Regulations Respecting Compulsory Insurance for Ships Carrying Passengers: SOR/2018-245

Canada Gazette, Part II, Volume 152, Number 25

Registration

SOR/2018-245 November 23, 2018

MARINE LIABILITY ACT

P.C. 2018-1427 November 22, 2018

Her Excellency the Governor General in Council, on the recommendation of the Minister of Transport, pursuant to paragraphs 39(a) footnote a and (b) footnote a of the Marine Liability Act footnote b, makes the annexed Regulations Respecting Compulsory Insurance for Ships Carrying Passengers.

Regulations Respecting Compulsory Insurance for Ships Carrying Passengers

Definition

Definition of Act

1 In these Regulations, Act means the Marine Liability Act.

Application

Application

2 (1) These Regulations apply to

Non-application

(2) These Regulations do not apply to

Liability Insurance

Coverage for damages for death or personal injury

3 (1) A person who performs the whole or part of a carriage by ship must maintain liability insurance coverage for damages for death or personal injury caused by an incident that occurs in the course of the carriage and is due to the fault or neglect of the person or of the person’s servants or agents or mandataries acting within the scope of their employment.

Minimum amount

(2) The coverage must be for an amount that is not less than $250,000 multiplied by the passenger capacity of the ship.

Certificate of Insurance

Requirement to carry

4 (1) The person referred to in subsection 3(1) must ensure that proof of insurance, signed by the insurer or its authorized representative, is carried on board the ship as proof that the insurer has issued a liability insurance policy to the person for the liability insurance coverage required by section 3.

Form of proof of insurance

(2) The proof of insurance referred to in subsection (1) may be in paper or electronic form and must be

Fleets

(3) If the liability insurance policy provides coverage in respect of a fleet of ships to which paragraph (2)(b) applies, the person referred to in subsection 3(1) must ensure that a certificate of insurance in the form set out in the schedule is carried on board one ship and a copy of it is carried on board every other ship in the fleet.

Exceptions

(4) Despite subsection (1), a person is not required to carry proof of insurance on board a ship if

Production within 24 hours

(5) If a designated officer boards the ship under subsection 128(1) of the Act and the proof of insurance is not carried on board the ship due to a reason set out in subsection (4), the person referred to in subsection 3(1) must produce the proof of insurance to the designated officer within 24 hours after the designated officer boarded the ship.

Fleets — amount of insurance

(6) In the case of a liability insurance policy that provides coverage in respect of a fleet of ships to which paragraph (2)(b) applies, the certificate of insurance must

Exceptions to form of certificate

(7) In the case of a liability insurance policy that provides coverage in respect of a fleet of ships to which paragraph (2)(b) applies,

Application

5 Sections 3 and 4 do not apply until

Coming into Force

30th day after publication

6 These Regulations come into force on the 30th day after the day on which they are published in the Canada Gazette, Part II.

SCHEDULE

(Paragraph 4(2)(b) and subsection 4(3))

Certificate of Insurance

Number of liability insurance policy

Name of insured

Address

City, Province

Postal Code

Name of Ship(s) table 1 note *

Official Number

Passenger Capacity

Amount of Insurance (not less than $250,000 × passenger capacity)

Table 1 Note

Table 1 Note *

Paragraph 36(1)(a) of the Marine Liability Act states the following: “the definition ship in Article 1 of the Convention shall be read as including any vessel or craft designed, used or capable of being used solely or partly for navigation, whether seagoing or not, but not including an air cushion vehicle or a vessel propelled manually by paddles or oars”.

Return to table 1 note * referrer
       
       
       

Pursuant to the Regulations Respecting Compulsory Insurance for Ships Carrying Passengers, made under Part 4 of the Marine Liability Act, and subject to the terms and conditions of the above-mentioned liability insurance policy, this is to certify that the above-named insured is the holder of a liability insurance policy, that is in force, for the carriage of persons on board the ships listed in this certificate.

If the liability insurance policy provides coverage in respect of a fleet of ships, the policy provides the same coverage as the coverage that would be provided if a separate policy had been issued in respect of each ship listed on this certificate.

INSURER

Name

Address

City, Province

Postal Code

Policy effective date

Policy expiry date

_________________________________
Insurer or Authorized Representative of Insurer

_________________________________
Date

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Executive summary

Issues: The 2001 Marine Liability Act (the Act) introduced a liability regime for all commercial and public purpose ships engaged in the carriage of passengers. However, carriers are not currently required to maintain insurance towards their liability to passengers and, as a result, passengers may not be able to receive compensation in the event of a marine accident.

