April 30, 2020 by Greg Meckbach
When business interruption coverage disputes arising from COVID-19 make their way into court, judges may look at whether insurers priced for pandemic, but by far the key consideration will be policy language, says one insurance defence lawyer.
“Because an insurance policy is simply a contract, albeit with some special features, the insurance policy wording remains the key consideration for any court reviewing coverage,” said Hollis Bromley, member at large of ARC Group Canada and partner at Alexander Holburn Beaudin + Lang LLP, one of ARC Group’s seven member law firms. “I do not expect this to change, even given the magnitude of the COVID-19 pandemic and resulting effects.”
Generally, commercial property and casualty insurers say business interruption coverage is triggered by an insured peril on a property policy. So if a pandemic does not damage the client’s property, even if the client had to close down, BI is generally not covered, depending on policy wording.
“Many policies limit coverage to certain specified perils, which does not typically include pandemic events,” said Bromley, whose areas of practice include insurance defence. If a policy requires physical loss, this would apply to obvious physical losses, such as smoke damage from a fire, or water damage from a flood, she said.
Bromley was commenting in general on BI coverage disputes and not on any particular case before the court, any particular claim, or any particular insurer’s policy wording.
“One can see an argument that premises contaminated with a virus, thus necessitating closure, may also constitute ‘direct physical loss.’ Whether it can extend so far as to capture closures as a result of government orders, where said virus is not in the premises itself, remains questionable,” Bromley told Canadian Underwriter.
What about “public policy” arguments? Examples would be inviting the courts to inquire into what business interruption should cover, or whether or not an insurer has enough capital pay out to every client whose business was interrupted by the pandemic?
“Courts have generally been loath to accept the ‘opening-of-the-floodgates’ policy arguments, but admittedly these are unprecedented times,” said Bromley.
Clients and insurers might lock horns over what the party’s “reasonable expectations” were from a contract of insurance.
“Specifically, did the parties to the insurance contract reasonably expect that there would be coverage provided for business interruption losses resulting from a global pandemic and, for some businesses, government-mandated shut downs?” said Bromley. “The financial position of an insurer then may become relevant to evidence that it did not expect that there would be such coverage and accordingly was not charging premiums commensurate with that risk.”
Nonetheless, she points out, the Supreme Court of Canada has said a judge should look at the actual policy wording first in a coverage dispute. She cited Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, released by the Supreme Court of Canada in 2010.
Progressive Homes was sued after homes it built were allegedly discovered to have significant water damage. It sought defence costs under a CGL policy. The client was unsuccessful in both the B.C. Supreme Court and provincial appeal court but the Supreme Court of Canada ruled against the insurer in 2010.
“The focus of insurance policy interpretation should first and foremost be on the language of the policy at issue,” Supreme Court of Canada Justice Marshall Rothstein wrote in 2010 in Progressive Homes. “General principles of tort law are no substitute for the language of the policy.”
“I do not anticipate that any court would alter this clear position set out by the supreme Court of Canada when reviewing any COVID-19 business interruption claims,” Bromley told Canadian Underwriter this week.
In view of this article the business owner can sue the provincial or local government that order a closure of business( such as salon or restaurant)
It looks like class action suit is not out of the question…
That is a real possibility, considering that all levels of government were negligent in taking effective measures early in the pandemic to mitigate the extent of the damages caused by the virus.. especially in light of what has come out recently about our military intelligence on the unknown virus in January. Early in the Covid-19 period the head of the municipality of Toronto was alluding that Torontonians were racists because the people were keeping away from certain establishments. Once this is over, business owners should hold all three levels of government accountable for the way they handled the pandemic. My only concern is that governments would claim immunity from being held accountable and would look for other scapegoats by way of retro legislation, i.e. Insurance companies, as it is already happening south of our border.
They insured themselves against business loss–they nor did the insurance company anticipate a pandemic—HOWEVER__the insurance company was more than willing to take their money for the policy.( I assume did not list a pandemic as not being covered).
Is the insurance company going to reimburse ALL businesses the premiums they have paid FOR LOSS OF BUSINESS(some many many years for loss of business0??? If they fail to pay out it would only be right as the businesses were paying for nothing!!!
Just agreeing with the latter comment. “If they fail to pay out it would be as the businesses were paying Premiums for Nothing.
Someone should be accountable for this.