| On April 6, the Court of Appeal of Québec rendered its decision in SNC-Lavalin inc. (Terratech inc. et SNC-Lavalin Environnement inc.) c. Deguise, 2020 QCCA 495.
Considering the importance of this decision for both the construction and insurance industries, RSS offers a series of newsletters discussing the main issues at stake. This is one segment of the complete series found here. |
Approximately 800 property owners in the Trois-Rivières area have brought a claim against contractors and formworkers (for the construction of houses and foundations), a geologist who had prepared certain reports on the quality of the aggregate used for the concrete foundations, as well as his employer (SNC Lavalin), the concrete mixers (CYB and BL) and the company operating the quarry from which the aggregate was extracted (B&B), as well as their insurers. The property owners alleged that their houses suffered from a major defect, namely the swelling of the concrete, affecting the foundations.
Before the Superior Court, some insurers (notably Northbridge (Lombard) and AIG (Chartis) insurer of Bellemare (shareholder of BL) and CYB, as well as RSA insurer of some contractors) pleaded an exclusion clause denying coverage for property damage resulting in whole or in part from pyrite or aggregates containing pyrite.
Northbridge had added this exclusion by way of an addendum in Bellemare’s insurance policy for the period from December 1, 2008, to December 1, 2009, and in CYB’s policy for the period from March 31, 2009, to March 31, 2010. AIG had added a similar exclusion for the period December 1, 2008, to December 1, 2009.
However, the Superior Court ruled that the swelling of the concrete was caused by the oxidation of the pyrrhotite present in the aggregate used for the concrete foundation. Indeed, the Court accepted the evidence that the only cause of the damage was the oxidation of pyrrhotite, an ore different from pyrite, even though both substances were present in the aggregate: “It is a different substance. There is nothing in the evidence to allow the Court to conclude that the damage resulted in whole or in part from the pyrite, quite the contrary. The experts’ unanimous finding is that the damage is caused by the oxidation of the pyrrhotite” [our translation; SNC-Lavalin c. Deguise, par 845, quoting the judgment of the Superior Court, Deguise c. Montminy, 2014 QCCS 2672, par 1959]. Thus, the Superior Court concluded that these exclusion clauses could not apply.
The Court of Appeal studied the matter of the exclusion clause raised by Northbridge against Trois-Rivières Cimentier inc. and raised by RSA (which insured seven contractors). It should be noted that the cause of the swelling, namely the oxidation of the pyrrhotite, was not challenged before the Court.
For both insurers, the exclusion clause concerned damages caused directly or indirectly by pyrite or materials containing pyrite. Furthermore, both argued that the clause was clear and that the exclusion applied as long as the damages were caused by an aggregate that contained pyrite.
The Court of Appeal found that the wording of the clauses was ambiguous given its opposite interpretations by the appellants and respondents. In the absence of evidence as to the parties’ intent at the time the addendum, the Court ruled that the ambiguity be interpreted in favour of the insured, in accordance with the rule in such matters. In sum, the Court of Appeal concluded that the insurance companies did not meet the burden of proving that the exclusion clause applied to damages caused by pyrrhotite.