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Why brokers are going to get sued over pandemic business interruption claims


October 21, 2020   by Greg Meckbach


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Some brokers are going to get sued by clients whose COVID-19 business interruption claims were denied, a keynote speaker warned Insurance Brokers Association of Ontario (IBAO) members Wednesday.

“The main area of claim will be failure to advise of potential risks regarding pandemic, and failure to advise how business interruption coverage actually works in their policy,” said Laurie LaPalme, partner with the insurance and reinsurance group at Cassels Brock & Blackwell LLP, during the keynote sessions of IBAO’s annual convention, which is taking place virtually this week.

Several lawsuits have been filed against carriers who denied BI claims.

COVID-19 was declared a pandemic March 11. As a result, a number of large classes of businesses were forced to close or curtail operations in Canada and elsewhere.

In April, Merchant Law filed a class action lawsuit with the Court of Queen’s Bench of Saskatchewan, naming more than a dozen Canadian insurers. The representative plaintiff is JKT Holdings Ltd., which does business as Regina restaurant Memories. That establishment closed its doors due to provincial lockdown measures.

Two proposed class-action lawsuits in Ontario were announced during the second week of July alone. One was filed by Koskie Minsky LLP and Merchant Law Group on behalf of several representative plaintiffs against defendants representing more than a dozen insurers writing business in Canada. A separate $100 million class action was started against Aviva Insurance Company of Canada.

Allegations against the insurers have not been proven in court.

All of these lawsuits are at the early stages, LaPalme said Wednesday during her keynote at the IBAO annual convention. Sometimes, it can take a year just for a court to certify a class action.

“Brokers are not off the hook with those types of claims,” said LaPalme.

“We are going to see class action litigation against the broker community and this will be E&O claims. As the cases against insurers get dismissed, [plaintiffs] will amend their pleading and look for other deep pockets. And the other area of deep pockets will be the insurance brokers, because they have strong E&O coverage and the sophisticated plaintiff’s bar know that.”

LaPalme advises brokerages to say on top of the issue and read what law firms and insurers are saying.

“Designate someone in your company to be on top of it,” she said. “You want to document, document, document. Dot all your Is, cross all your Ts, and make sure all communication is documented. Spend the time with your insureds to talk about what they are doing, but don’t make any promises. Look at your marketing material, including your website, so that you are not promising any coverages.”

On Sept. 15, the High Court of England and Wales issued its ruling in a test case launched by the Financial Conduct Authority over business interruption policies.

Both the FCA and the defendant insurers want to appeal that ruling. There were 21 policy wordings at issue, some covering occurrence of a notifiable disease within a certain radius of a premises, while others covered an action by a government or civil authority that hinders, impedes or prevents access.

In the British test case, the court ruled some wordings do provide cover while others do not. None of the disputed wordings require physical damage to property.

“If I am going to boil it down to one line, look at the policy wording,” LaPalme told IBAO members Wednesday of the British test case.

She advises brokers to be understanding and empathic with their insureds.