COVID BI coverage dispute lawsuit arises over ‘civil authority’ order clause
May 8, 2020 by Greg Meckbach
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If a client temporarily closes his business because of a provincial order arising from COVID-19, does its business interruption kick in if the policy covers “damage caused by order of civil authority to retard or prevent a conflagration or other catastrophe?”
The question could be put to an Ontario court in a coverage dispute lawsuit recently filed by a Toronto area restauranteur.
Hemant Bhagwani has three commercial all-risks policies, one for each of the three companies he owns in the Greater Toronto Area. All three – Catering Wala, Goa Kitchen and The Fat Rabbit – are said to be issued by Allianz Global Risks US Insurance Company.
Bhagwani told Canadian Underwriter Thursday he filed a business interruption claim, which was denied.
So he filed a lawsuit against his insurer Apr. 29 with the Ontario Superior Court of Justice. Allegations against the Allianz have not been proven.
Allianz does not comment to media on individual claims settlements or pending legal matters, a spokesperson for parent company Allianz Global Corporate Specialty told Canadian Underwriter.
AGCS has received a large number of BI claims arising from the pandemic, AGCS said.
“We will certainly honour COVID-19-related claims where they are part of our policies and cover is clear. However, many businesses will not have purchased cover that will enable them to claim on their insurance for COVID-19 pandemic losses.”
In the case of Bhagwani’s restaurants, all three had commercial all-risk policies has a section under the heading “Civil Authority” that reads: “This Policy insures loss, as covered herein, which is sustained by the Insured as a result of damage caused by order of civil authority to retard or prevent a conflagration or other catastrophe.”
Before the Ontario government imposed severe social distancing restrictions in late March, Bhagwani’s three restaurants were making $500,000 put together in top line revenue. Now they have completely shut down, though Ontario restaurants are allowed to be open for takeout and delivery only.
“Countless businesses in this province may be closed forever if they do not receive prompt payment of business interruption insurance from their insurer,” says a statement of claim written by Pathik Baxi, a Brampton-based commercial litigation lawyer with Simmons da Silva LLP who is representing Bhagwani.
Generally, commercial property and casualty insurers say business interruption coverage is triggered by an insured peril on a property policy. According to this line of reasoning, 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.
Several lawyers have told Canadian Underwriter that in any coverage dispute lawsuit arising from a pandemic-related BI claim, the key consideration will be the specific wording of that particular policy.
“I would caution policyholders to thoroughly review their specific policy language before they assume that they don’t have coverage,” Kim Winter, Kansas City, Mo.-based partner and insurance recovery practice group leader with Lathrop GPM, told Canadian Underwriter earlier. She was not commenting on any case in particular.
In Ontario, the government declared a statement of emergency this past March, which is still in effect. As a precaution against COVID-19 transmission, the temporary rule prohibits restaurants from opening other than for pickup and delivery. So businesses may prepare and sell fresh food to people who walk in, but customers are not allowed to sit down and consume their meal on site.
“The pandemic, and subsequent physical distancing measures imposed by the Government of Ontario to prevent the health care system from being overrun, have had a devastating impact on Ontario businesses,” Baxi wrote in Bhagwani’s statement of claim. “The restaurant industry has been particularly hard-hit.”
The statement of claim says each of Bhagwani’s business interruption policies covers the loss of gross profits for a period of 12 months along with ordinary payroll for 90 days. The declarations state that the policies cover the actual loss sustained and there is a 48-hour waiting period. Also in the declarations, all three policies state that coverage for “Civil Authority” is not subject to sublimits of insurance, Baxi wrote in the statement of claim.
The plaintiffs are 2550701 Ontario Inc. operating as Catering Wala; Naan Bar inc. operating as Goa Kitchen; and Naanini Inc. and Amaya trademark Ltd., operating as The Fat Rabbit.
Editor’s note: This story was updated to include the name of the insurer and the insurer’s statement to media.
Feature image via iStock.com/eric1513
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It should not be surprising to the industry that this argument over the “civil authority” coverage was coming!
Who is the insurer? Why is their name being surpressed?
What I dislike very much about most of the articles is not all the facts are in the articles and/or, the person(s) speaking on behalf of the plaintiff or the defendants always slant the facts to bend their way. OH, that’s because the Insurer wants to stay out of court so they will settle one way or the other. That type of mentality must stop with respect to the Legal Community. The hand that rocks the cradle is the legal community and they will destroy all insurers eventually to benefit only themselves.
Basically, if it is business interruption they are going after, then the BI wording is what has the final say. In my 41 year career, I have never seen a BI wording that didn’t state there had to be physical damage/direct loss and/or insured peril. AND most Commercial policies also provide either 2 weeks, 4 weeks and maybe if lucky up to 60 days cover under the Civil Authority, however, you will have to prove your loss, based on the same time frame the year before.
There are very few insurers, under a program and or manuscript wording that will provide carte blanche cover for pandemic, person to person diseases etc. One would be Zurich under their Edge believe, however, the insurers that basically THROUGH IT IN, would have never expected to ever have such a loss.
Why is the insurer’s name being suppressed and withheld? You have named the plaintiff but why are you protecting the defendant? It is understandable that the Insurer will not make a comment at this stage but withholding the Insurer’s name is not in the public’s interest and it is pure protectionism by your publication. You need to drop the double standard if objectivity, integrity and ethics in reporting matter to your organization.
The insurer is Allianz, as stated in this article: https://www.thestar.com/business/2020/05/05/toronto-restaurant-owner-sues-insurance-company-for-covid-19-losses.html