2016 QCCA 500, 2016 QCCA 500

GCAN Insurance Company c. Univar Canada Ltd. 2016 QCCA 500 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL No: 500-09-024299-141 (500-17-048293-099) DATE: MARCH 24, 2016 CORAM: THE HONOURABLE JACQUES CHAMBERLAND, J.A. NICHOLAS KASIRER, J.A. DOMINIQUE BÉLANGER, J.A. GCAN INSURANCE COMPANY APPELLANT – Defendant v. UNIVAR CANADA LIMITED UNIVAR USA INC.

AIG COMMERCIAL INSURANCE COMPANY OF CANADA AIG EUROPE (NETHERLANDS) NV RESPONDENTS – Plaintiffs JUDGMENT [ 1 ] The appellant GCAN Insurance Company, the liability insurer of Aslchem International Inc., appeals from the judgment of the Superior Court, District of Montreal (the Honourable Mr.

Justice Yves Poirier), rendered on February 13, 2014, ordering it to pay to Univar Canada Limited, Univar USA Inc. and their insurers, $1,315,285.86, plus interest and additional indemnity from March 17, 2007, and to reimburse Univar Canada Limited $73,037.81 in expert fees, with interest and additional indemnity from the date of the judgment. [ 2 ] For the reasons of Chamberland, J.A., with which Kasirer and Bélanger, JJ.A. agree, THE COURT: [ 3 ] ALLOWS the appeal; [ 4 ] SETS ASIDE the judgment a quo and DISMISSES respondents’ action; [ 5 ] The whole with costs against the respondents both in appeal and in first instance.

JACQUES CHAMBERLAND, J.A. NICHOLAS KASIRER, J.A. DOMINIQUE BÉLANGER, J.A. Mtre André Mignault Mtre Marc Lemaire TREMBLAY BOIS MIGNAULT LEMAY For the appellant Mtre Ian Rose Mtre Laurence Bich-Carrière LAVERY, DE BILLY For the respondents Date of hearing: October 28, 2015

REASONS OF CHAMBERLAND, J.A. [ 6 ] GCAN Insurance Company (“GCAN”), the liability insurer of Aslchem International Inc. (“Aslchem”), appeals from a judgment rendered on February 13, 2014 ordering it to pay to Univar Canada Limited (“Univar”), Univar USA Inc. and their insurers, AIG Commercial Insurance Company of Canada and AIG Europe, $1,315,285.86, plus interest and additional indemnity from March 17, 2007, and to reimburse Univar $73,037.81 in expert fees, with interest and additional indemnity from the date of the judgment. [1] * * [ 7 ] In 2006, Univar, a distributor of chemical products, purchased a quantity of feed grade copper sulphate from Aslchem to be delivered to its Valleyfield warehouse, in Quebec.

A significant portion of the product, which had been manufactured in China, was intended for Alltech Inc., to be used as a supplement in animal food. [ 8 ] Aslchem knew this, and the feed grade copper sulphate had to be free of dioxins, furans and dioxin-like polychlorinated biphenyls (PCBs). [ 9 ] On May 11, 2004, Aslchem provided Univar with a letter confirming that its product was free of any such contaminants. [ 10 ] On November 9, 2006, Univar again requested Aslchem to provide a dioxin-free statement, along with actual testing results.

Aslchem arranged for the testing to be conducted by an independent laboratory, Pacific Rim Laboratories. The results were transmitted to Univar with Aslchem’s letter dated November 22, 2006. [ 11 ] Late in 2006, Aslchem was requested to provide more complete tests results, including specific results for dioxin-like PCBs.

These tests were performed on December 15, 2006 and the results sent to Univar and communicated to Alltech on January 17, 2007. [ 12 ] On March 14, 2007, following an inspection carried out on December 16, 2006, Alltech received a letter from the Canadian Food Inspection Agency stating that the feed grade copper sulphate on its premises was out of compliance with government regulations. [ 13 ] Samples of the feed grade copper sulphate supplied by Aslchem, and still in Univar’s premises, were immediately sent to be tested at Pacific Rim Laboratories.