Description: The Regulations Respecting Compulsory Insurance for Ships Carrying Passengers (the Regulations) require that commercial and public purpose ships engaged in the domestic carriage of passengers maintain liability insurance in a minimum amount of $250,000 multiplied by the passenger capacity of the ship. The Regulations also require that a certificate of insurance or certificate of entry footnote 1 be kept on board the vessel where feasible or be produced within 24 hours after a designated officer boards the ship.

Cost-benefit statement: The Regulations are estimated to result in total incremental insurance premium costs for approximately 1 756 ship operators of $24.18 million over a 10-year period, and a corresponding increase in revenues for insurance companies. This transfers the liability from individual ship operators to pooled insurance groups, with benefits to passengers and their families in the event of an incident. The Regulations are also expected to reduce the number and severity of marine accidents, as operators would have an incentive to maximize the safety requirements on board their ships to minimize their liability insurance costs.

“One-for-One” Rule and small business lens: The “One-for-One” Rule does not apply, as there would not be any additional administrative burden associated with these Regulations.

The small business lens applies, as it is estimated that the majority of the population affected by these Regulations are small businesses. However, it is expected that the cost would be proportionate to the size of a given operation — small businesses with fewer vessels and fewer passengers are expected to carry lower costs. The cost implications on small business are further reduced by limiting the amount of insurance required compared to the limit of liability of the carrier. The Act provides for a limit of liability of 175 000 Special Drawing Rights footnote 2 (SDR) per passenger, while the Regulations require liability insurance in a minimum amount of $250,000 per passenger. The Regulations also allow operators already carrying some form of passenger insurance to comply with the Regulations upon the expiry, alteration or cancellation of the current policy.

Domestic and international coordination and cooperation: Some provinces require that any person operating a marine passenger service for remuneration acquire a permit that must be accompanied by a certificate of marine civil liability insurance. The Regulations cover a wider range of ships than provincial requirements (e.g. in Quebec, a permit is only required for the remunerated transport of passengers by water, whereas the Regulations cover public purpose ships where no fare is charged) with generally higher levels of liability insurance required. The Regulations will provide a uniform level of coverage across Canada and will align the marine industry with the air, rail and road modes of transportation in terms of compulsory passenger liability insurance.

To avoid duplication, vessel operators that hold insurance covering passenger liability would need to comply with the Regulations when their current policy expires, is altered or cancelled. As the Regulations apply to voyages from one place in Canada to the same or another place in Canada, either directly or by way of a place outside Canada, international coordination is not applicable.

Background

Part 4 of 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 strictly liable for death or personal 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 SDR. 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 2 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 committed in 2001 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. By including these types of operations in the Regulations, it would have prevented them from continuing to operate. The Act was amended in 2009 to exclude adventure tourism activities (subsection 37.1(1) of Part 4 of the Act). Vessels propelled manually by paddles or oars were also excluded from Part 4 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. In the event of a marine accident, passengers may not be able to receive compensation.

Objectives

The objective of the Regulations is to ensure that passengers or their dependents can receive compensation in the event of a marine accident involving personal injury or loss of life, by requiring marine carriers to maintain appropriate liability insurance.

Description

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

Sections 129 and 131 of the Act provides that failure to comply with the requirements of these Regulations, including the requirement to provide 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 Regulations will not apply to

To facilitate compliance, the Regulations will be implemented in two stages:

Existing insurance policies

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

New insurance policies

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

Regulatory and non-regulatory options considered

Status quo: continue voluntary compliance

Consultations with stakeholders revealed that most owners of passenger ships over 15 gross tonnage (GT) carry sufficient liability insurance. However, owners of other ships and those that are 15 GT or less that may carry passengers may have insufficient insurance or no insurance at all. Not introducing compulsory liability insurance would mean that a carrier could make a business decision that would be prejudicial to the passenger’s right to compensation for injuries or death in the case of a marine accident. Continuing a policy of voluntary compliance would perpetuate the disadvantages of marine passengers compared to the passengers in other modes of transport where compulsory insurance is the norm. Therefore, the continued voluntary compliance would not meet the objective of protecting the general public in the event of a marine accident.

