Canadian Underwriter

How clients may argue BI covers pandemic if no physical damage occurs

September 4, 2020   by Greg Meckbach

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Some clients seeking business interruption coverage arising from the COVID-19 pandemic are looking to the courts for a “generous” interpretation of policy wording, a Canadian lawyer says.

“In the context of property damage claims related to the novel coronavirus, many commercial insurance policyholders have reported that they have been denied business interruption coverage on the basis that they cannot prove actual physical damage to their insured property caused by the novel coronavirus,” said Sam Biglou, a Toronto-based litigation lawyer with Mason Caplan Roti LLP. Biglou’s comments are not intended as legal advice and she is not commenting on any BI coverage dispute in Canada in particular.

Several class-action lawsuits have been filed against Canadian insurers on behalf of clients with BI policies who had to close their doors (or severely curtail their operations) in March after provincial governments brought in emergency legislation to contain the spread of COVID-19. Allegations that insurers are in breach of contract have not been proven in court.

Different commercial policies have different wordings, lawyers have told Canadian Underwriter.

Some policyholders are going to court seeking to trigger BI coverage “based on a generous interpretation of the wording contained in their commercial insurance policies,” Biglou said Thursday.

She gave four examples of grounds that some policyholders say should trigger BI coverage under their policies:

  • The temporary loss of the use of the property because of the novel coronavirus;
  • The possible threat of contamination of property caused by the novel coronavirus;
  • Property that may be indirectly contaminated by the novel coronavirus; and/or
  • The loss of the use of the property — even if there is no actual physical damage to the property.

“The list is not exhaustive by any measure,” said Biglou, who practices law in Ontario.

Some courts in the United States have said, depending on the nuances of the policy language, even mere loss of use of the covered property is enough to trigger coverage, Kim Winter, Kansas City, Mo.-based partner and insurance recovery practice group leader with Lathrop GPM, told Canadian Underwriter in May. Winter was not commenting on Canadian law.

In July, some United States courts have ruled in favour of insurers in BI coverage disputes.

One client who lost his BI coverage dispute was Nick Gavrilides. As quoted by the Associated Press, Gavrilides said he suffered $650,000 in losses over two months at two of his Michigan restaurants. He argued business interruption coverage from Michigan Insurance Co. should apply because authorities prohibited customers from physically entering the property. But this was rejected by Judge Joyce Draganchuk during a July 1 hearing, AP reported, because “there has to be something that physically alters the integrity of the property.”

Not all BI policies require property damage. In Britain, a trial was held this past July before the High Court of England and Wales over 17 policy wordings — from several insurers — that the U.K. Financial Conduct Authority says should cover BI in the context of COVID-19. The FCA test case will be binding on insurers in Britain in respect of those policy wordings. The wordings at issue in the FCA test case cover things like “denial of or hindrance in access to the business premises imposed by the police or other statutory authority” and outbreak of a notifiable disease within a certain radius, such as 1 mile or 25 miles.

A verdict in that test case is expected this month.

“While the outcome of the British test case for business interruption during a pandemic may be considered in commercial coverage disputes in Canada, it is anticipated that the courts in Canada will continue to examine the specific language of each individual commercial insurance policy to determine if coverage is triggered. And as historically done in past, the courts in Canada will typically resolve ambiguities in favour of the policyholder,” Biglou told Canadian Underwriter.


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