All of these samples were also found to contain dioxins, furans or dioxin-like PCBs. [ 14 ] Aslchem was unable to explain how the samples sent for testing in late 2006 could not have detected the contamination, but admitted that their records were “at best unclear” and that there existed the possibility that the sample tested initially was not from the products shipped to Univar. [ 15 ] Alltech immediately initiated a worldwide recall of all products containing the contaminated feed grade copper sulphate. [ 16 ] On October 5, 2007, Alltech put Univar on notice that it intended to hold it liable for all costs and damages it would suffer as a result of the contamination of its products.

Eventually, Univar, Univar USA and their insurers reached a settlement whereby they paid Alltech $1,800,000 (U.S.) ($2,303,460 (Can.)), [2] in exchange for Alltech’s transfer and assignment of all of its rights and recourses against all liable parties. [ 17 ] On February 9, 2009, Univar, Univar USA, AIG Canada and AIG Europe instituted proceedings against Aslchem, two of its affiliated companies and their liability insurer, [3] GCAN, to recover the sums paid to Alltech, as well as the other damages related to the contamination, $2,884,491.47 in all. [4] [ 18 ] On May 28, 2010, Univar, Univar USA and their insurers settled with Aslchem for $2,500,000, plus interest, additional indemnity and costs, payable within 30 days of the filing of the Declaration of settlement in the court records. [ 19 ] In fact, out of this amount Aslchem only paid $1,080,000 and the plaintiffs continued the proceedings against GCAN for the difference between the damages claimed and the monies received from Aslchem on the basis of a Commercial General Liability (“CGL”) insurance policy subscribed by and delivered to Aslchem in British-Columbia. [ 20 ] GCAN took the position that the claim was not covered under the CGL policy. [ 21 ] The following admissions made by the parties in November 2013 are relevant to the issue of coverage: 42.

Aslchem has not presented a claim to GCAN in reimbursement of this amount nor has it presented a claim requesting GCAN to defend it with regards to the present proceedings. 43. The GCAN policies included a Products and Completed Operations Exclusion Endorsement (the ‘’P&CO Endorsement’’) excluding liability arising out of the ‘’Products hazard’’ and the ‘’Completed Operations Hazard’’ as defined in the GCAN policy. 44. As appears from exhibit DGCAN-2b, GCAN was informed by Aslchem’s broker, on January 8, 2009, that Aslchem had no intention of any sort to make a claim under the policy. 45.

As appears from exhibit DGCAN-2b, on January 3, 2006, Aslchem requested a quote for coverage for ”Products and Completed Operations Hazard” but the policy was again issued with the P&CO Exclusion Endorsement excluding such coverage.

46. Until March 2009, Aslchem’s CGL policies continued to be issued with the P&CO Exclusion Endorsement. 47. In June 2009, a new policy was issued, effective March 12, 2009 by GCAN, which policy no longer contained the P&CO Exclusion Endorsement. The premium for this new policy was $117,430. * * [ 22 ] The judgment a quo is dated February 13, 2014. [ 23 ] Poirier J. heard extensive expert evidence regarding the issue of coverage from two lawyers specialized in the field of British Colombia insurance law.

He concluded that the damages claimed by the plaintiffs fell within the coverage provided by GCAN under the “Insuring Agreement” clause of the CGL policy (para. 55). [ 24 ] Poirier J. then looked at the exclusions raised by GCAN, noting that the onus had now shifted to the insurer to show that the damages were excluded under the CGL policy. [ 25 ] Looking at the “product exclusion” (Policy exclusion 2 (i) ) and the “work exclusion” (Policy exclusion 2 (j) ), he concluded that the two exclusions did not apply because the damages claimed by the Univar group of companies and their insurers were for damages caused to the products sold by Alltech worldwide and not to Aslchem’s products (paras. 61-62). [ 26 ] Poirier J. then proceeded to analyze the third exclusion raised by GCAN, the “Products and Completed Operations Hazard Exclusion” described in an endorsement attached to the GCAN policy when it was renewed by Aslchem on January 3, 2006. [ 27 ] He concluded that said exclusion did not apply as the claim was based on more than one cause of negligence, that is not only on negligence for having sold a dioxin contaminated feed grade copper sulphate but also on negligence 1) in making a negligent misrepresentation as to the quality of the product, and 2) in failing to ensure that proper samples of the product were provided for testing, both additional causes of negligence being independent and separate from the fact of having sold a defective product (paras. 67, 70-83).

