The pyrrhotite case: Supreme Court of Canada dismisses leave applications in Deguise

The Supreme Court of Canada has dismissed with costs all the applications for leave to appeal the judgments of the Quebec Court of Appeal in the Deguise saga, also known as the pyrrhotite case.

The Pyrrhotite Case

At Clyde & Co, we published a series of 5 articles discussing the Court of Appeal's very lengthy decision:

• The insurer’s investigation and “notorious” risks
• The art of apportioning liability
• What should be considered when assessing risk
• The complications of tower insurance
• Defence costs outside of limits to the benefit of Quebec claimants

An  impact on all the participants in the liability insurance market

With the Supreme Court's decision, we expect that the Court of Appeal's reasoning in Deguise will continue to create waves with the participants in the liability insurance market, who will keep scrutinizing it, on topics such as defence costs outside of limits, triggers for multiple liability insurance towers, underwriting considerations, etc.

One potential impact of Deguise is already being felt through a legislative proposal to nuance Articles 2500 and 2503 of the Civil Code of Quebec, which provide that policy limits are exclusively for the payment of "injured third persons" and that defence costs cannot erode the limits. Deguise was far from the first decision on this topic, but it further highlighted the restrictions to contractual freedom created by these Articles.

That said, while insurance industry participants continue to contemplate the impacts of Deguise, we invite everyone to keep in mind that this case arose from very specific facts, such as the SNC policy wording, which should be considered before drawing overly broad conclusions.