“Save what can be saved” or the insured’s obligation to minimize damages
A recent judgment of the Court of Appeal1 confirms the insured’s obligation to minimize damages, thus confirming the first instance judgment2 and a previous judgment of the Court of Appeal3 regarding the scope and characteristics of this obligation.
On May 4, 2009, a fire broke out in a poultry processing plant owned by the claimants, 9124-4541 Québec Inc., Volaille Acton Vale and Nutri-Caille Ltd. (hereinafter referred to collectively as “Nutri-Caille”). The evidence produced at trial showed that the fire was accidental and related to the use of ovens in the plant.
Nutri-Caille’s insurer mandated a claims adjuster to conduct the investigation. The day after the loss, the adjuster went to the plant and determined, amongst other things, that the holes the firefighters had made to fight the blaze had to be closed and that clean-up was a priority.
However, the insured did not close up the holes in the building until June 5, 2009—one month after the loss. The delay resulted in rain water accumulating inside the buildings. Furthermore, Nutri-Caille never cleaned up the site.
Although the insurer paid Nutri-Caille almost $800,000 in compensation, the company sued it for slightly over $8 million more, claiming loss of income as well as additional damage to the plant’s buildings and equipment.
FIRST INSTANCE JUDGEMENT
The Court reviewed certain basics of property insurance. First, the insurer must compensate the insured for the injury suffered at the time of the loss, up to the amount of the coverage.4 However, the insured may not abandon the damaged property and must facilitate its salvage.5
The Court came to the conclusion that Nutri-Caille did not fulfill its obligation to minimize damages, as stipulated in section 1479 of the Civil Code of Québec, which reads as follows: “A person who is bound to make reparation for an injury is not liable for any aggravation of the injury that the victim could have avoided.”
This obligation—which is an obligation of means that applies under both contractual and non-contractual circumstances—may be assessed using an objective test: what would a reasonable person do under the same circumstances? It is based on the principle that underlies all insurance contracts, that of good faith between the parties.
The insurer cannot be held liable for damages caused by aggravation arising from the insured’s neglect or failure to take reasonable steps to prevent the aggravation of damages. In fact, the insurer is not obliged to compensate for damages directly resulting from the insured’s failure to minimize damages. Pursuant to this principle, the insurer did not have to compensate Nutri-Caille for the damages that resulted from its failure to carry out emergency work and cleaning. Only damages directly resulting from the fire had to be compensated.
The judge of the first instance therefore concluded that damages claimed for both the buildings and the equipment were not a result of the blaze: firstly, because they were not affected by the fire, and secondly, because they were caused by humidity in the structure before the loss and by water infiltration following the fire. The insured had therefore failed to minimize the damages.
With respect to the loss of income, the Court held that the insured should have carried out the repairs within eight weeks and that it would have taken four weeks to clean up the plant. Yet none of this work was done. The Court therefore completely dismissed the claim.
THE COURT OF APPEAL’S DECISION
The Court of Appeal upheld the ruling of the Superior Court.
Nutri-Caille acted neither prudently nor diligently and did not mitigate its damages. In addition to section 1479 C.C.Q., Nutri-Caille’s insurance policy included a clause in the General Conditions section that stipulated that “At the expense of the Insurer, the Insured must take all reasonable steps to prevent further loss or damage to the insured property and any further loss or damage resulting directly or indirectly from the Insured’s failure to take such action shall not be recoverable.“6 This clause is essentially a variation on the obligation to minimize damages, as mandated in the Civil Code of Québec.
According to the Court of Appeal, the damages to the buildings had either occurred before the fire, or were the result of Nutri-Caille’s negligence or failure to minimize damages in the wake of the fire.
With respect to the business interruption, the Court of Appeal confirmed that this loss would not have occurred had Nutri-Caille actually carried out the repairs and cleaned up. In short, the Court confirmed that the plant could have been rehabilitated.
The Court of Appeal’s judgment confirms that in the event of a loss, the insured has an obligation to carry out emergency work and minimize damages. In other words, the insured must behave like any prudent and diligent insured would behave under the same circumstances.
This judgment is in line with the 2014 Court of Appeals judgment in the Lebel case.7
Insureds are indeed obliged to “save what can be saved!”
By Me Léonie Gagné, and Me Jonathan Lacoste-Jobin, respectively Associate and Partner, Lavery, LLP
1. 9124-4541 Québec inc. et al. v. Intact, compagnie d’assurances, 2017 QCCA 40.
2. 9124-4541 Québec inc. et al. v. Intact, compagnie d’assurances, 2014 QCCS 4250.
3. Lebel v. 9067-1959 Québec inc., 2014 QCCA 1309.
4. Civil Code of Québec, s. 2463.
5. Civil Code of Québec, s. 2495.
6. 9124-4541 Québec inc. v. Intact, compagnie d’assurances, 2017 QCCA 40, par. 12.
7. Lebel v. 9067-1959 Québec inc., 2014 QCCA 1309.