Quebec court takes position on trigger theories in liability insurance

Couverture médiatique janvier 2020

*disponible en anglais seulement

This article was originally published by The Lawyer’s Daily, part of LexisNexis Canada Inc.

In the recent decision Groupe Royal Inc. v. Crewcut Investments Inc. 2019 QCCA 1839, the Court of Appeal of Quebec confirmed the application in Quebec insurance law of the “continuous trigger” theory when apportioning damages to various liability insurers over a span of several policy periods in cases where the claimed damages occurred gradually and over a certain period of time.

This new position of Quebec courts being in favour of a more uniform application of this theory in Quebec law may result in most insureds benefiting from a greater amount of insurance limits for this type of loss.

Facts

Between 1996 and 2000, Multiver (2006) Ltd. and Groupe Bocenor Inc. (represented in this dispute by the plaintiff in continuance of suit, Crewcut Investments Inc.) purchased from Industries Cover inc. (Cover), GMB International Distribution G.I.D. (GMB) and Groupe Royal inc. (Royal) an Inex spacer made of white extrusion-molded plastic used to make sealed window units.

Multiver’s and Bocenor’s clients began complaining of the rapid deterioration of Inex spacers, which, when exposed to the sun, yellowed and released a chemical film onto the inside surfaces of the units. This led to the replacement of many of the units sold. In Multiver’s case, replacement requests spanned from 2003 to 2012 and, for Bocenor, from 2004 to 2011.

Soon thereafter, Bocenor and Multiver filed an action against Cover, GMB and Royal to recover the amounts they had lost or needed to disburse to replace the defective unit.

GMB’s third-party liability was insured first by Lombard Canada for property damaged between July 1, 1995, and March 30, 2004, and then by Aviva between March 30, 2004, and March 30, 2008, under the same terms and conditions. Aviva took up GMB’s defence in the context of the dispute, after which GMB (and Aviva) called Lombard as a third-party defendant so that it could bear a portion of the damages claimed, namely the damages that occurred from 1995 to 2004.

Trial judgments

At the trial level, the action was split in order to rule on liability first and then on the quantum of damages. As such, two judgments were handed down by the Superior Court on the merits.

On the issue of liability, Justice Yves Alain came to different conclusions with regards to Multiver and Bocenor’s cases: he found Royal and GMB jointly liable for the damages they inflicted on Multiver owing to the defective quality of the Inex spacers, whereas he found Royal, GMB and Cover jointly liable in the case of Bocenor.

The issue of apportionment of liability and quantum of damages was handled by Justice Danielle Blondin, who ruled that the participation of the defendants was indistinguishable in light of the damages caused by the defective Inex product. The damages were therefore evenly split between the responsible parties; Royal and GMB in the case of Multiver, and Royal, GMB and Cover in the case of Bocenor.

Justice Blondin awarded nearly $5 million in damages to Multiver but dismissed Bocenor’s claims, except for expert fees, because the evidence regarding the damages it sustained was judged inadmissible.

Concerning the apportionment of damages among each of GMB’s insurers, Justice Blondin held that the determining factor to make such an apportionment was the time at which the damage occurred. In this case, the relevant timing would be the moment where the Inex spacer yellowed and subsequently left a chemical film, as opposed to the time where Multiver’s and Bocenor’s clients filed their claims or the defective sealed glazing units were replaced.

To make the apportionment between Lombard and Aviva over the span of 1996 and 2008, the court chose to apply the continuous trigger theory and found that every policy in force since the installation of the units until the manifestation of the damages had been triggered, given the impossibility of determining the exact moment at which the damages had occurred. As a result, the court held that Lombard was liable for 66.44 per cent of all damages suffered by Multiver and Bocenor, and Aviva liable for the remaining portion.

Court of Appeal decision

The Court of Appeal dismissed all of the defendants’ grounds for appeal, including their assertion that the trial judges had made palpable errors in assessing the expert evidence adduced by either party. Both trial judgments respectively on the finding of liability and apportioning liability and setting the quantum were also upheld.

On the issue of apportioning damages, the Court of Appeal held that the trial judge was genuinely incapable of coming to a conclusion on when the damages first occurred, as the evidence failed to establish this moment with sufficient accuracy. The court then listed the four theories available in insurance law to determine which insurance policy is triggered in the event of continuous or gradual damages:

  • The “exposure” theory (all policies that were in effect throughout the exposure to harmful conditions are triggered);
  • The “manifestation” theory (the policy is only triggered once the damage becomes apparent);
  • The “injury-in-fact” theory (if the damage can be proven to have occurred before it first became apparent, then all policies in effect when the damage was not apparent are triggered); and
  • The continuous trigger theory (all policies in force, from the first exposure to harmful conditions up to the time the damages become manifest, are triggered).

The court then held that Justice Blondin was correct to rely on the Ontario Court of Appeal’s teachings in Alie v. Bertrand & Frère Construction Co. Ltd. 2002 CanLII 31835, as well as on those of the Superior Court of Quebec in the pyrite/pyrrhotite cases when applying the continuous trigger theory (see Deguise v. Montminy, 2014 QCCS 2672, appeal pending).

In both of these decisions, the courts further ruled that the damages’ commencement date should be deemed to be the same in all cases. Given the abundance of defaults at issue, the Court of Appeal held that it would have been unreasonable for Justice Blondin to proceed individually for each damaged product. For this reason, the court determined that the trial judge had acted efficiently and in keeping with the principles of proportionality.

Takeaways

Before the Superior Court’s decision in Deguise, Quebec courts had never taken a position as to which trigger theories should apply in Quebec nor even considered importing these theories into Quebec law. With this recent Court of Appeal judgment, it is reasonable to believe that the line of authority now leans in favour of a more uniform application of the continuous trigger theory in Quebec law. It must be remembered, however, that this theory will only apply in situations where it is impossible to bring evidence of the precise moment, during any of the policy periods at issue, the damage occurred.