In the end, Poirier J. concluded that the loss was due to independent sources of negligence not captured by the “Products/Completed Operations Hazard” exclusion, adding that the exclusion was ambiguous and thus had to be construed in favour of the insured, Aslchem (para. 86). [ 28 ] Poirier J. then moved to the question of damages. [ 29 ] Univar’s claim was two-fold: 1) the monies paid to Alltech, and 2) the costs incurred and damages sustained by Univar and its insurers. [ 30 ] With regard to Alltech damages, there was an agreement between the parties as to the quantum but a debate as to the date of Aslchem’s negligence with respect to its obligation to test and certify that its product was dioxin-free, be it either November 11, 2006 (the date of Pacific Rim Laboratories’ confirmation to Aslchem that the samples analysed were dioxin-free) or November 22, 2006 (the date of Aslchem’s confirmation to Univar by letter, with attached test results). [ 31 ] Poirier J. concluded that the negligent act had occurred on November 11, 2006, given that Aslchem had the responsibility to forward the test results to Univar without delay and could not postpone the date of the “occurrence” by failing to communicate forthwith the test results to its client. [ 32 ] With regard to Univar’s damages, the trial judge rejected GCAN’s argument that damages to reputation and loss of revenues constituted intangible property not covered within the policy definition of “property damage”.

However, he dismissed Univar’s claim regarding the exchange rate. [ 33 ] Finally, he ordered GCAN to reimburse Univar’s expert fees regarding British Columbia insurance law ($73,037.81). * * [ 34 ] The questions at issue in appeal are the following: ➢ Are the damages caused to Alltech and to the respondents excluded under the terms of the CGL policy, and more precisely under the “Products/Completed Operations Hazard” exclusion? ➢ Are the damages claimed by the respondents for Univar’s loss of revenues and damage to its reputation covered under the definition of “property damage” in the CGL policy issued by GCAN? ➢ Did the trial judge err in ordering damages from November 11, 2006 instead of November 26, 2006? ➢ Did the trial judge err in ordering the interest and additional indemnity to be calculated from March 17, 2007? * * The “Products/Completed Operations Hazard” exclusion [ 35 ] Two preliminary remarks are in order before I proceed further with the analysis.

In first instance, there was a debate as to whether or not respondents’ claim fell within the coverage provided by GCAN under the “Insuring Agreement”. Poirier J. concluded that it did. This conclusion is not attacked in appeal but for two heads of claim, Univar’s loss of revenues and the damages to its reputation. The appellant argues that under the “Insuring Agreement” its liability is limited to “compensatory damages because of (…) property damage” and that the damages claimed under these two heads of claim do not constitute “property damage” as defined in the policy.

The debate as to coverage is therefore considerably more limited than it was in first instance.

[ 36 ] The second remark has to do with the standard of review in appeal. [ 37 ] The appellant argues that the standard of review is that of correctness, essentially for the reason that the

interpretation of the Products/Completed Operations exclusion in a CGL policy is not limited to the interests of the parties to this very dispute. [ 38 ] The Products/Completed Operations exclusion is a standard form exclusion (or endorsement) widely used in the Canadian insurance industry. There is, as the judge of first instance noted at paras. 76 and 77 of the judgment a quo, no Canadian cases directly on point and the American case law is divided. [ 39 ] The respondents disagree. They argue that the determination of insurance coverage raises a mixed question of fact and law, as does contractual

interpretation in general. Once the legal principles are correctly stated, their application becomes a question of fact and the findings of the trial judge should not be disturbed in appeal absent a palpable and overriding error. This is even more so here since the legal norms applicable to the

