Court of Appeal of Québec takes position on “trigger” theories in third-party liability insurance

In a very recent decision,¹ the Court of Appeal of Québec confirmed that the “continuous trigger” theory applies in Quebec law when apportioning damages to various liability insurers over a span of several policy periods, provided there is proof that the damage occurred gradually over time. Generally speaking, the application of this theory will result in most insureds benefitting from a greater amount of insurance limits after this type of loss. 

The facts²

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 a product from Cover, GMB and Royal that is used to make sealed glazing units – an Inex spacer made of white extrusion-molded plastic. 

After a few years, 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 sealed glazing units. Bocenor and Multiver therefore had to replace many of the units sold to their clients. In Multiver’s case, replacement requests due to a chemical film buildup spanned from 2003 to 2012 and, for Bocenor, from 2004 to 2011.

Bocenor and Multiver then filed an action against Cover, GMB and Royal to have them held liable as professional sellers. They sued the defendants for the amounts they had lost or needed to disburse to correct the defective Inex spacers, most often by replacing their clients’ sealed glazing units, amounts which rose to several million dollars each.

GMB’s third-party liability was insured as follows: first by Lombard for property damaged between July 1, 1995, and March 30, 2004, then by Aviva for the period between March 30, 2004, to March 30, 2008, under the same terms and conditions. It was Aviva that 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. 

The trial judgments  

Two Superior Court judgments were handed down on the merits, the action having been split in order to rule on liability first, then on the quantum of damages.

Based on his analysis of the evidence, Justice Yves Alain found Royal and GMB jointly liable for the damages they inflicted on Multiver owing to the defective quality of the Inex spacers. In Bocenor’s case, he found Royal, GMB and Cover jointly liable for the damages caused. This first judgment, however, did not apportion the liability among the defendants.

In her judgment on the quantum, Justice Danielle Blondin ruled that in the case of Multiver’s claim, the finding of joint liability had to be split evenly between Royal and GMB. While the same also held for Bocenor, that liability was divided between Royal, GMB and Cover. According to the judge, their participation was indistinguishable in light of the damages caused by the defective Inex product.³

Finally, judge Blondin awarded nearly $5 million in damages to Multiver but dismissed all of Bocenor’s claims, except for expert fees, because the evidence regarding damages it had presented was inadmissible. 

Finally, to apportion the damages among each of GMB’s insurers, judge Blondin insisted that the determining factor was the time at which the damage occurred, in this case the moment the Inex spacer yellowed and subsequently left a chemical film, which was not the same as the time at which Multiver’s and Bocenor’s clients filed their claims or the defective sealed glazing units were replaced.

Interpreting these notions within the framework of insurance law as it is evolving in Quebec and elsewhere in Canada, the judge opted for the “continuous trigger” theory to apportion the damages between Lombard and Aviva over a span of time, from 1996 to 2008, as this was the only theory she could apply given the impossibility of determining the exact moment the damages (yellowing and chemical film) had occurred, seeing as they resulted from a gradual process. 

Given the evidence adduced, this application of the “continuous trigger” theory led judge Blondin to hold Lombard liable for 64.44% of all damages suffered by Multiver and Bocenor, and Aviva to the remaining portion. 

The Court of Appeal decision 

Respecting the liability of professional sellers

The Court of Appeal upheld both Alain’s judgment finding liability and Blondin’s judgment apportioning liability and setting the quantum, therefore dismissing all of the defendants/appellants’ grounds for appeal, including the grounds that the trial judges had made palpable errors in assessing the expert evidence adduced by either party. 

Respecting the apportionment of damages among the insurers

The court first analyzed the issue of apportioning damages among the insurers, and listed the four theories developed in insurance law to determine which insurance policy is triggered in the event of continuous 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).⁴

According to the court, which theory applies will depend on the determination of when the property damage occurred. The standard of intervention on appeal in such matters is stringent. 

The court ruled that the appellant had no argument to refute the judge’s findings of fact on this point. The court believes, in fact, that the trial judge genuinely searched for the time at which the damages first occurred, but the evidence simply failed to establish this moment with sufficient accuracy, as the damage in question appeared gradually, not suddenly. 

In light of judge Blondin’s decision, the Court of Appeal believes that she was correct to rely on the Court of Appeal for Ontario’s teachings in Alie v Bertrand & Frère Construction Co. Ltd.⁵  as well as on the Superior Court of Québec’s ruling in the pyrite/pyrrhotite cases in the Trois Rivières region.⁶ In both of these matters, the courts felt it was appropriate to have deemed that the damage’s commencement date was the same in all cases since, given the abundance of defaults at issue, it would have been unreasonable to proceed individually for each damaged product. The Court of Appeal feels that the trial judge was acting efficiently and in keeping with the principles of proportionality. 

Key takeaway

Before the Superior Court’s decision in Deguise, Quebec courts had never taken a position as to which “trigger” theories should apply in Quebec, or 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. Remember, 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.