Canadian Underwriter

Business interruption insurer could be sued by this Canadian restaurant owner

February 9, 2021   by Greg Meckbach

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An Ontario-based restaurant company whose sales dropped more than 50% during the pandemic may be taking legal action against its business interruption insurer.

In a recent securities filing, SIR Royalty Income Fund said its business interruption claim from the COVID-19 pandemic was denied. Burlington, Ont.-based Serviced Inspired Restaurants (SIR) has more than 50 eateries in Canada. SIR’s brands include Jack Astor’s Bar and Grill, Scaddabush Italian Kitchen & Bar, and Canyon Creek, among others.

Same-restaurant sales were down about 54% during the nine months ending Nov. 17, 2020, compared to the same period in 2019, reported SIR Royalty Income Fund, a publicly-traded income trust fund.

“SIR’s insurer has denied any business interruption claims due to COVID-19 closures. However, SIR continues to pursue its claim through legal avenues. There can be no assurance this action will be successful,” SIR Royalty Income Fund said in a January 6 securities filing.

Canadian Underwriter reached out to SIR’s media relations contact asking whether the company has filed a statement of claim in court against its insurer, and on what grounds the insurer said it was denying the BI claim. Canadian Underwriter has not heard back from SIR, which has not identified its insurer.

Business interruption policy wordings vary. Some require an actual property loss before BI coverage kicks in, while others cover BI if access to the client’s businesses is denied because of an action on the part of a civil authority or if the client loses income after a disease outbreak within a certain distance of the premises. It is not clear what coverage wordings or exclusions were in SIR’s business interruption policies.

COVID-19 was declared a pandemic Mar. 11 by the World health Organization. SIR initially stopped dining room service at all of its restaurants Mar. 16. It continued to offer takeout and delivery services at some of its Jack Astor’s and Scaddabush restaurants, while some of its restaurants closed completely, the firm said in a securities filing.

Some SIR restaurants initially partly re-opened their dining rooms in the summer of 2020. But Ontario, where most of SIR’s restaurants are located, has been subject to a stay-at-home order since Jan. 14.

Effective Jan. 8, 2021, SIR announced the permanent closure of two of its Canyon Creek restaurants – one at Square One in Mississauga and the other near the Scarborough Town Centre. Canyon Creek’s same-store sales were down more than 90% during the nine months ending Nov. 17, 2020, compared to the same period in 2019.

“The hospitality industry has faced, and continues to face, significant challenges related to continuing updates to restrictions imposed by federal, provincial, and municipal governments,” SIR said in a securities filing. “Restaurants have incurred significant costs to implement strict safety protocols for both patio and indoor dining, including the installation of plexiglass barriers in dining rooms, expansion of patios, adding heaters to extend patio dining season, [and] swift changes to operations to increase take-out and delivery offerings when restaurants were 100% reliant on take-out and delivery during the months of May and June 2020.”

SIR reported a net loss of $44.58 million for the nine months ending Sept. 30, 2020, compared to a net income of $14.38 million for the nine months ending Sept. 30, 2019.

“Reduced services and restaurant closures have resulted in material declines to sales at SIR restaurants. Limited capacity re-openings, or full closures, of in-restaurant and outdoor-patio dining will continue to result in material declines to sales at SIR restaurants,” the company said.

Although Ontario started to gradually re-open during the summer of 2020, COVID-19 case counts started to rise this past fall. New measures that took effect Oct. 10, in the Toronto and Ottawa areas, resulted in the closure of indoor dining at more than 30 SIR restaurants.

As of Nov. 7, 2020, dining rooms in the Toronto, Ottawa, Peel, and York regions were permitted to re-open, SIR noted.

But later in November, changes to Ontario COVID-19 rules meant that indoor dining capacity in the “red” zones was limited to 10 guests. That measure affected 35 SIR restaurants in the Toronto, Peel, York, Halton and Hamilton regions. Then on Nov. 23, 25 SIR restaurants in the Toronto and Peel regions had to close indoor and patio dining because those regions moved into the grey/lockdown zones.

On Boxing Day, SIR closed all of its Ontario dining rooms, bars, and patios due to the provincial state of emergency that took effect the day after Christmas.

Feature image via Brine

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