interpretation of the CGL policy are those of a foreign legal order (British Columbia, the province were the policy was subscribed for and delivered), put in evidence as facts through the testimony of the two lawyers specialized in British Columbia insurance law. [ 40 ] With respect for the contrary view, I agree with the respondents. The standard of review in appeal is that of a palpable and overriding error. [5] As Rothstein J. wrote for a unanimous Supreme Court in Sattva Capital Corp. v. Creston Moly Corp. , [6] at para. 49 , “(…) in contractual

interpretation, the goal of the exercise is to ascertain the objective intent of the parties – a fact-specific goal – through the application of legal principles of

interpretation” and, at para. 50, that “Contractual

interpretation involves issues of mixed fact and law as it is an exercise in which the principles of contractual

interpretation are applied to the words of the written contract, considered in light of the factual matrix”. [ 41 ] At para. 53, Rothstein J. wrote that “Nonetheless, it may be possible to identify an extricable question of law from within what was initially characterized as a question of mixed fact and law”, adding in the following paragraph that “[h]owever, courts should be cautious in identifying extricable questions of law in disputes over contractual

interpretation” and, at para. 55, “(…) the circumstances in which a question of law can be extricated from the

interpretation process will be rare.” [ 42 ] With respect for the contrary view, I am unable to identify any such “extricable question of law” in this dispute over the

interpretation of the Products/Completed Operations exclusion found in the CGL policy issued by the appellant to Aslchem over the years, until 2009. [ 43 ] The first step in interpreting the “Products/Completed Operations Hazard” exclusion is to examine its wording. [ 44 ] The exclusion reads as follows: It is agreed that this insurance does not apply to any liability arising out of the “products hazard” and the “completed operations hazard” as defined in the

DEFINITIONS

section of this insurance. [ 45 ] The policy

definitions of “products hazard”, “completed operations hazard”, “property damage” and “named insured’s products” are relevant to the analysis of the exclusion: “Products hazard” includes bodily injury and property damages arising out of the Named Insured’s products but only if such bodily injury or property damage occurs away from premises owned by or rented to the Name Insured and after physical possession of such products has been relinquished to others. “Completed operations hazard” includes bodily injury or property damage arising out of operations, but only if the bodily injury or property damage occurs after such operations have been completed or abandoned and occurs away from premises owned by or rented to the Name Insured.

Operations include materials, parts or equipment furnished in connection therewith. Operations shall be deemed completed at the earliest of the following times: (

i) when all operations to be performed by or on behalf of the Name Insured under the contract have been completed; (ii) when all operations to be performed by or on behalf of the Name Insured at the site of the operations have been completed; (iii) when the portion of the work out of which the bodily injury or property damage arises has been put to its intended use by any persons or organization other than another contractor or subcontractor engaged in performing operations for a principal as a part of the same project.

Operations which may require further service or maintenance work, or correction, repair or replacement because of any defect or deficiency, but which are otherwise complete shall be deemed completed. The completed operations hazard shall not include: (

i) operations in connection with the pick up and delivery of property; (ii) the existence of tools, uninstalled equipment or abandoned or unused materials. “Property damage” means: (

i) physical injury to or destruction of tangible property which occurs during the policy period, including any loss of use resulting therefrom, or (ii) loss of use of tangible property which has not been physically injured or destroyed provided such loss of use occurs during the policy period.

“Named Insured’s products” means goods or products manufactured, sold, handled or distributed by the Named insured or by others trading under the Names Insured’s name, including any contained thereof (other than a vehicule), but shall not include a vending machine or any property other than such container, rented to or located for use of others but not sold. [ 46 ] The “Products/Completed Operations Hazard” exclusion states that the insurance does not apply to any liability arising out of the “products hazard” and “completed operations hazard” as defined in the policy. [ 47 ] The term “products hazard” is defined as including property damage (or bodily injury) arising out of the insured’s product.

In the case at hand, it is not contested that the property damage caused to Alltech (and Univar) arose out of Aslchem’s contaminated product and that it therefore falls within the exclusion. [ 48 ] The wording is not ambiguous. The reading of the clause may be difficult as a result of the need to refer to numerous

definitions found in different pages of the policy. However, once this exercise is completed, I see no ambiguity as to the meaning of the exclusion.

