By M^e Jasmine de Guise and M^e Jean Doyle, Lamarre Linteau & Montcalm

This summary does not constitute a legal opinion. The information it contains may not reflect the current state of the law.

A few short months ago, the “continuous trigger” theory was virtually unknown to Quebec litigators. Indeed, no specific rule in Quebec legislation provided any guidance on either the issue of so-called “continuous or progressive damages” or the sharing of compensation payable for such damages when multiple insurers were involved.

In order to identify principles and rules that are compatible with Quebec law, it was necessary to turn to Canadian and American common law.

Honorable Justice Mr. Michel Richard found himself faced with this onerous task during the pyrrhotite mega-trial, held in Trois-Rivières. On June 12, 2014, Justice Richard delivered a highly awaited judgement¹, in particular since it dealt with an issue related to damage insurance.

But first, why is it so important to resolve this question?

Once it is established that a person has suffered damages, it is understood that in order for these damages to be covered, they must have occurred during the insurance period covered by the insurance contract in question.

Indeed, insurance contracts are only “triggered” when a cause or an event brings about damages during the insurance period. At first glance, this issue may seem theoretical, since in the majority of cases, the event or the cause occurs simultaneously to the damages. This is the case, for instance, when property is destroyed by fire.²

Of course, not all damages are caused by fire. What happens when a product or defective substance is introduced into the structure, causing damage that may not be visible to the naked eye until much later due to deterioration that progressively worsens over time? Under such circumstances, it could be extremely difficult to identify exactly when the damage occurred, thus making it almost impossible to determine which insurance contract applies.

DIFFERENT APPROACHES HAVE BEEN DEVELOPED

Canadian and American common law have developed four approaches to establish the “moment” at which continuous and progressive damage begins. These approaches are summarized as follows:

1. The Exposure Theory: The applicable policy is the one that was in force at the time of exposure to the operative event (the very first operative event) giving rise to the damage. In the pyrrhotite case, it was the moment when the pyrrhotite oxidized. Thus, it is the operative event that pinpoints in time the moment at which the damage occurred; the deterioration that follows is simply a manifestation of the damage that has already occurred. 
2. The Manifestation Theory: The damage only occurs when it has been discovered by the insured or a third party. Insurance coverage is triggered when the insured or the third party notices or should have noticed the damage. The applicable policy is therefore the one that is in force when the damage manifests for the first time. In the pyrrhotite case, it was when the concrete began to bulge and crack. 
3. The Injury-in-Fact Theory: The policy becomes applicable if, in fact, damage did occur during the policy’s coverage period, whether or not the insured or the third party knew or should have known about it. When the damage is continuous and progressive, all the insurance policies in force during the continuation and progression are triggered. 
4. The Continuous Trigger Theory: The starting point of the damage is the moment of the first exposure to the operative event (see the exposure theory) and the damage “continues” to exist until it manifests or should have manifested. In this case, all the insurance policies in force during this period apply.

It was this fourth theory that Justice Richard opted for in his judgement of June 12, 2014. He concluded that the damages related to pyrrhotite oxidation began as soon as the concrete was poured and continued until the date at which the damages appeared, which the parties considered to be the date of the “crystallization” of the continuous damages.

The application of this theory meant that all the insurers of the liable insureds covered by such insurance were required to pay a portion of the compensation based on how much their policies’ coverage dates overlapped with the period between the pouring³ and the crystallization. The amount of compensation payable was allocated among the insurers on a pro-rata basis according to the coverage period of the insurance contracts issued by the various insurers. For example, an insurer that covered five of the ten years during which the damages occurred would have to assume 50% of the compensation payable.

CONCLUSION

The pyrrhotite case in Trois-Rivières raised a number of factual and legal questions and forced hundreds of Quebec legal experts to reflect upon certain little-known concepts in Quebec law. Justice Richard retained the continuous trigger theory whereas other Quebec judgements have instead applied the manifestation theory.⁴  What application criteria governing the choice of one theory over another will the higher courts establish? Stay tuned…

^{1. Deguise v. Montminy, 2014 QCCS 2672.
2. Alie v. Bertrand, 2002 CanLII 31835.
3. Op. cit., note 1, par. 1918.
4. Allstate Insurance Company of Canada v. Royal Insurance of Canada, 1994 R.J.Q. 2045 (C.S.), 1999 R.J.Q. 2827 (C.A.).}