October 27, 2020 by Greg Meckbach
A British Columbia lawyer suggests at least half the business interruption insurance policies he has reviewed should cover a client who lost business because of emergency measures imposed to contain the novel coronavirus.
“People who have ‘all-risk’ policies should be covered under business interruption,” said Tony Vecchio, a Vancouver-based personal injury lawyer. “If it is an all-risk or all-perils policy, why would a pandemic be excluded? And then if it is not excluded, how are you supposed to interpret that?”
His firm, Slater Vecchio, has been contacted by many businesses after they were told they do not have business interruption coverage, despite having lost revenue due to the COVID-19 pandemic.
Shortly after COVID-19 was declared a pandemic this past March by the World Health Organization, several Canadian jurisdictions imposed various restrictions on entire categories of businesses, in an effort to reduce the chance that people with COVID-19 would come into close contact with others.
Some of the largest commercial insurers are saying most of their policies do not cover business interruption unless there was some form of physical damage to the insured’s premises.
Slater Vecchio has been contacted by movie studios, restaurants, clubs and medical therapists, among others.
“We are looking at these policies and, arguably, more than 50% have coverage that meets the definition of business interruption,” Vecchio said in an interview.
His firm is telling prospective clients they are not covered if their policy wording excludes pandemic – or if they do not even have BI coverage.
“One of the interesting factors is that some businesses do not have any business interruption coverage, which in my view is shocking,” Vecchio said. “Imagine you are a restaurant and you don’t have coverage for fires or for poisoning or for things that could ruin the business. There is a very small percentage [of businesses in the service sector] that have no insurance at all for business interruption.”
The topic of lawsuits arising from business interruption coverage disputes came up during the Insurance Brokers Association of Ontario’s annual convention Oct. 21.
Several class-action lawsuits have been filed against insurers in Canadian courts over BI coverage during the pandemic, noted keynote speaker Laurie LaPalme, partner with the insurance and reinsurance group at Cassels Brock & Blackwell LLP.
A recent ruling in a test case launched by Britain’s insurance regulator “can affect how things are determined” in Canadian BI coverage disputes, LaPalme suggested during her IBAO convention keynote.
“If I am going to boil it down to one line, look at the policy wording,” LaPalme said of the High Court of England and Wales ruling released Sept 15.
In Britain, the Financial Conduct Authority took eight insurers to court arguing that 21 policies should cover BI under the circumstances of the British government’s COVID-19 emergency measures. A trial was held this past July. The result was mixed, with some of those policies deemed by the court to provide coverage, while others do not.
None of the policies at issue required physical damage to property, but the wording generally fell within two general categories. One type of wording requires the occurrence of a “notifiable disease” within a certain distance of the client’s premises. The other type of wording requires some action on the part of the authorities that hinders or denies one’s access to a business. Both the FCA and the insurer defendants are appealing the Sept. 15 ruling.
For his part, Vecchio predicts the Supreme Court of Canada’s ruling in Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada will “probably be the seminal case in interpreting” BI coverage in Canada, in the context of the COVID-19 pandemic.
This is because of what Justice Marshall Rothstein, then of the Supreme Court of Canada, wrote about ambiguous policy wording in 2010 in Progressive Homes.
In Progressive Homes, a construction contractor was sued over allegations that water damage caused buildings to deteriorate. Lombard initially defended the claim but later denied coverage, so Progressive Homes took Lombard to court. Lombard argued the liability policy only covers property damage to third-party properties and not to the insured’s own work. The British Columbia Supreme Court initially sided with the insurer, a decision upheld by the provincial appeal court, but overturned by the Supreme Court of Canada.
In its 2010 Progressive Homes ruling, the Supreme Court of Canada explained how courts should analyze insurance coverage disputes if policy wording is found to be ambiguous. If policy language is ambiguous, a court should prefer an interpretation that is consistent with the reasonable expectations of the parties, provided this is supported by the text of the policy, Justice Rothstein wrote in Progressive Homes. Courts should also avoid interpretations that would give rise to an unrealistic result or that would not have been in the contemplation of the parties at the time the insuring agreement was made. Those rules apply if there is ambiguity, wrote Justice Rothstein.
When those rules fail to resolve the ambiguity, courts should construe the policy contra proferentem — or against the party that drafted the contract – in this case, the insurer.
In the context of business interruption due to COVID-19, the principle of contra proferentem should apply to all-risk policies that do not have pandemic exclusions, Vechhio told Canadian Underwriter.
“When you are looking at insurance contracts, they are read against the party that produces them – in this case the insurance companies,” said Vecchio.
Feature image via iStock.com/Evgenia Parajanian