Compulsory Insurance for Passenger Vessels

On December 24,^th 2016 the Federal Department of Transport introduced draft regulations to implement compulsory insurance for ships carrying passengers.

Interested persons may make representations to the Minister of Transport concerning the proposed Regulations within 60 days after the date of publication of this notice. All such representations must be in writing and cite the Canada Gazette, Part I, and the date of publication of this notice, and be sent to Doug O’Keefe, Chief, International Marine Policy, Marine Policy Directorate, Department of Transport, Place de Ville, Tower C, 330 Sparks Street, Ottawa, Ontario K1A 0N5 (tel.: 613-608-8904; fax: 613-998-1845; email: doug.okeefe@tc.gc.ca).

Below is an executive summary provided by the Department of Transport:

Background 

Part 4 of the Marine Liability Act (the Act) introduced a comprehensive liability regime for passengers carried on commercial or public purpose ships. The liability regime is based on the International Maritime Organization’s Athens Convention relating to the Carriage of Passengers and their Luggage by Sea, 1974 as amended by the Protocol of 1990 (1990 Athens Convention).

The 1990 Athens Convention presumes the carrier to be liable for injuries resulting from shipwreck, collisions, stranding, explosion, fire and any defect of the ship. As a trade-off, carriers can limit their liability to each passenger to 175 000 Special Drawing Rights (SDR). [Special Drawing Rights are a special unit of account of the International Monetary Fund which fluctuates and was equivalent to $1.80 (1.80*175 000 = $315,000) on June 13, 2016.]. For this trade-off to work, carriers must have the financial resources to cover this liability. The 1990 Athens Convention does not require carriers to insure this liability; however, section 39 of the Act provides authority to make regulations requiring carriers to maintain insurance to cover their liability to passengers up to the maximum limit of liability.

On June 16, 2000, the tour boat True North II sank in 15 m of water in Georgian Bay resulting in the drowning of two children. The inquest found that the owner-operator was not insured and recommended compulsory insurance for commercial ships carrying passengers. Following this incident, the Minister of Transport made a commitment in 2001 to the House of Commons Standing Committee on Transport and Government Operations to enact regulations requiring compulsory insurance for ships carrying passengers.

The Minister publicly announced the Government’s plans to proceed with these Regulations in 2003. The Department of Transport (the Department) undertook a comprehensive implementation study (Mariport Report) in 2002 and extensive consultations with marine stakeholders and marine insurers in 2003–2004.

However, the Department was unable to proceed with the Regulations because the adventure tourism industry (e.g. white water rafting) could not acquire insurance without “waivers of liability” that are invalid under Part 4 of the Act. The Act was amended in 2009 to exclude adventure tourism activities (subsection 37.1(1) of Part 4 of the Act). Liability for these activities now falls under Part 3 of the Act.

Issues

While the Act contains a liability regime for passengers carried on board commercial or public purpose ships, carriers are not required to maintain liability insurance towards their liability to passengers.

Objectives 

The objective is to ensure the financial security of compensation due to passengers or their dependents in the event of a marine accident involving personal injury or loss of life by requiring marine carriers to maintain appropriate insurance.

Description

The proposed Regulations would require ships carrying passengers to maintain liability insurance for death or personal injury. More specifically, they would

- apply to commercial and public purpose ships engaged in the domestic carriage of passengers;

­­- require any carrier who performs any part of the carriage to maintain liability insurance for death or personal injury in an amount not less than $250,000 multiplied by the passenger capacity of the ship;

- include a provision for fleet policies where the amount of insurance would be determined by the passenger capacity of each ship. However, should an incident occur involving two or more ships in the fleet, each ship would be deemed separately insured;

- require carriers to carry proof of liability insurance on board the ship where feasible, or to produce it within 24 hours after a designated officer has boarded the ship; and

- include a provision where failure to provide a proof of appropriate liability insurance could result in either the detention of the ship or a fine not exceeding $100,000 upon summary conviction.

The proposed Regulations would not apply to

- an adventure tourism activity that meets the following conditions specified in subsection 37.1(1) of the Act:

(a) it exposes participants to an aquatic environment,

(b) it normally requires safety equipment and procedures beyond those normally used in the carriage of passengers,

(c) participants are exposed to greater risks than passengers are normally exposed to in the carriage of passengers,

(d) its risks have been presented to the participants and they have accepted in writing to be exposed to them, and

(e) any condition prescribed under paragraph 39(c) of the Act [ Under paragraph 39(d) of the Act, the Governor in Council can make regulations prescribing classes of persons for the purpose of subsection 37.1(2). Currently, the only classes of persons in the Act are the ones mentioned in subsection 37.1(2) of the Act as defined above];

- the carriage of a sail trainee or a person who is a member of a class of persons prescribed in paragraph 39(d) of the Act;

- a carriage by pleasure craft as defined in section 2 of the Canada Shipping Act, 2001;

- an international carriage (e.g. ferries operating between a port in Canada and a port in the United States;

- a carriage operated by the federal, provincial or territorial governments, or by an entity entitled to indemnification by government for liability under Part 4 of the Act; and

- a carriage undertaking for search and rescue operations that are carried out by the Canadian Coast Guard Auxiliary.

To facilitate compliance, the proposed Regulations provide for implementation in two stages.

Existing insurance policies 

Carriers who hold an insurance policy for liability to passengers when the proposed Regulations come into force would need to comply with them upon the renewal, modification or cancellation of the policy.

New insurance policies 

Carriers who hold no insurance policy for liability to passengers when the proposed Regulations come into force would be required to comply with them 60 days after they come into force.

Some stakeholders were concerned with the determination of passenger capacity. For example, some stakeholders noted that fishing vessels would not have a passenger capacity, while others noted that a ship may have a capacity of nine passengers but never carry more than four passengers.

The proposed Regulations are not prescriptive as to how an operator must determine the ship’s passenger capacity. All operators of vessels used to carry passengers, including fishing vessels, need to comply with the Canada Shipping Act, 2001 regulations on the carriage of passengers. In doing so, they need to determine the number of passengers that the vessel has been outfitted to carry (e.g. number of life jackets). This determination should inform their insurance policy requirements.

Fernandes Hearn LLP will keep you advised of any changes to the draft regulations after stakeholders provide comments to the government.