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1 The assault on the distinct status that Marine Insurance holds in the Canadian (and Global) marketplace Death by a thousand cuts Presented by: Presented.

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Presentation on theme: "1 The assault on the distinct status that Marine Insurance holds in the Canadian (and Global) marketplace Death by a thousand cuts Presented by: Presented."— Presentation transcript:

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2 1 The assault on the distinct status that Marine Insurance holds in the Canadian (and Global) marketplace Death by a thousand cuts Presented by: Presented by: JERRY GIROUX SubroGateway Inc. JEAN-MARIE FONTAINE, Borden Ladner Gervais JEAN-MARIE FONTAINE, Borden Ladner Gervais PETER JONES, PM Law, Legal Counsel of CIFFA

3 2 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. 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. 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. 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'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. 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 Bar Association Member of the Canadian Maritime Law Association Member of the Canadian Maritime Law Association Member of the Association of Maritime Arbitrators of Canada Member of the Association of Maritime Arbitrators of Canada Member of the Grunt Club Inc. Member of the Grunt Club Inc. Member of the Canadian Transportation Lawyers Association Member of the Canadian Transportation Lawyers Association

4 3 PETER JONES PM Law, Legal Counsel of CIFFA Year Admitted to Bar: 1962 Year Admitted to Bar: 1962 Education: Dalhousie University (B.Sc.1956), University of Toronto (LL.B.1960) Education: Dalhousie University (B.Sc.1956), University of Toronto (LL.B.1960) Member: FIATA Advisory Body Legal Matters ( , Chair ), Canadian International Freight Forwarders Association (Legal Counsel), L'Association des juristes d'expression française de l'Ontario (Vice-President ), Advocates Society (Secretary ), Canadian Bar Association (Chair Maritime Law Section ), Canadian Board of Marine Underwriters, Author: FIATA Legal handbook on Freight Forwarding, General Editor: Forwarderlaw.com Member: FIATA Advisory Body Legal Matters ( , Chair ), Canadian International Freight Forwarders Association (Legal Counsel), L'Association des juristes d'expression française de l'Ontario (Vice-President ), Advocates Society (Secretary ), Canadian Bar Association (Chair Maritime Law Section ), Canadian Board of Marine Underwriters, Author: FIATA Legal handbook on Freight Forwarding, General Editor: Forwarderlaw.com Practice Areas: E-Commerce, Freight Forwarding, Marine Practice Areas: E-Commerce, Freight Forwarding, Marine

5 4 CBMU Constitution Section 3 OBJECTS 3.01 The objects of the Association shall be: To promote, advance and protect the interests of underwriters generally

6 5 Marine Insurance & Trade One-quarter of our national wealth is derived from international trade One-quarter of our national wealth is derived from international trade One third of our jobs depend on international trade One third of our jobs depend on international trade Nine thousand new jobs result from every billion dollars of additional exports Nine thousand new jobs result from every billion dollars of additional exports

7 6 Summary Summary What is marine insurance? What is marine insurance? Does marine insurance fall within federal or provincial jurisdiction ? Does marine insurance fall within federal or provincial jurisdiction ? Is yacht insurance marine? Is yacht insurance marine? Yacht premiums and taxation Yacht premiums and taxation Alberta Insurance Act and marine insurance Alberta Insurance Act and marine insurance RST on marine premiums RST on marine premiums So What? Now What? So What? Now What?

8 Lawyers Patent and Trade-mark Agents What is Marine Insurance ? Jean-Marie Fontaine Borden Ladner Gervais LLP

9 Lawyers · Patent and Trade-mark Agents MARINE INSURANCE

10 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

11 Lawyers · Patent and Trade-mark Agents  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; Marine Insurance Act (Continued)

12 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

13 Lawyers · Patent and Trade-mark Agents Provincial Insurance Acts  Defined in similar terms in provincial legislation on marine insurance:  Ex: Art 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.

14 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

15 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 intra- provincial 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

16 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

17 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

18 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

19 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

20 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 non- marine?  Answer: Dependent upon central purpose and timeframe. Is terminal operator’s role as a warehouseman an activity essential to the marine adventure?