Some ships may carry passengers when not used for their primary purpose (e.g. fishing vessels used for whale watching when not commercially fishing). In these cases, carriers must inform the Department that they occasionally carry passengers and comply with the requirements of the Canada Shipping Act, 2001. Owners of such ships may insure against losses associated with their primary purposes (e.g. hull and machinery insurance), but may overlook the need for liability insurance. During consultations, some small businesses engaged in such passenger services stated that they could not afford liability insurance. They would therefore likely be incapable of meeting their financial obligations if a passenger were injured or killed as a result of a marine accident. Since the True North II incident, there have been other marine accidents where the lack of passenger insurance has been an issue. A 2008 Ontario Coroner’s inquest into a death of a construction worker on a commercial vessel reiterated the recommendation of the True North II inquest that all small commercial vessels up to 15 GT be required to maintain liability insurance. footnote 5

Compulsory insurance regulations solely for passenger ships over 15 GT

Implementing a threshold such as 15 GT (which is the maximum tonnage for ships in the Small Vessel Registry) and above would protect passengers aboard ships over the threshold, but would not provide any protection for passengers on vessels below 15 GT. The True North II was just 5.67 GT and carried 19 passengers on the day of the accident. Similarly, applying the Regulations solely to ships whose primary purpose is passenger carriage would provide no protection to passengers on non-passenger ships that are carrying passengers on an occasional basis.

Limiting the application of the Regulations to ships of a certain size or purpose could also create a risk that carriers may misrepresent either the size of their ships or the nature of their operations. This could competitively disadvantage carriers that comply with the Regulations. Such exemptions may also confuse passengers who assume that they are covered, regardless of the vessel size.

Compulsory insurance regulations for commercial and public purpose ships carrying passengers (the Regulations)

Under this option, commercial and public purpose ships engaged in the domestic carriage of passengers will be required to maintain liability insurance for death or personal injury in an amount of not less than $250,000 multiplied by the passenger capacity of the ship. The full liability to the carriers remains, as per the 1990 Athens Convention, 175 000 SDR.

This will provide a uniform approach to the compensation of passengers or their dependants in the event of a marine accident involving personal injury or loss of life.

Finally, the Regulations will also align with the compulsory insurance regulations that provide financial protection to Canadian passengers in other transportation modes (air, rail, and road).

Benefits and costs

Benefits

The Regulations will result in a range of benefits, including enhancing financial protection for passengers and marine carriers, meeting public expectations and improving safety on board small ships.

The financial protection of marine passengers will be enhanced by ensuring that carriers have the financial resources to pay compensation for accidental injuries or deaths to which passengers are entitled under the Act. Compulsory insurance may also protect carriers against catastrophic losses and possibly civil actions that could lead to the carrier losing his or her boat, business, house and other personal assets.

There is a perception that public transportation is governed by rules that protect the interests of individual travellers. The Canadian public expects that commercial carriers in all modes are insured for accidents as is indeed the case for all non-marine carriers (airlines, taxis, buses and trains). The Regulations will meet public expectations and increase confidence in Canadian marine carriers. Since insurance companies have established procedures for settling claims, in the result of an incident, the requirement for liability insurance could expedite the settling of passenger claims as opposed the lengthy civil litigation system with uninsured operators.

Compulsory liability insurance is also expected to have a positive impact on the safety of small commercial ships carrying passengers, as carriers would have an incentive to maximize the safe operation of their ships to minimize their liability insurance costs. Insurance companies would likely be unwilling to insure carriers that do not comply with passenger safety regulations or that have poor safety records.

The proposal will result in benefits for insurance companies, who will gain additional business (and a corresponding liability). Although much of the collected insurance premiums would be used to settle claims, some would result in additional profitability for insurance companies. For the purpose of this analysis, however, the benefit to insurance companies is assumed to be roughly equal to the total costs of buying insurance, a transfer from ship operators to insurance companies, while the transfer of liability is treated qualitatively. Therefore, these benefits are estimated to have a present value of $24.18 million over a 10-year period, with an annualized value of $3.44 million.

Costs

The main direct costs of the Regulations are the liability insurance costs to carriers operating small ships that are uninsured or not sufficiently insured to cover their liability in the event of an incident. The Regulations may not fully cover their liability as 175 000 SDR is currently valued at $322,453.25 and the Regulations only require $250,000 per passenger. footnote 6 Carriers are encouraged to carry enough liability insurance to cover the full liability under the Act. The majority of passenger ships already carry liability insurance and are therefore already compliant with the Regulations.

