AIG Insurance Company has successfully appealed a $255,275 subrogation ruling in 2023 involving the fiery destruction of its insured client’s excavator, which had been modified for forestry use.
Quebec’s Court of Appeal in December found the lower court incorrectly shifted the onus onto the insurer and buyer to prove the fire was caused by the improper use of the excavator.
Since the lower court determined the cause of the fire was unknown, it ruled the insurer and buyer had not proven their case.
However, Quebec’s Court of Appeal overturned the decision, finding the onus was on the manufacturer and seller of the adapted excavator to prove the buyer used the purchased equipment in a faulty manner. Since the cause of the fire was inconclusive, they could not prove this, and so AIG won the appeal.
The case turns on a section of the Civil Code of Québec that requires sellers to warrant the goods they sell to be free of latent defects that would render equipment unfit for its intended use.
Quebec’s law carries a three-fold presumption favouring buyers. For example, it assumes the existence of the defect at the time of sale, the presence of the defect before the completion of the sales contract, and the existence of a causal link associating the defect to the property’s deterioration or malfunction.
All the buyer has to do is prove they bought the equipment from a professional seller, and the equipment deteriorated prematurely, the Quebec Court of Appeal ruled. Once that’s established, the three-fold presumption about the defect applies. And the only way for the seller to prove otherwise is to show the buyer used the equipment improperly, causing the damage.
“The Court of Appeal reiterated that the buyer’s ‘initial burden is relatively light, namely, to demonstrate that the disputed property came from a person bound by the warranty of the professional seller and that this property deteriorated prematurely,’” as noted by Patrick Henry, a lawyer at Robinson Sheppard Shapiro, in a blog post published by Mondaq on Tuesday. “Once this proof has been made, the three presumptions mentioned above are triggered, which, according to the Court of Appeal, ‘does not confer much latitude on the professional seller.’
“The seller would therefore have to demonstrate improper use of the goods at the root of the malfunction or as previously mentioned, the existence of force majeure.”
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According to the Quebec Superior Court decision, Mécano Mobile obtained the excavator from Strongco, the distributor and warranty service provider for goods sold by the excavator’s manufacturer, Volvo.
Mécano installed a special ‘boom’ or ‘arrow’ arm and a Kesla brand multifunctional head, allowing the digging shovel to become a piece of equipment used to cut trees at ground level, de-limb them, and then cut them into sections.
Mécano then sold the modified excavator to Groupement Forestier Chaudière (GFC), a forestry management and logging company, through a GFC subcontractor.
Volvo was not aware of the intent to modify the excavator for use as a piece of forestry equipment. Strongco knew of Mécano’s intent to modify the excavator, but did not tell Volvo.
GFC received the modified excavator on June 21, 2016. Between June 2016 when the excavator was delivered, and the date of the fire, Strongco carried out about 16 or 17 onsite warranty repairs. A fire destroyed the excavator on Jan. 25, 2018, and the digging shovel was a total loss.
AIG, which insured GFC, sued Mécano in a subrogation lawsuit. It claimed the fire was caused by a defect in the product sold. The court noted a latent defect can be presumed, except in situations when the equipment is used for an unintended purpose.
Quebec’s Appeal Court found the unknown origin of the fire meant Mecano, Strongco and Volvo could not prove GRC was using the excavator for an improper purpose. Thus, the presumption should have been that the defect was present before the sale.
Feature image courtesy of iStock.com/mahiruysal
