Executive Summary: Key Legal and Evidentiary Issues

• A trailer of cigarettes valued at $534,451.78 was stolen while in the carrier's custody, raising questions about the applicable liability limit under statutory regulations versus contractual obligations.

• Central dispute involved whether the Bill of Lading and Conditions of Carriage Regulation's $2 per pound cap applied to breach of contract claims for failure to obtain proper insurance coverage.

• Interpretation of insurance clauses 15.1(c) and 15.4 of the Transportation Agreement was contested regarding whether the carrier was obligated to name the consignor as an additional insured on cargo insurance.

• Both parties acknowledged that the objective evidence made it difficult to determine which agreement—the Transportation Agreement or Rate Agreement—governed the shipment at the time of theft.

• The appeal court determined that the statutory cap applies only to "loss or damage to goods" and not to separate contractual breaches such as failure to procure insurance.

• Damages were ultimately limited to $250,000 (the minimum insurance amount) because the consignor failed to communicate the actual value of the shipment to the carrier.

Background and circumstances of the theft

Calgary Core-Mark International Inc. is a wholesale distributor of grocery products serving customers in the retail and convenience sectors, while Direct Integrated Transportation ULC is a transportation company that operates a commercial trucking business. The parties maintained a longstanding hauling relationship governed by two primary agreements: a Transportation Services Agreement dated October 23, 2011, and a Rate Agreement executed on April 22, 2018.

On November 22, 2021, Direct Integrated was transporting a shipment of cigarettes valued at $534,451.78 on behalf of Core-Mark when the trailer carrying the shipment was stolen while in Direct Integrated's care and possession. The shipment weighed approximately 19,447 pounds. A bill of lading was prepared for the shipment; however, no value for the goods was declared on its face, and the record does not clearly indicate who prepared the bill.

At the time of the theft, Direct Integrated held motor carrier cargo insurance policy number 665438071 issued by CNA Continental Casualty Company, effective from July 1, 2021, to July 1, 2022. This policy did not name Core-Mark as an additional insured; it listed Core-Mark only as a certificate holder. The policy provided coverage for Motor Truck Cargo liability up to $500,000 for alcohol and tobacco shipments per occurrence.

The contractual framework between the parties

The Transportation Agreement contained detailed insurance provisions requiring Direct Integrated to procure and maintain various types of coverage. Clause 15.1(a) mandated Commercial General Liability insurance with not less than $5,000,000.00 (Canadian $) combined single limit, explicitly "naming the Customer as an additional insured." Similarly, clause 15.1(b) required Automobile Liability Insurance with not less than $5,000,000.00 (Canadian $) combined single limit, also naming the Customer as an additional insured.

Clause 15.1(c), which became the focal point of litigation, required Motor Carrier's Cargo insurance coverage in an amount not less than $250,000 (Canadian $), per vehicle "and in an amount sufficient to cover the full Wholesale Invoice Cost value of any of the Customer's truckloads in the custody, possession or control of Service Provider." However, unlike the preceding subclauses, 15.1(c) did not contain explicit language requiring the customer to be named as an additional insured.

The Rate Agreement also contained insurance provisions requiring Motor Service Provider's Cargo insurance coverage in an amount not less than $250,000 per vehicle. Clause 3(d) of the Rate Agreement stated that each certificate "shall contain a provision requiring that Customer (as an additional insured) be given at least thirty (30) days prior written notification of any modification or cancellation."

The initial court decision

Core-Mark brought an application for summary judgment. The Application Judge, the Honourable J.R. Farrington, acknowledged that counsel were not able to identify any criteria where an objective third party outside observer could determine whether a particular load was governed by the Transportation Services Agreement or the Rate Agreement. For the purposes of argument, the Application Judge assumed the Transportation Services Agreement applied since "they are the strongest insurance clauses in evidence."

The Application Judge interpreted clause 15.1(c) as providing for minimum cartage insurance coverage of $250,000 for the carrier for hauling losses, but found "there is nothing in clause 15.1(c) that requires that Core-Mark be named as an additional insured, or that would give Core-Mark the right of a direct action against an insurer for losses." The judge noted that the "additional insured" requirement present in Clauses 15.1(a) and 15.1(b) is "conspicuously absent from Clause 15.1(c)," concluding there was no covenant to insure as argued by Core-Mark.

