Goods damaged while under the control of a transporter, insured under a carrier insurance policy, fall within the coverage limitation for damages arising from transportation as opposed to warehousing and storage, even when the goods are damaged while being stored, as opposed to transported, by the transporter

Solway v. Lloyd’s Underwriters, [2006] O.J. No. 2059, Ontario Court of Appeal

The Solways hired Kennedy Moving Systems to move and temporarily store their belongings. The trailer containing the Solways’ belongings was left unattended on a public street. The goods were stolen and never recovered. A judgment was obtained by the Solways against Kennedy Moving Systems for approximately $600,000. Kennedy Moving Systems was bankrupt, and Solways applied under s. 132 of the Insurance Act, R.S.O. 1990, c.I-8, to recover the amount of the judgment from Lloyd’s Underwriters (“Lloyd’s”), the primary insurer.

On application, Stinson J. determined that the basis for the liability imposed against Kennedy Moving Systems was that they were in breach of a term of contract with the Solways regarding the security to be provided for their goods while they were stored in the Kennedy Moving System trailer. As such, liability was founded upon a breach of the party’s oral agreement concerning the storage of the Solway’s goods, and was not founded upon a breach of the contract for their transportation. Stinson J. determined that the $1 million warehousing insurance limit was applicable, and that the $500,000 limitation for transportation insurance was not, and awarded the Solways their entire judgment against Lloyds.

The Ontario Court of Appeal disagreed with Stinson J.’s analysis with respect to the nature of the liability between Kennedy Moving Systems and the Solways. Moldaver J.A. noted that the safe storage component of the contract was incidental to the written terms of the contract for transporting the Solway’s goods as evidenced by the bill of lading. The Ontario Court of Appeal determined that there could be no doubt that the basis of the finding of liability against Kennedy was for failing to deliver the goods in accordance with the terms of the bill of lading. This was clearly a breach of a “transportation contract”, not a breach of the incidental oral term of the contract for safe storage. Therefore, the Court of Appeal determined that the extent of Lloyd’s liability was $500,000, the limitation for transportation insurance under the carrier policy.

In addition, Lloyd’s on appeal, submitted that it should not be required to pay post-judgment interest accruing on the judgment to the extent that such post-judgment interest exceeded the $500,000 policy limit. The application judge rejected the submission, noting that Lloyd’s policy was silent as to whether post-judgment interest was excluded from the policy limit. The Ontario Court of Appeal upheld the application’s judge’s ruling.

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