Canadian Underwriter

Why Intact is named in lawsuit over COVID business interruption coverage

July 10, 2020   by Greg Meckbach

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More than a dozen Canadian property & casualty insurers, including the largest in the nation, are named in a new proposed class-action lawsuit over business interruption coverage during the COVID-19 pandemic.

The notice of action was filed July 6 with the Ontario Superior Court of Justice by law firms Koskie Minsky LLP and Merchant Law Group. The court is being asked to certify the claim as a class action and to declare the 22 named defendants in breach of the terms of their business interruption policies.

Allegations against the defendants have not been proven in court. Canadian Underwriter reached out to several insurers listed in the statement of claim; many did not respond because the issue is before the courts.

Among the the many examples of policy language at issue, one particular phrase is contained in coverage offered by Novex [owned by market leader Intact Financial Corp.] for losses while access to the client’s premises is “prohibited by order of civil authority, but only when such order is given as a direct result of direct physical loss or direct physical damage to neighbouring premises by a peril insured against under this policy.”

This coverage is said to have been provided by Novex to Harmony Dance Studios Ltd., one of the eight representative plaintiffs named in the notice. It is unclear whether Harmony Dance is claiming a specific neighbouring property sustained direct physical loss during COVID-19; and if so, what the named peril was.

“We are aware of the application for authorization for a class action lawsuit filed against a number of insurers, including Intact,” a spokesperson for Intact told Canadian Underwriter Friday. “As this is potentially in litigation, we cannot provide further details at this time. We continue to provide support and relief to our customers wherever we can.”

That said, Intact officials have commented broadly to capital markets on the firm’s exposure to business interruption claims generally. For about 99.5% of Intact’s commercial property clients, their policies would not cover a closure due to COVID-19 because those policies require direct physical loss to trigger business interruption coverage, Intact CEO Charles Brindamour said during a “virtual fireside chat” with Mike Phillips, equity research analyst for property and casualty insurance at investment banking firm Morgan Stanley. In making these remarks, Brindamour was not commenting at the time on any particular coverage dispute before the courts.

The plaintiffs in the class action against the 22 defendants aim to sue on behalf of all persons and corporations in Canada who had contracts for business interruption insurance who suffered losses either as a consequence of COVID-19 or as a result of decisions regarding COVID-19.

The true total is less than 22 because in several cases both the insurance company and its corporate parent are named. For example, the lawsuit references both Novex and Intact, as well as both Federated and Northbridge.

Shortly after the World Health Organization declared COVID-19 a pandemic Mar. 11, several Canadian provinces enacted emergency legislation mandating closures. In Ontario for example only workplaces deemed “essential” by the government could remain open.

In Ontario, the emergency order meant the representative plaintiffs were forced to close or significantly reduce the operations of their businesses.

The notice of action, which Koskie Minsky provided to Canadian Underwriter, goes into specific policy language for six of the representative plaintiffs. Some of those policies suggest that damage or loss to property from an insured peril is required to trigger coverage.

For example, Northbridge Financial-owned Federated Insurance is said to have written a policy for representative plaintiff Scotian Isle Baked Goods Inc.

The policy provides loss of business income, loss of rental value and incurred necessary extra expense if access to the location is denied, prevented or interfered with due to damage to other property nearby caused directly by an “insured peril”; or at other property located within one kilometre.

When contacted Friday, Northbridge declined to comment to Canadian Underwriter.

Guelph, Ont.-based The Co-operators is a named defendant, though none of the representative plaintiffs were listed as being insured by The Co-operators.

A Co-operators spokesperson told Canadian Underwriter Friday the company cannot comment because the case is before the courts.

In the Co-operators example, the policy language at issue is for loss of income due to the “complete or partial interruption of the business operations of the Insured at the ‘Premises’ specified in the ‘Certificate of Insurance’ as a result of a notifiable contagious or infectious human disease, as declared by a “Public Health Official” that must be reported and which occurs on the ‘Premises’ or within a radius of 25 kilometres of the ‘Premises’ specified in the ‘Certificate of Insurance.’”


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4 Comments » for Why Intact is named in lawsuit over COVID business interruption coverage
  1. Eric Lapenis says:

    These cases should all be tried separately as the focus should be on each individual wording. Without seeing the entire wording, it appears the cooperators may be on the hook for these losses. I had over 50 insured’s that had a policy wording similar to that of the cooperators and their losses were paid up to a specified limit.

  2. Frank Cain says:

    If you just look at the word “occurs” in the Co-Operator’s wording, you can see how easy it is for interpretations to go amiss. “Occur” means “came into being” and “being” means “existence,” with the disease at the premises or within a radius of 25 kilometres of it. If wordings are going to be given flatfooted interpretations, then it would be best for the policy to give examples of what they mean, much as with the OAP-1 Auto Booklet.

  3. Jeff cohen says:

    My business was not interrupted by COVID-19, there was no outbreak of any virus in my business or surrounding areeas

    It was solely interrupted by the Government, (the reason for this is irrelevant) and it was not voluntary on my part (lol)

    So I intend to move forward with a claim for lost profits for the time my business was closed and or capacity restricted by Government regulations as per what is covered in my policy

  4. Frank Cain says:

    Obviously my comments were misinterpreted and, moreover, if The Co-Operators are paying for Covid-19 interruption claims, then they are not understanding their own wordings. Covid-19 did not come into being (“occurs”) within 25 kilometres of a premises – it was born (came into existence) half-way around the world.

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