Consequential Economic Losses
No Recovery Without Substantial Connection
In Avedian v. Enbridge Gas Distribution Inc., 2025 ONSC 5700, the Ontario Superior Court of Justice dismissed a $16 million claim for alleged consequential economic losses stemming from a 2010 gas explosion and fire in the laundry room of an apartment building. Although liability for the explosion had been admitted, the plaintiffs failed to establish that their claimed losses were reasonably foreseeable and causally linked to the incident. The decision underscores the evidentiary burden on plaintiffs to prove causation for economic losses, even in the presence of admitted fault.
Background and Decision
The plaintiffs—three investors who owned the building through a corporate entity—had acquired the property mere weeks before the explosion. The incident caused localized damage to several units and common areas. Intact Insurance Company paid approximately $300,000 for repairs and settled its subrogated claim with the defendants for $162,457.81, which was remitted to the plaintiffs to cover short-term business interruption losses.
Despite this compensation, the plaintiffs sought over $16 million in additional damages, alleging that the fire led to prolonged vacancies, lost rental income, inability to monetize parking and storage, increased staffing and management costs, higher insurance premiums, a missed opportunity to construct 17 new units, and a $10 million reduction in the property’s resale value in 2015.
The court dismissed the action, finding that the plaintiffs had failed to demonstrate a “substantial connection” between the physical damage and the alleged economic losses. The evidence presented—primarily from the building’s management company, which was owned by one of the plaintiffs—was deemed self-serving, unreliable, and largely hearsay. The plaintiffs did not produce sufficient documentation, such as tenant complaints, elevator logs, rent rolls, or insurer correspondence, to substantiate their claims.
Moreover, the repairs were completed within a year of the fire, with delays attributed to the plaintiffs’ own upgrade requests and miscommunication. The court emphasized the plaintiffs’ duty to mitigate their losses and held that any diminution in property value should have been assessed shortly after repairs were completed in 2011, not at the time of sale in 2015.
Establishing a “Substantial Connection”
To recover consequential economic losses, plaintiffs must satisfy a four-part test demonstrating a substantial connection between the physical damage and the hypothetical economic loss:
- Causation: On a balance of probabilities, the plaintiff must show that but for the defendant’s wrongful conduct, there was a chance to obtain a benefit or avoid a loss.
- Real and Significant Opportunity: The lost chance must rise above mere speculation and reflect a reasonable probability.
- External Dependency: The loss must depend on factors beyond the plaintiff’s own actions.
- Practical Value: The lost opportunity must have tangible, practical worth.
Applying these criteria, the court concluded that the plaintiffs’ losses were too remote and unsupported by credible evidence. It also found that other contributing factors may have influenced the economic outcomes.
No Double Recovery
The decision also addresses the principle of double recovery in the context of insurance. The plaintiffs sought damages for losses already compensated by their insurer, invoking the private insurance exception—which generally permits plaintiffs to retain insurance benefits without deduction from damages awards. However, the court clarified that this exception does not apply where a subrogated claim has been made. The doctrine of subrogation ensures that insured parties receive fair indemnification without unjust enrichment.
Key Takeaways
- Plaintiffs must establish a clear and credible causal link between physical damage and consequential economic losses, even where liability is admitted.
- Speculative, unsupported, or tangentially related losses will be deemed too remote and unrecoverable.
- Courts will scrutinize the quality and independence of evidence, particularly where self-interest may compromise reliability.
- Insurance payouts subject to subrogation cannot be claimed again in damages; coverage is intended to indemnify, not enrich.
*The law may have changed since this article was first published. You should consult with your lawyer to confirm the current state of the law*