To identify those smaller operators most likely to be non-compliant, Industry Canada’s footnote 7 data on the number of small businesses by industry classification for marine-related sectors was used. Some of these sectors use ships that are usually restricted from carrying passengers under the Canada Shipping Act, 2001. However, such ships can legally carry passengers if they meet the safety requirements provided for under the Canada Shipping Act, 2001. Any ships of 15 GT or less that carry more than 12 passengers must advise Transport Canada of their activities and hold a passenger vessel safety certificate issued under the Vessel Certificates Regulations. All ships of 15 GT or less may carry up to 12 passengers without a passenger vessel safety certificate, but must still meet the regulatory requirements under the Small Vessel Regulations of the Canada Shipping Act, 2001.

It was therefore assumed that approximately 10% of the ships not registered as passenger vessels would carry passengers on an occasional basis. Operators of small non-passenger vessels that occasionally carry passengers but fail to meet the passenger vessels safety requirements would contravene the Canada Shipping Act, 2001. Because such operators already operate outside the law, they are not included in the estimated 10% that would need to acquire insurance under the Regulations.

Small operators in sectors that carry passengers are all assumed to be non-compliant. Based on these assumptions, it is estimated that 1 756 ship operators would need to buy liability insurance annually. The average cost of insurance per ship operator is estimated to be $2,100 based on discussions with the insurance industry. Therefore, the cost of liability insurance is estimated to have a present value of $24.18 million over a 10-year period, with an annualized value of $3.44 million. For insurance companies, there would be a corresponding increase in liability.

The Regulations will not impose costs on the Department. Currently, Transport Canada operates an online National Training Program for enforcement officers. It will be mandatory for enforcement officers to complete the online training prior to the Regulations coming into force. There are no additional costs associated with the training of enforcement officers.

Cost-benefit statement

 

Base Year: 2018

Year 2022

Final Year

Total (PV)

Annualized Average

A. Quantified impacts (in CAD, 2012 price level / constant dollars)

Costs to industry

Cost of buying liability insurance policies for death or personal injury (transfer to insurance companies)

Stakeholders: Carriers

1,843,958

3,687,915

3,687,915

24,179,047

3,442,552

Total costs

  

1,843,958

3,687,915

3,687,915

24,179,047

3,442,552

Benefits to industry

Increased revenue (transfer from marine carriers)

Stakeholders: Marine and nonmarine insurers

1,843,958

3,687,915

3,687,915

24,179,047

3,442,552

Total benefits

  

1,843,958

3,687,915

3,687,915

24,179,047

3,442,552

Net Benefits

  

0

0

0

0

0

B. Qualitative impacts
  • 1-Marine carriers and passengers would benefit from the transfer of liability to insurance companies.
  • 2-Enhanced protection of passengers travelling by water
  • 3-Meeting public expectations
  • 4-Improved safety

“One-for-One” Rule

The “One-for-One” Rule does not apply, as there would not be any additional administrative burden associated with these Regulations.

Small business lens footnote 8

The small business lens would apply to these Regulations since their expected impact is estimated to have a net present value of over $10 million and they will affect small businesses. Since larger passenger ship operators are currently insured to the maximum limit of their liability (175 000 SDR per passenger), the Regulations will impact mostly smaller operators that are uninsured or not fully insured. However, it is expected that the cost will be proportionate to the size of a given operation — small businesses with fewer vessels and fewer passengers are expected to carry lower costs.

Flexibility has been provided in the Regulations by setting a fixed minimum amount of insurance of $250,000 per passenger rather than requiring that the insurance reflect the full liability of 175 000 SDR (which is equivalent to $322,453.25 CAD on June 13, 2018 footnote 9). When consultations resumed in March 2012, 175 000 SDR was equivalent to $267,177.75. footnote 10 Since January 1994, the lowest value of the SDR was in November 2007, when it was worth $254,539.25. The amount of $250,000 was seen as the best compromise to reflect fluctuations in the value of the SDR to CAD and a minimum amount that small business can reasonably meet. The amount also does not exceed the liability requirement under the Act.

Fixing the amount in CAD rather than SDR facilitates the acquisition of the insurance from Canadian underwriters. It also reduces the premium by requiring a lower level of insurance and eliminating the insurers’ concerns about currency exchange risks.