It may be poorly drafted, it may be inelegant but, in the end, the result is not nonsensical and its meaning can be clearly understood. [ 49 ] The coverage provided by GCAN under the CGL policy does not apply to Aslchem’s liability for compensatory damages because of property damage arising out of the products it manufactures, sells, handles or distributes, subject to the property damage occurring away from premises owned by or rented to Aslchem and after physical possession of such products having been relinquished to others. [ 50 ] On a plain reading of the policy, the exclusion applies. [ 51 ] The incorporation of the contaminated copper sulphate into Alltech’s products was in fact the cause of the property damage claimed by Alltech from Univar. [ 52 ] The trial judge concluded to the existence of two sources of negligence on the part of Aslchem, different and separate from the contaminated product it sold to Univar: negligent representation as to the quality (or fitness) of the copper sulphate and failure to ensure that proper samples were provided for testing in connection with Univar’s request for certification.

On that basis of concurrent sources of negligence having caused the loss, one excluded and the other not, he concluded that the “Products/Completed Operations Hazard” exclusion did not apply. [ 53 ] I agree with the trial judge that, where there are two concurrent sources of liability, one excluded from coverage and the other not, there is coverage, unless the policy clearly stipulates otherwise. [ 54 ] In Derksen v. 539938 Ontario Ltd. , [7] the Supreme Court of Canada wrote, at para. 46 that: “there is no compelling reason to favour exclusion of coverage where there are two concurrent causes, one of which is excluded from coverage” and, at para. 47 that: “[removing] all ambiguity from the meaning of an exclusion clause in the event of concurrent causes (…) can be accomplished by the insurer clearly specifying that if a loss is produced by an excluded peril, all coverage is ousted despite the fact that the loss may also have been caused by another, covered peril.” [ 55 ] There is no such language in the CGL policy issued by GCAN. [ 56 ] However, this being said, I respectfully disagree with the trial judge when he concludes that negligent representation as to the quality of the product and negligent testing constitute two causes of action different and separate from that of having manufactured, sold, handled or distributed a defective product.

In my opinion, these two additional causes of action are captured by the Products/Completed Operations Hazard” exclusion. It would be conceptually unsound to distinguish a product from the testing and providing of information as to its quality or fitness. This, in my view, amounts to a palpable and overriding error in the

interpretation of the exclusion and justifies the intervention of this Court. [ 57 ] The first cause of action against Aslchem is the contaminated product itself. It is not contested that this source of liability is captured by the “products hazard” leg of the exclusion clause. [ 58 ] The second cause of action is the negligent misrepresentation made by Aslchem as to the quality or fitness of the feed grade copper sulphate supplied to Univar.

The trial judge concluded that the wording of the “products hazard” exclusion was such that it did not capture the “negligent positive representation” made by Aslchem to Univar in November 2006 [8] (as it had done two years before, in May 2004). [ 59 ] With respect, I disagree. [ 60 ] In my view, there is no need for the exclusion to mention representations or warranties as to the quality of the products, for these to be captured by the “products hazard” exclusion.

Any product sold by a manufacturer or a distributor, such as Aslchem, must be free of any defect which renders it unfit for the use for which it was intended and, if it is not so, the liability of the manufacturer or distributor is engaged whether explicit representations as to the quality (or fitness) of the product were made or not. The representations made by a manufacturer or a distributor as to the quality of its products, whether implied or explicit, at the request of the customer or not, are intimately related to, or inextricably intertwined with, the product.

It would therefore be wrong to conclude that, should they be inaccurate, misleading or incomplete, they would constitute a source of liability different and separate from that of selling or distributing a defective product itself. [ 61 ] If the product is defective, these representations and warranties cannot be a source of liability different and separate from that of having sold the product.

If they were, the “products hazard” exclusion would have no meaning as one could always argue that there were representations made or warranties provided by the manufacturer, seller or distributor, implied or explicit, as to the quality or fitness of the product. The insured could benefit from the “products hazard” liability coverage without incurring the very substantial additional cost of purchasing such coverage. In my opinion, the misrepresentation cause of action is subsumed within and is entirely derivative of the defective product cause of action and thus caught by the “products hazard” exclusion.

