Should the Canadian P&C industry be concerned about BI court cases?

For now, little evidence exists that courts will adjudicate against Canada’s property and casualty insurers in litigation related to business interruption claims stemming from the COVID-19 pandemic, according to an industry executive.

At the recent CIP Society Symposium 2021 virtual conference, Alister Campbell, president and CEO of the Property and Casualty Insurance Compensation Corporation (PACICC), was asked if he thought the courts would overrule the intention of business interruption coverage. Campbell spent much of his discussion speaking about risks that could cause the property can casualty industry to fail.

In the U.K., policy wordings were put to the test after the Financial Conduct Authority brought eight insurers to the High Court of England and Wales. The insurers argued that those wordings don’t provide coverage to income lost due to the COVID-19 pandemic. But in a case that looked at multiple different types of policy wordings, the Supreme Court of the United Kingdom issued a mixed ruling in January that did find against some insurers, depending on the wordings. Both sides appealed the High Court ruling from September 2020.

Canadian insurers may not face the same challenges, Campbell believes. “I think the wordings in Canada are clear enough, and so I think it is reasonable to assume that over time the courts will rule correctly that policy intent was clearly articulated,” he said.

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In February, Ontario-based SIR Royalty Income Fund said its business interruption claim from the COVID-19 pandemic was denied. The company announced it may take legal action against its insurer, which it did not name. Its brands include Jack Astor’s Bar and Grill, Scaddabush Italian Kitchen & Bar, and Canyon Creek.

That was the latest in a string of companies announcing lawsuits against their insurers for rejected business interruption claims. Other class-action lawsuits were announced last spring and summer.

The issue clearly appears to be on the mind of the Office of the Superintendent of Financial Institutions (OSFI), Campbell said.

PACICC’s Risk Officer’s Forum recently heard from Jacqueline Friedland, OSFI’s senior director of the property and casualty insurance group in the insurance supervision sector. She showed slides of court cases working their way through the system in the United States. The slides had info on the status of the cases, if there was property damage, the basis of the claim, and more.

“So it’s definitely on OSFI’s mind. I think she had five slides just showing us what was on this website. It’s clear that OSFI is paying attention to that, and certainly we are, too,” Campbell said.

Industry experts have repeatedly stated that insurance doesn’t cover pandemics and policies were never intended to, adding that policyholders haven’t paid for such coverage.

However, after speaking to some companies, PACICC has heard that some claims do indeed fall under broader coverage, Campbell explained.

“And there have been a couple of companies that have publicly announced that they did have programs whether they were for medical professionals or the hospitality sector, where there was coverage and where there were losses,” Campbell said. “But they were within the realm of reasonable, within what they had capital or reinsurance for, and have not yet presented to us at PACICC [that they are] feeling like there’s an exposure for the industry.”

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