Insurance & Reinsurance
As part of our series on the Court of Appeal's recent ruling in Deguise v. Montminy, concerning the first wave of lawsuits related to crumbling concrete foundations due to the presence of pyrrhotite, Catherine Tyndale and William Plante-Bischoff examine the Court’s examination of the insurance policies issued to the concrete suppliers and to the quarry from which the aggregates were extracted.
In an earlier article in the series, we reviewed the background to the pyrrhotite litigation, and addressed the Court of Appeal's conclusions regarding liability of the various parties involved.
Under article 2408 of the Civil Code of Quebec, the insured must disclose any information or circumstances relevant to the insurer's risk assessment.
Quebec Court of Appel
One of the principal arguments advanced by the insurers of the suppliers of concrete that were targeted in the pyrrhotite lawsuits was that the trial judge ought to have declared their policies void from the outset — ab initio. They reasoned that the suppliers, Construction Yvan Boisvert inc. and Béton Laurentides inc, and the company they jointly owned and administered, Carrière B&B inc., which operated the quarry from which the problematic aggregates had been sourced, had failed to disclose information relevant to their risk assessment.
The Court of Appeal dismissed the insurers' arguments. Under article 2408 of the Civil Code of Quebec, the insured must disclose any information or circumstances relevant to the insurer's risk assessment. The court held that for the policy to be declared void, the insurer must establish that it would not have covered the risk had it known the information or circumstances that the client failed to disclose, and must also establish that a reasonable insurer would not have covered that risk. What's more, the client is not bound to represent facts that the insurer knows or is presumed to know because of their notoriety.
The Court of Appeal agreed with the insurers that Béton Laurentides and B&B should have provided the insurers with a copy of the Bérubé Report issued in May 2002 when they applied for insurance. However, the insurer Northbridge had decided to renew the policy without adding any exclusion, even after Béton Laurentides and B&B reported claims arising from the presence of pyrrhotite in the concrete. By then, Northbridge had also received the Bérubé Report, and had concluded that it contained nothing of significance. Therefore, the Court found that Northbridge, due to its conduct, could not establish that it would not have covered the risk had it been aware of the Bérubé Report.
The Court also concluded that Northbridge knew about similar failures resulting from concrete made with aggregates extracted from the nearby Maskimo quarry, which it also insured. It had even received an e-mail in 2003 from a Maskimo employee attributing these failures to the presence of pyrite and pyrrhotite. This was before Béton Laurentides and B&B applied for their policy, and as a result, they were not required to report those failures, since Northbridge already knew about them.
The Court agreed with the trial judge that Northbridge failed to follow its guidelines by providing coverage to B&B without first conducting a thorough investigation of its products and operations. A Northbridge investigator testified that neither he nor the underwriter responsible for the account ever questioned B&B as to the location of its quarry.
Regarding Construction Yvan Boisvert's coverage, Northbridge had access to relevant information on claims previously filed against Béton Laurentides and B&B. It failed again to show that it would not have renewed its policy had it known about claims that Construction Yvan Boisvert failed to disclose.
As for AIG's excess coverage, the Court of Appeal concluded that its risk assessment relied solely on reports of losses that the insureds issued annually, before the policy renewal. AIG did not question Béton Laurentides or B&B about claims for which no amount was reserved by Northbridge, since AIG was only bound above the $2,000,000 primary coverage. Béton Laurentides and B&B reported multiple claims concerning foundation wall failures, including two that referred to "pyrite." Even so, AIG renewed its policy. The trial judge was therefore right to reject AIG's request to declare its policy void ab initio. The Court also concluded that AIG failed to act as a reasonable insurer by failing to investigate the nature of the claims reported to the primary insurer.
However, the Court agreed with the trial judge that the recommendation issued on November 28, 2007 by geologist Alain Blanchette to cease the use of the aggregates extracted from B&B's quarry should have been reported to the insurers in accordance with article 2408 CCQ. Because the suppliers and B&B did not, Northbridge and AIG were justified to consider their policies void from the moment their insureds had received the report.
The insurers were also unsuccessful in arguing that the trial judge failed to apply a "Prior insurance and Non-Cumulation of Indemnity" clause in AIG's policy. The clause provided that the limit of liability for a given year must be reduced by any amounts due on account of a loss covered, in whole or in part, under a prior policy, on the basis that there was a single "occurrence" (defined as "an event, including continuous or repeated exposure to conditions"). The Court of Appeal concluded that the claims received by the suppliers and B&B arose from multiple occurrences in a variety of circumstances. More than 800 buildings, owned by multiple owners, had been damaged. Two different companies had mixed the concrete at different times, and the pyrrhotite levels in the concrete varied.
Northbridge and AIG further claimed that their policies excluded risks related to "pyrite", and that the exclusion should extend to pyrrhotite. The Court of Appeal dismissed that argument, holding that pyrite and pyrrhotite are two different kinds of iron sulfates with different properties. It agreed with the trial judge that the damages were caused by pyrrhotite, which is a hundred times more reactive than pyrite.
Finally, the insurers contended that damages only occurred 20 months after the concrete pours. Again, the Court of Appeal sided with the trial judge in applying the "continuous trigger" or "triple trigger" theory according to which damages are deemed to have occurred from the initial exposure to the time they become manifest.