All carriers will also benefit from the flexibility of the two-stage coming into force process. Those carriers who currently maintain a liability insurance policy for passenger injury or death will not have to comply with these new requirements until the policy is next renewed, modified or cancelled. Carriers who do not maintain such insurance will have to comply with the Regulations within 60 days after they come into force.

The greater flexibility for smaller businesses provided from the fixed minimum amount of insurance of $250,000 (rather than 175 000 SDR) is expected to reduce the total costs of purchasing insurance by up to approximately $4,400,000 in present value, or about $330 per small business. For the small business lens analysis, the “initial option” of 175 000 SDR per passenger was compared to the adopted “flexible option” of $250,000 per passenger. This lower “flexible option” cost will be approximately 19% lower than the proposed “initial option.”

 

Flexible option

Initial option

Short description
  • Reduced minimum insurance limit of $250,000 per passenger
  • Firms currently with liability insurance would have the flexibility to comply with new requirement when they renew their insurance.
  • Minimum insurance limit of 175 000 SDR per passenger (or about $294,000 CAD 2012)
  • All firms (including those with liability insurance) would be required to comply with the new regulatory requirements within 60 days of enactment.

Number of small businesses impacted

1 756

1 756
 

Annualized Average ($2012)

Present Value
($2012)

Annualized Average
($2012)

Present Value
($2012)

Compliance costs

$3,459,400

$24,297,600

$4,089,100

$28,720,000

Administrative costs

$0

$0

$0

$0

Total costs

$3,459,400

$24,297,600

$4,089,100

$28,720,000

Average cost per small business

$1,960

$13,800

$2,300

$16,400

Risk considerations

The lower insurance limit is a trade-off for flexibility. It presents a risk that an operator may not have sufficient financial assets, including insurance, to cover all of his/her liability to passengers. However, the lower limits should ensure that the insurance is more affordable and accessible to small business owners through a wider range of insurance providers (e.g. domestic marine underwriters, commercial general liability insurers and even homeowner insurers). This should increase compliance in the small business sector and reduce the risk of passenger injuries where there is no insurance. Allowing existing policies to stand until renewal will also support a smooth transition for small business and the insurance sector.

Consultation

The Department initially consulted industry on this regulatory proposal in fall 2010. The issues raised in these initial consultations were reflected in a discussion paper released in March 2012 that included a draft regulatory proposal. Stakeholders were invited to comment on these draft Regulations by the end of 2012. Most stakeholders supported, in principle, this regulatory proposal.

However, stakeholders expressed various concerns that are summarized below along with changes incorporated in the Regulations to address them.

Scope of application

Stakeholders expressed concern that the Act does not define ships used for “commercial and public purposes” and that the absence of a definition could create uncertainty for the public and enforcement officers. There were concerns that the draft Regulations could apply to pleasure craft or commercial fishing or other activities they felt should be exempted.

It was suggested that the following exemptions be added to the draft Regulations:

The draft Regulations were amended to specifically exclude pleasure craft. Further changes that were made to the nature of insurance required (described below) should accommodate children’s camps.

The other exemptions and exclusions were not addressed in order to avoid undermining the key policy intent of providing a uniform approach to protecting the interests of Canadians and their families in the event of an incident involving passengers carried on board a domestic commercial or public purpose ship.

Passenger capacity

Some stakeholders were concerned with the determination of passenger capacity. For example, some stakeholders noted that fishing vessels would not have a passenger capacity specified on their certificate, while others noted that a ship may have a certificate stating that it has a capacity of 25 passengers but never carry more than 15 passengers.

The Regulations are not prescriptive as to how an operator must determine the ship’s passenger capacity. All operators of vessels that carry passengers, including fishing vessels, need to comply with the Canada Shipping Act, 2001 regulations on the carriage of passengers. In some instances, a ship may have Transport Canada issue a certificate specifying the maximum number of passengers permitted to be carried. In other cases, a ship may have a passenger capacity plate affixed by the manufacturer or no such figure at all. The carrier must insure to the certificated number of passengers or to whatever number of passengers the carrier knows will be the maximum number ever carried, if that figure is lower than the ship’s certificate or capacity plate, or none is specified.