[ 62 ] To support his conclusion, Poirier J. relied on the decision of the Supreme Court of Idaho in Chancler v. American Hardware Mutual Insurance Company Co. [9] A construction worker suffered severe and permanently debilitating injuries when a crane sold by Chancler collapsed on him. The crane was a used one which Chancler had modified by adding a 10-foot extension to the boom. When Chancler sold the crane it provided the purchaser with no information whatsoever as to the lifting capacity of the crane, as modified.

It was the modification that collapsed and injured the construction worker when the load the crane was carrying exceeded its carrying capacity. [ 63 ] The Idaho case bears no relevance here. The crane was not defective, the 10-foot extension collapsed because it was carrying a load exceeding its capacity. Chancler was at fault, not because the crane was defective, but because it had failed to provide the purchaser with the relevant information regarding the maximum weight loads for the modified crane.

In other words, the accident resulted from Chancler’s negligence, not from the product it had sold. [ 64 ] The third cause of action is Aslchem’s failure to ensure that proper samples were provided for testing in connection with Univar’s early November 2006 request for certification as to the quality of the feed grade copper sulphate. [10] The trial judge determined that the 2004 and 2006 requests made by Univar to Aslchem to certify the quality of its product were not made “in the course of the daily business” between the two companies (paras. 69, 76 and 83).

He further concluded that the wording of the “products hazard” exclusion did not capture the negligent testing cause of action. [ 65 ] Once again, I respectfully disagree with his conclusion. [ 66 ] The testing of the feed grade copper sulphate, including the selection of the samples to be selected and the communication of the test results, also related to the quality of the product.

Here again, it is so intimately related to, or inextricably intertwined with, the product sold by Aslchem that it would be wrong to conclude that it constitutes a source of liability different and separate from that of selling a defective product. [ 67 ] The same could be said of negligent design, workmanship or quality control. To conclude otherwise would render the “product hazard” exclusion meaningless as one could always allege that, not only was the product defective, but such was also the design, workmanship, testing or quality control process. [ 68 ] In

summary, I am of the view that the two additional causes of action identified by the trial judge are so intimately related to, or inextricably intertwined with, the product, and to Aslchem’s obligation to provide its customers with a product free of any defect rendering it unfit for the usage for which it was intended – here, dioxin-free –, that these are all captured by the “products hazard” exclusion. They all form part of the process of manufacturing, selling and distributing a defective product and, therefore, are excluded from coverage by the “products hazard” exclusion.

They are all product liability related and should be recognized as such. It is only where the negligent conduct of the insured constitutes

an act sufficiently removed from the quality of the product that it will escape the exclusion. [ 69 ] In my respectful opinion, it would be mistaken to conclude otherwise. [ 70 ] Although this is not essential to my reasoning, I find additional comfort in two further elements of the evidence brought at trial and mentioned in the November 2013 admissions filed by the parties. [ 71 ] Firstly, Aslchem did not present a claim to GCAN in reimbursement of the $1,080,000 paid to Univar and its insurers pursuant to the May 28, 2010 settlement, nor did it request GCAN to defend it with regard to the recovery proceedings initiated by Univar (as per information supplied to GCAN by Aslchem’s insurance broker on January 8, 2009). [ 72 ] Secondly, as appears from the record, on January 3, 2006, Aslchem requested a quote for coverage for “product and completed operations hazard” but the policy was again issued with the endorsement excluding such coverage, as was the case until March 2009.

In June 2009, effective March 12, 2009, a new policy was issued by GCAN, without the “product and completed operations hazard” exclusion (for a premium of $117,430 compared to a premium of $15,000 for the period December 1, 2005 to December 1, 2006. * * [ 73 ] Given my conclusion as to the

interpretation and application of the “Products/Completed Operations Hazard” exclusion of coverage, the other issues raised by the appeal have become moot. [ 74 ] For all these reasons, I propose to allow the appeal, set aside the judgment a quo and dismiss respondents’ action, the whole with costs against the respondents both in appeal and in first instance. JACQUES CHAMBERLAND, J.A.