during committee hearings the Government made a commitment to introduce a compulsory insurance regime. CBMU went on record to urge a full study of the issue which is more complicated than it might appear. Meanwhile, it is hoped that passenger vessel owners will purchase adequate coverage to meet the responsibilities imposed by the Athens Convention. We insurance professionals have a duty to inform and advise these clients.

Disclaimer

This notice is a brief overview of the insurance implications of the provisions of Bill S-2 affecting passengers on commercial vessels and is not intended to provide legal advice. For more detailed information on the impact of this legislation, consult your favorite admiralty attorney.

The text of the Bill, including the full text of the Athens Convention is available on the Government website. http://www.parl.gc.ca - select English and look under Senate - Governmant Bills for S-2.

Legislative Committee

May 24, 2001

Please bring this information to the attention of your insureds and ensure that they purchase adequate coverage for their vessels.

If you have any questions, please do not hesitate in contacting us.

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