If the carrier is checked for compliance with the Regulations and is found to be carrying more passengers than for which it has obtained the necessary insurance coverage, the carrier will be in breach of the Regulations and subject to a penalty. The carrier may also be in breach of its duty of utmost good faith to its insurer as mandated by the Marine Insurance Act and it is possible that its insurance policy is voided as a result. The carrier should consider these factors in determining the maximum passenger capacity of the vessel so as to not breach the Regulations or its insurance coverage as the consequences to the carrier could be extremely serious.

Cost and availability of insurance

Stakeholders were concerned that the cost of liability insurance on a per-passenger basis could threaten the financial stability of small businesses. Operators who are unable to afford insurance are also unlikely to have the financial resources to compensate passengers that may die or be injured in an accident. They risk bankruptcy and possible loss of personal assets if there is an accident.

Others expressed concern that the draft Regulations could force the homeowners’ market insurance sector to exclude boat insurance from a homeowner’s policy on the basis that they cannot offer the same premiums as marine insurers who specialize in such risks. This concern arose from a perception that “pleasure craft” could be used for commercial purposes as, for example, when a real estate agent uses his or her “pleasure craft” to show waterfront properties to prospective clients. Insurers therefore proposed that pleasure craft under 8 m in length be excluded from the compulsory insurance Regulations to allow their continued coverage as “pleasure craft” under typical homeowners’ policies.

However, such usage of a vessel would require that it be registered as a commercial vessel and meet passenger safety standards. To avoid confusion, the Regulations specifically exclude pleasure craft as defined in section 2 of the Canada Shipping Act, 2001 (i.e. “a vessel that is used for pleasure and does not carry passengers, and includes a vessel of a prescribed class”).

Dedicated amount

The 2012 draft Regulations also proposed that the required amount of marine insurance be dedicated solely to liabilities to passengers. Some stakeholders were concerned that this could create uncertainty as to how the courts would apportion available compensation when an incident involves various types of claimants.

Furthermore, it implied that commercial general liability (CGL) policies would not be accepted, requiring the holders of such policies (e.g. operators of children’s camps and hunting and fishing outfitters) to obtain separate marine passenger insurance at an additional cost. This requirement was subsequently removed from the draft Regulations, and the Regulations allow for CGL policies provided they include marine passenger liability.

Stakeholders also noted that some provinces already impose mandatory general liability insurance for certain businesses in amounts that have been sufficient to cover passenger claims in the past. The Regulations may lead to a slight increase in insurance premiums for these businesses only in provinces where the amount of insurance is less than the amount required under the Regulations. footnote 11

Certificate of Insurance

Certain stakeholders had an issue with the wording of the certificate of insurance (the Certificate) annexed to the draft Regulations as it applied to fleet policies. The Regulations reflect modifications to respond to this concern.

The requirement to carry the Certificate on board the ship was a concern to carriers operating small boats with no cover or protected place to store it. The Regulations will allow such carriers the option to provide the Certificate to a designated officer within 24 hours after the officer boards the ship.

Stakeholders proposed that the draft Regulations be amended to accept a ship’s certificate of entry (CoE) from a member club of the International Group of Protection and Indemnity Associations (IGP&I Clubs) as evidence of insurance in place of the certificate of insurance prescribed by the draft Regulations. The 13-member clubs of the IGP&I Clubs collectively underwrite 90% of ocean-going ships and are quite reputable. These clubs issue CoEs indicating that a ship has insurance cover for all marine liability under international conventions, including the Athens Convention. The Regulations were amended to accept CoEs to avoid unnecessary administrative burden (and costs).

Scope of consultations

Some stakeholders commented that the Department did not fully consult the carriers who would be impacted by the compulsory insurance requirements. Initial consultations with marine carriers were held during the fall 2010 meetings of the regional Canadian Marine Advisory Council (CMAC) across Canada. CMAC participants include representatives of individuals and parties that have a recognized interest in boating and shipping concerning safety, recreational matters, navigation, marine pollution and response and marine security. The carriers’ views were sought during these meetings and were subsequently reflected in a discussion paper that was circulated widely to allow carriers to provide further input.

Comments arising from the prepublication of the Regulations

The Regulations were prepublished in the Canada Gazette, Part I, on December 24, 2016, followed by a 60-day public comment period. Comments were received from four stakeholders.

Comment No. 1: One respondent, a maritime lawyer, expressed support for the Regulations, but was concerned that the Regulations are not prescriptive as to how an operator must determine the passenger capacity. The respondent indicated that insurance brokers could benefit with more clarity of the potential consequences of understating the number of passengers operators intend to carry. This respondent suggested that Transport Canada explain in this assessment the consequences of carrying more passengers than the number indicated on the insurance policy.