Applying the Bill of Lading and Conditions of Carriage Regulation and relying on the Alberta Court of Appeal decision in Hoskin v. West, 1988 ABCA 377, the Application Judge held that the statutory liability limit of $4.41 per kilogram ($2 per pound) applied because no higher value was declared on the bill of lading. This limited Direct Integrated's liability to $38,894.00, and the Application Judge stated that is the result regardless of whether the Transportation Services Agreement or the Rate Agreement applies.

The appeal and contractual interpretation

Core-Mark appealed, arguing that the Application Judge erred in concluding that Direct Integrated's liability was limited under the Bill of Lading Regulation. Core-Mark's primary position was that Direct Integrated breached a contractual obligation to insure the cargo and to name Core-Mark as an additional insured, entitling Core-Mark to recover the wholesale value of $534,451.78. In the alternative, Core-Mark argued that damages should be assessed at a minimum of $250,000.

The Honourable Justice D.A. Labrenz conducted a de novo review, as the parties agreed the standard of review on all issues is correctness and no deference is owed. The court applied established principles of contractual interpretation from Sattva Capital Corp. v Creston Moly Corp., 2014 SCC 53, emphasizing that "a decision-maker must read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract."

The appeal court noted that the Application Judge "reproduced only a portion of clause 15.4 while placing considerable emphasis on the phrasing 'and Additional Insured where applicable.'" When clause 15.4 was read in its entirety, the final sentence stated: "Each certificate under a), b) and c), above, shall contain a provision requiring that the Customer (as an additional insured) receive renewal certificates within 5 days of policy expiration and be given at least thirty (30) days prior written notification of any modification or cancellation." This language clearly referenced all three insurance subclauses and explicitly required Core-Mark to be named as an additional insured under each.

The statutory framework and its limitations

Justice Labrenz analyzed the Bill of Lading Regulation in detail, concluding that the statutory cap operates as an absolute cap on damages for liability, "but only with respect to 'the amount of any loss or damage for which the carrier is liable,' meaning 'loss or damage' directly pertaining to the goods themselves." Relying on the decision in Exalta Transport Corp v C & A Industries Inc, 2008 ABQB 637, the court noted that "the limitations on compensation provided in condition 9 do not apply carte blanche to 'any loss or damage' for which a carrier may be liable. Instead, condition 9 relates back to condition 1, which imposes liability, but only for 'any loss of or damage to goods.'"

The court concluded that "damages arising from an alleged breach of a covenant to insure are not subject to the statutory cap found in Condition 9 of Schedule 3 of the Bill of Lading Regulation. The statutory cap applies only to loss or damage to goods, not to separate contractual obligations such as a covenant to procure insurance."

Determining which agreement applied

The appeal court found on a balance of probabilities that the Transportation Agreement governed on the night of the theft. The evidence indicated that the rate charged was that of the TA ($1.82/km), Direct Integrated admitted that the RA and TA were separate agreements, and its initial Statement of Defence asserted that the TA applied. However, the court noted this determination was "largely academic because, under either the TA or the RA, Direct Integrated agreed to provide cargo insurance naming Core-Mark as an additional insured in the minimum amount of $250,000."

The ruling and damages awarded

Justice Labrenz agreed with the Application Judge's conclusion that "Core-Mark is limited to judgment under the Bill of Lading regulation for its loss of cigarettes in the amount of $38,894." In addition, Core-Mark was entitled to damages arising from Direct Integrated's breach of its contractual obligation to obtain insurance naming Core-Mark as an additional insured in the minimum amount of $250,000.

The court rejected Core-Mark's claim for the full wholesale value of $534,451.78, finding that Core-Mark did not advise Direct Integrated of the value of the cigarettes being shipped and did not declare that value on the bill of lading. Therefore, "damages exceeding the minimum insurance amount of $250,000 are too remote and were not within the reasonable contemplation of the parties." The $10,000 deductible was deducted from the total award based on the best evidence available from Direct Integrated's existing policy.

Summary judgment was granted in favor of Core-Mark against Direct Integrated in the amount of $38,894 + $250,000 – $10,000, for a total of $278,894, plus pre-judgment interest. The parties were directed to make every effort to resolve the question of costs between themselves, with leave to provide written submissions not exceeding 5 pages each within 60 days if unable to agree.