Canadian Underwriter

Aviva loses bid to quash class action for COVID-related BI losses

March 28, 2023   by David Gambrill

Business interruption insurance form and red pen for signing.

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Ontario’s Superior Court has certified a class action lawsuit by a window and door manufacturer against Aviva Canada related to the insurer’s broad denial of pandemic-related business interruption claims.

In doing so, the court rejected Aviva’s motion to have the matter summarily dismissed. To be clear, the court did not reject Aviva’s grounds for denying coverage and questioning the composition of the class; it only found a trial would be necessary to determine the merits of Aviva’s arguments against the class action lawsuit.

Nordik Windows Inc. is a custom window and door manufacturer, supplier, and installer operating in Ontario and Quebec. It called on the court to add some unrelated businesses that had purchased business interruption insurance from Aviva as representative plaintiffs in its class action lawsuit.

“Each of the [additional class members] had an experience with pandemic-related business losses that is largely similar to Nordik’s experience,” the Ontario Superior Court observed in its decision, released last week. “One of them is Nordik’s sister company, Cash and Carry Inc. [C&C], which operates out of the same premises as Nordik and acts as Nordik’s retail arm. It is a named insured under Nordik’s insurance policy with Aviva and, accordingly, has the identical restricted access, negative publicity, and physical damage coverage as Nordik.”

C&C serves the Ottawa area; the entire city lies within a 25-kilometre radius of C&C’s business facility. This distance triggers the negative publicity coverage in Aviva’s policy when a case of COVID-19 is reported.

In court documents, C&C says it began receiving numerous customer cancellations of orders beginning in March 2020, when the first COVID-19 cases began to be reported. On Mar. 23, 2020, the Ontario government ordered all non-essential retail businesses to close. It amended the order on Apr. 4, 2020, to include a mandatory shutdown of all new residential construction.

The province’s order effectively restricted C&C’s installers from accessing their facility to obtain the newly manufactured windows and their installation supplies and, consequently, from performing installations. C&C claimed it lost more than $1.32 million in business income as a combined result of the COVID-19 closure orders and the reported outbreaks of COVID-19 in the Ottawa area causing customer cancellations.

In May 2020, Nordik and C&C both gave notice to Aviva of a claim for loss of business income as a result of COVID-19. Aviva denied coverage on Jun. 1, 2020. Nordik and C&C both submitted a proof of loss to Aviva in March 2021.

Aviva has three types of standard clauses relating to business interruption coverage, Ontario’s Superior Court found. They include physical damage coverage; negative publicity coverage; and restricted access coverage. In March 2020, there were “somewhere in the neighbourhood of 44,000 businesses with Aviva insurance policies that contained these three clauses,” the court found.

The chief technical underwriter for Aviva provided an affidavit explaining Aviva’s position on each of the three forms of coverage, the court wrote:

  • “the [restricted access] clause does not provide coverage for business interruption losses caused by province-wide shutdown orders”
  • “the [negative publicity] clause does not provide coverage for business income losses arising from global pandemics” and
  • “the actual or suspected presence of COVID-19 at an insured premises, as well as restrictions placed on access to an insured premises as a result of any applicable government shutdown orders, does not amount to ‘physical loss of or damage to’ those premises…”

Aviva objected to the certification of the class on several grounds. For example, it argued the representative plaintiff in the class, Nordik Windows Inc., was declared to be an ‘essential service’ by government and could therefore keep their business operations open throughout the COVID-19 pandemic. Other members in the class, however, like C&C, were deemed to be non-essential and had to shut down.

“It is Aviva’s view that Nordik was always designated as an essential business during the COVID-19 pandemic, and so was never subject to the governmental restrictions on its operations that triggered its claim for coverage,” the Superior Court ruled.

“This challenge, of course, goes far deeper than Aviva’s other attempts to disqualify [Nordik as the representative plaintiff]. If Aviva is correct in its summary judgment motion, Nordik’s own claim will be at an end and it will no longer be in a position to instruct counsel on behalf of the class as it will no longer be a class member.”

Nordik’s argument on this point turns on how the company interpreted the government’s lockdown legislation. Which, the court ruled, is a matter to be raised at trial.

Aviva also objected to class members being added to the lawsuit who had not in fact filed a claim for a business interruption loss. The insurer argued these members did not have a case against the insurer because coverage had not actually been denied.

“Aviva objects to including in the proposed class policyholders who have not yet given individual notice of their claims,” as the court characterized the insurer’s argument. “Aviva’s counsel submits that giving individual notice, and having the claim denied, is a necessary precondition for commencing or participating in a lawsuit seeking damages for denial of coverage.”

On the second point, Nordik argued that since the rejection of business interruption claims was “across-the-board,” it wouldn’t have mattered if they had submitted a claim, since it would have been denied anyway. Or, as the Superior Court framed the argument: “As the British Columbia Supreme Court observed in West Coast Securities Ltd v. Continental Insurance Co. (1975)…’where it is clear that the insurer will not pay in any event, it is absurd to require the insured to do acts which will prove useless.’”

Ultimately, the court found a trial would be necessary to figure out whether claims had to be submitted, and denied, in order for a business to be a member of the class.

“Cogent and interesting as some of these questions might be, all of these challenges to Nordik’s claim are for another day,” the court ultimately determined. “In responding to [Aviva’s] summary judgment motion under Rule 20.01(3) of the Rules of Civil Procedure, Nordik does not have to definitively prove its case; rather, it has to show that there is a genuine issue requiring a trial.

“Nordik has certainly passed that test here. The issue of Nordik’s losses is contentious, but on the record before me neither side has a definitive answer.”


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