Response: These consequences (risk of a penalty for breaching the Regulations and having the insurance contract declared void) have been explained under the above section entitled “Passenger capacity.”

Comment No. 2: An association representing insurers expressed concern that carriers might come to believe that by adhering to the Regulations, they are fully protecting themselves against all liability under the Marine Liability Act. They were concerned that this could expose the insurance sector to claims of an “errors or omissions” nature. They recommended adding a statement to the insurance certificate stating that (1) it is issued in compliance with the Regulations and does not fully cover the operator’s liability to passengers; (2) it does not provide cover for other third party liability including environmental damage or wreck removal; and (3) the shipowner is solely responsible to ensure they have adequate insurance to address all potential liabilities.

Response: As the certificate clearly states that the insurance policy is for the carriage of persons, there is no need to say it does not cover other third party liability. Furthermore, while carriers may have a fiduciary responsibility to maintain insurance for all potential liabilities, there is currently no legal requirement to carry insurance for all third party liabilities, just those expressly stated in the Marine Liability Act (e.g. pollution related to spills of bunker oil from ships over 1 000 GT or oil cargo spills from ships carrying more than 2 000 tons of persistent oil in bulk as cargo). The Regulations, and the Act, set out what is required in terms of insurance. The intent of the certificate is to demonstrate that its holder has met the requirements of the Regulations rather than speak to liability that may lie elsewhere.

Comment No. 3: An association representing hunting and fishing outfitters expressed concern that the proposed Regulations would require them to individually list a number of small vessels that would likely not have a unique name or number if they had a fleet policy. They recommended that the certificate be simplified for fleet policies dealing with such vessels.

Response: The Regulations and certificate have been amended to address these concerns by providing greater flexibility with respect to insurance policies for fleets of small unnamed vessels.

Comment No. 4: An association of lawyers expressed concerns that (1) the levels of insurance were inadequate to cover liability; (2) victims were not fully covered in the absence of absolute liability and a right of direct action against insurers; and (3) the Regulations would not apply to non-commercial vessels (i.e. pleasure craft). They contend that absolute liability would protect the public even when the carrier is in violation of the terms of their policy while direct action would allow them to make claims against insurers, even if the carrier is insolvent.

Response: (1) The concerns cannot be addressed through amendments to the Regulations and would require legislative amendments that, if considered appropriate, would significantly delay these Regulations and continue the current situation to the disadvantage of passengers. Section 39 of the Marine Liability Act provides regulatory authority to require insurance up to the level of liability but not beyond. As that liability is subject to currency fluctuations, it is not possible to prescribe a fixed level of insurance in Canadian currency that would fully cover liability. The amount of insurance of $250,000 per passenger was chosen based on an analysis of historical SDR to Canadian dollar rates. It is the highest amount that would be unlikely to exceed the per capita liability limit and thus comply with section 39. Fixing the amount in Canadian dollars rather than SDR facilitates the acquisition of the insurance from Canadian insurers who cannot pay claims in SDR as SDR are not a currency.

(2) Contracts of marine insurance are governed by the Marine Insurance Act, of 1993, which currently does not provide for absolute liability or direct action against insurers. Direct action is a common principle in auto insurance law for all provinces and territories while absolute liability is in force in Ontario. Canadian insurers earned 64 times more premium from auto insurance ($21 Billion) than the marine market ($330 Million) in 2014. footnote 12 Automobile accidents are relatively common and insurers can assess risk and set premiums based on limited information (vehicle year, make and model; annual kilometres driven; operators’ driving records) that is easily verifiable which lends itself well to absolute liability. Direct action is crucial for the efficient resolution of relatively frequent accident claims and minimizing costs related to administration of claims. Neither principle, direct action nor absolute liability is common in marine insurance law where the information to set risk and premiums can be highly technical and one party, the shipowner, has access to all the information relating to the vessel, voyage, crew, passengers and cargo. The insurer must rely on the shipowner to fully disclose that information to effectively assess the risk and associated insurance premium. That said, international marine conventions are increasingly providing for direct action to ensure third party claims are protected in cases of insolvency. However, the 1990 Athens Convention does not provide for direct action against the insurer.

