July 29, 2020 by Greg Meckbach
Two recent American court rulings in favour of insurers in COVID-related business interruption coverage disputes arose from policy wordings nearly identical to the vast majority of Intact Insurance’s BI policies, officials with Canada’s largest P&C insurer said Wednesday.
“The language in our polices is very clear. The business interruption coverage requires direct physical damage from an insured peril to be triggered. This is the case for 99.5% of our policies in commercial lines,” said Patrick Barbeau, Intact’s senior vice president of claims, during a conference call Wednesday discussing his firm’s financial results for the three months ending June 30.
On this side of the border, Intact is one of several insurers named as defendant in at least two proposed class action lawsuits – one in Ontario and another in Saskatchewan. The proposed class actions allege insurers are in breach of contract in denying BI claims from commercial clients whose operations were curtailed starting this past March after COVID-19 was declared a pandemic. Allegations that insurers are in breach of contract have not been proven in court.
“We continue to be very confident with our defence arguments,” Barbeau said Wednesday, in response to a question from an investment banking analyst about BI claims.
The United States rulings to which Barbeau alluded were the Michigan court ruling in Gavrilides Management Company et al. vs. Michigan Insurance Co. and the U.S. District Court for the Southern District of New York ruling in Social Life Magazine v. Sentinel Ins. Co.
Nick Gavrilides said he suffered $650,000 in losses over two months at two of his Michigan restaurants, the Soup Spoon Cafe in Lansing and the Bistro in nearby Williamston, Associated Press reported Monday. Gavrilides’ lawyer argued that business interruption coverage 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.
“There has to be something that physically alters the integrity of the property,” Judge Draganchuk concluded, as quoted by AP.
In the Sentinel case, a lawyer for a publishing firm argued that the COVID-19 virus caused “onsite property damage,” to which Judge Valerie Caproni responded, “It damages lungs. It doesn’t damage printing presses,” reported lawyer Andrew Daechsel of Carlton Fields, in a blog post on the JD Supra website.
In both the Gavrilides and Sentinel cases, the relevant policy wordings are “almost identical” to 99.5% of the business interruption policies provided to Intact commercial clients, Intact’s Barbeau suggested Wednesday during the earnings call.
“The real debate in is direct physical damage and our language on that front is very comparable to the language in the U.S.,” Intact CEO Charles Brindamour added. “We are saying the court decisions are very clear. They are in line with what we expect. They are in line with the common law in Canada. It’s not grey. It’s pretty straightforward.”
It is “only in very exceptional circumstances,” or about 0.5% of policies, where Intact’s wording provides coverage during COVID-19, said Barbeau.
“All in, sitting here today, we feel even more confident than we did at the end of Q1, and we were very confident at the end of Q1 about the clarity of our [BI] product,” Brindamour said of business interruption claims arising from COVID-19.
“Most claims related to these limited exceptions have been received and settled – so paid and closed,” said Barbeau. “There is not a lot of remaining uncertainly around that.”
Intact did not release exact figures but the insurer said earlier it has set aside $83 million – during the three months ending Mar. 31 – in reserves for commercial claims arising from COVID-19. That was for liability, entertainment, tuition reimbursement in the United States and business interruption.
This number has not changed, Intact said Tuesday when it released its 2020 Q2 financials. The $83 million is not for claims made, but a grand total of all commercial losses related to COVID-19 that the insurer is forecasting – including losses which have yet to be reported. About $30 million in claims have been reported out of that $83 million in COVID-19 reserves, said Brindamour.
“We have tried to front-load the impact of COVID as much as possible into Q1,” Brindamour said Wednesday.
Intact reported Tuesday its combined ratio in the latest quarter was 89.5%, a 7.5-point improvement from 97% in Q2 2019. Direct written premiums rose 7% from $3.152 billion in Q2 2019 to $3.382 billion in the most recent quarter.
Feature image via iStock.com/marcoventuriniautieri