Damage to a product resulting from a defect within the product constitutes presumptively unrecoverable pure economic loss. That is the conclusion of the Ontario Court of Appeal in North v. Bayerische Motoren Werke AG, 2025 ONCA 340 and an important appellate clarification of the limited circumstances in which compensation is available for allegations of product defect.
In North, the plaintiffs alleged that their vehicles’ timing chains contained a defect that, upon manifesting, damaged the vehicles’ engines. The plaintiffs started a class action alleging, among other causes of action, negligence to recover losses associated with the damaged engines. The plaintiffs succeeded in having the class action partially certified. In particular, the motion judge certified only claims in negligence pertaining to repairs that class members undertook as a result of the alleged defect manifesting.
The defendants cross appealed, arguing that the claim in negligence was bound to fail because damage to the engine is just damage to the vehicle, not compensable damage to other property; in other words, damage to the engine caused by a timing chain defect is pure economic loss, which is only exceptionally recoverable for negligence.
The Court of Appeal agreed with the defendant, relying on the “complex structure theory” previously identified by the Supreme Court of Canada in Winnipeg Condominium Corporation No. 36 v. Bird Construction Co., [1995] 1 SCR 85. Damage to a product caused by a defect in a component of that product does not constitute compensable damage to “other property”, but damage to a complex structure from a distinct product incorporated within that structure (like a boiler in a house) does. The Court of Appeal held that the motor vehicle at issue in North is a single product, not a complex structure involving multiple distinct products. The plaintiffs’ claim was therefore barred and certification of the class action was set aside.
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