July 27, 2020 by David Gambrill
Lerners LLP has filed a proposed $150-million class-action lawsuit against Aviva Canada on behalf of hotels across the country, claiming that the hotels are entitled to coverage for loss of business income relating to COVID-19.
“We know these are challenging times for everyone,” Aviva responded in an email to Canadian Underwriter, when asked for comment about the case. “And like many, the hospitality industry has been severely impacted by the COVID-19 pandemic.
“Unfortunately, in this instance, there is no coverage for provincial wide shutdown orders as a result of a worldwide pandemic. As this matter is in litigation, it wouldn’t be appropriate for us to comment further.”
Several hotel chains are affected, including Best Western, Home 2 by Hilton and Hampton Inn, according to a public statement issued by Lerners LLP. The legal action applies to all hotels that are insured under a commercial insurance policy under Aviva’s Hotel Program. The class has yet to be certified in court, the first step before the court determines any findings of fact.
In the Lerners LLP statement of claim — which contains allegations not proven in court — the hotels contend that Aviva breached its insurance contract with the hotels when the insurer denied them loss of business income coverage. This followed after the federal and provincial governments declared states of emergency due to the outbreak of COVID-19. Even though the hotels were open, the statement of claim says, the emergency orders nevertheless restricted the hotels’ business.
“The hotels could not offer food and beverage service, and all of the amenities including the pool and gym were mandated to close under the closure orders due to COVID-19,” the Lerners LLP statement of claim reads. “While the hotels had rooms that were available to be rented, the reality was no one was renting them. Access to and from hotels’ places of business was prohibited, in whole or in part, by closure orders as Canadians were told to stay home, and international borders were closed to tourists. Customers were restricted from attending the premises. As a result, the plaintiff and class members sustained a loss of business income.”
At the centre of the dispute is the following policy wording, which, according to the statement of claim, appears under a “Hotel Program Business Interruption Endorsement” (Form H2) that “specifically modifies the extensions of coverage provided under Form H-001803” in the commercial policy:
“Coverage C of section I insures, subject to all its terms and provisions, for an amount not exceeding $500,000 in any one policy year or any other amount shown on the “Declaration Page” for this extension, loss of business income sustained by the Insured, including the amount of any extra expenses necessarily incurred by the Insured to continue to resume operations as nearly normal as possible, while access to the “premises” is prohibited in whole or in part by order of civil authority or by advice of the Public Healthy Authority or similar authority, but only when such order or advice is given as a direct result of any or all of the following occurrences:
ii. the outbreak of a notifiable contagious or infectious disease.”
According to the hotels, the wording above means they are entitled to coverage for their BI losses.
The Lerners LLP statement of claim refers to Aviva’s reason for denying coverage as follows: “On May 22, 2020,” the statement of claim reads, “Aviva sent a letter to the plaintiff [hotels] setting out the basis of its denial of coverage. In a follow up letter on June 8, 2020, Aviva further outlined the basis of its denial of coverage. Aviva is interpreting the coverage to apply only to outbreaks that occurred ‘at or within the applicable area of the insured premises.’ Aviva further stated that ‘there is no coverage under the policy for business income losses resulting from the Closure Orders made in response to the current worldwide COVID-19 pandemic.’”
As the matter is before the courts, no facts have been determined. It is not known at this time if Aviva Canada would agree with this charactertization of why the claim was denied.
Feature photo courtesy of iStock/Space_Cat