21 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

22 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 non- marine?  Answer: Marine as error committed by broker in failing to preclude deck carriage related to responsibilities inextricably connected to carriage of goods by sea

23 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?

24 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?

25 Lawyers · Patent and Trade-mark Agents THANK YOU!

26 25 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 Government tax revenues. Gordon E. Gibbons, C.I.P.

27 26 Minister’s Reply Hyperlink

28 27 Industry Under Attack Presentation to the CBMU Annual Meeting Halifax, 15 June 2006 Peter Jones Paterson, MacDougall LLP

29 28 Background Over the last 25 years the forwarding industry has expanded and prospered significantly related to forwarders’ ability to provide one-stop shop 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 during this time largely free from unnecessary regulation and taxation BUT, the last year has seen attempts to erode this favourable business environment

30 29 Two Misguided Government Initiatives Recovery of PST on marine insurance premiums in Ontario Recovery of PST on marine insurance premiums in Ontario Regulation of forwarders in Alberta as ‘brokers’ of marine insurance Regulation of forwarders in Alberta as ‘brokers’ of marine insurance

31 30 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 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

32 31 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 don’t understand our industry they expect complaints from all parties exposed to new taxation they expect complaints from all parties exposed to new taxation They are expert at ignoring those complaints!

33 32 We can take steps to educate them There are ways to address these issues if we have: –cohesion –willingness –representation Tax authorities have significant resources available to fight this issue –it must be our job to persuade them that this tax is counter- productive BUT

34 33 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

35 34 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 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

36 35 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 If not apportioned, then 100% taxable Apportionment makes sense in some environments (e.g. interprovincial freight) Apportionment makes sense in some environments (e.g. interprovincial freight)

37 36 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 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 If not apportioned, then 100% taxable –therefore it MUST be apportioned –the apportionment must be reasonable

38 37 A practical example Cargo originating in Beijing 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 $ % of value; cargo = 20K; premium $300 If no apportionment, 8% = $24 If no apportionment, 8% = $24

39 38 Example continued If not apportioned, 8% of total 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 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

40 39 The forwarder’s dilemma Relative to taxes recover (75 cents), effort to apportion and collect is uneconomic 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 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

41 40 The Fundamental Flaw in Government’s Position There is a reason Marine Insurance has long been exempt!! 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 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

42 41 Where do we go from here? CBMU has clearly stated their position to the Ontario government 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 Ontario government did not address negative impact of the tax on international business CBMU has an opportunity to educate government on unique business environment

43 42 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

44 43 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 UK forwarders fought this requirement for two years without success Result: UK forwarders have substantially withdrawn from the market Result: UK forwarders have substantially withdrawn from the market

45 44 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

46 45 Copycat Actions Will other provinces take the same position? Will other provinces take the same position? Will forwarders abandon the market as in UK? Will forwarders abandon the market as in UK? Do provincial brokers have expertise and understanding in international trade and insurance requirements? Do provincial brokers have expertise and understanding in international trade and insurance requirements?

47 46 Yacht Premiums! Taxable? Does Yacht Insurance = Marine Insurance Does Yacht Insurance = Marine Insurance MIA, “incidental to a sea voyage” MIA, “incidental to a sea voyage” Hull? P&I? Lay-up? Personal Effects on Board? Hull? P&I? Lay-up? Personal Effects on Board? XYZ Insurance Company Pays $XXX,XXX/YEAR XYZ Insurance Company Pays $XXX,XXX/YEAR ABC Insurance Company Pays $0 ABC Insurance Company Pays $0 Don’t let your rebate time bar! Don’t let your rebate time bar!

48 47 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. 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

49 48 GST “Zero Rated” on Marine Premiums Insurance 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.

50 49 CBMU Business Plan Delivery of Products Formation of an Association of all interested partiesFormation of an Association of all interested parties Incorporating CBMU, MIABC, CIFFA, CMLA, CRIMs, Average Adjusters, Canadian Importers / ExportersIncorporating 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 distributionEnsures that we have maximum participation, no duplication of efforts, more efficient costs, more comprehensive content, expanded distribution Canadian Association of Logistics ProfessionalsCanadian Association of Logistics Professionals


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