(3) The Marine Liability Act does not provide regulatory authority to require insurance for persons that are carried on non-commercial vessels (i.e. pleasure craft).

Stakeholder engagement following prepublication and the closing of the public comment period

Following the comment period, in June 2017, Transport Canada met with associations representing insurance brokers and underwriters to ensure that they were aware of the proposed Regulations and would have no issues with the changes that were being considered. Two of these associations that deal with general commercial liability policies recommended that Transport Canada consider accepting electronic certificates such as those that may be shown on a cell phone or other electronic device as proof of insurance in addition to printed format. This proposal could ensure that the Regulations would remain current as society increasingly adapts to new technology. The Regulations were amended to accept such electronic certificates as proof of insurance.

Regulatory cooperation

Some provinces currently require marine passenger services to maintain liability insurance. For example, Quebec’s Regulation respecting the transport of passengers by water (1998) [chapter T-12, r. 15] requires that any person operating a marine passenger service for remuneration acquire a permit. The application for this permit must be accompanied by a certificate of marine civil liability insurance of $5 million for ships with a capacity exceeding 12 passengers and $1 million for ships with a capacity of 12 passengers or less.

Quebec and other provinces and territories, i.e. Alberta, Saskatchewan and Nunavut, also require the licensing of outfitters providing hunting, fishing and outdoor activities that often involve transporting passengers by water. To obtain a licence, outfitters are required to maintain public liability insurance coverage in amounts ranging from $1 million to $5 million, depending on the province or territory. Similarly, Parks Canada requires service providers operating within park boundaries to maintain general liability coverage of $2 million, including marine passenger service providers.

The Regulations will cover a wider range of ships with generally higher levels of liability insurance required ($250,000 per passenger). Vessel operators that comply with current provincial, territorial and Parks Canada regulations that require passenger insurance would need to comply with the Regulations when their current policy is renewed, altered or cancelled.

Rationale

Proceeding with compulsory insurance regulations for ships carrying passengers will ensure a uniform approach to protecting the financial interests of passengers who are injured in a marine incident. The Regulations are also aligned with the compulsory insurance regulations in other modes of transport and will meet public expectation that carriers in all modes (air, rail, road and marine) have liability insurance cover for personal injuries or fatalities.

The Regulations will impact mostly smaller carriers that are uninsured or not fully insured. However, it is expected that the cost would be proportionate to the size of a given operation — small businesses with fewer vessels and fewer passengers are expected to carry lower costs.

While passengers and their dependents are expected to be the main beneficiaries of the Regulations, carriers will also benefit by having protection and the support of insurers when dealing with passenger claims. The cost per passenger of this benefit will not be significant for most businesses and may be passed on to consumers at a negligible cost.

The Regulations could improve safety as insurers may be unwilling to underwrite carriers that do not comply with passenger safety regulations or have poor safety records. Carriers would have an incentive to maximize the safe operation of their ships to minimize their liability insurance costs.

The consultations that took place across Canada in 2010–2012 as well as the feedback from the 2012 discussion paper and comments from the Canada Gazette, Part I, confirmed that most stakeholders support, in principle, these Regulations.

Implementation, enforcement and service standards

To facilitate compliance, the Regulations will be implemented in the following two stages: (1) carriers who have a liability insurance policy for death or personal injury when the Regulations come into force will need to comply with the new requirements when their policy is renewed, modified or cancelled; and (2) other carriers will have 60 days after the Regulations come into force to comply.

Transport Canada will publicize these Regulations at marine sector events, including meetings of various marine associations, and via Transport Canada’s website. The Department will also work with insurance associations to ensure they can inform their clients of these Regulations.

The Regulations will be enforced by designated officers (Transport Canada marine safety inspectors) who will request operators of ships carrying passengers to produce a certificate of insurance or a certificate of entry in accordance with the Regulations. If the carrier does not have a certificate of insurance or a certificate of entry, or is carrying passengers in excess of the number of passengers identified on the insurance certificate, then the designated officer will have the power, pursuant to the Act, to detain the ship or a court can impose a fine not exceeding $100,000 upon summary conviction.

Contact

François Marier
Manager/Senior Policy Advisor
International Marine Policy
Transport Canada
Place de Ville, Tower C, 25th Floor
Ottawa, Ontario
K1A 0N5
Telephone: 613-993-4895
Fax: 613-998-1845
Email: francois.marier@tc.gc.ca