In the wake of COVID-19, several class action lawsuits emerged against various insurers in Canada with respect to the scope of business interruption coverage. The issues are nuanced and depend on the specific policy at issue. However, most commercial policies in Canada require that there be direct physical loss or damage to property for coverage to be engaged. This has led many insurers to deny business interruption claims, as the insurers contend that a virus does not fit within the scope of “property damage”.
At least one class action lawsuit is proceeding towards a trial with a focus on the issue of physical loss of or damage to property. Justice Belobaba has recently issued a certification order in the matter of Workman Optometry, et al. v. Aviva Insurance, et al. (CV-20-643488-CP), certifying the class action and some common issues on a consent basis. Pursuant to the Order, the class includes all persons in Canada (outside of Québec), who purchased business interruption coverage from one of the defendant insurers, made a claim under their policy (before August 31, 2021) and were denied, in relation to one of the following:
- Actual or suspected infection of staff, agents, customers or other persons with the SARS CoV-2 virus or its variants at the insured premises or within such proximity as may be specified in the insured’s Business Interruption Insurance policy;
- Actual or suspected presence of the SARS CoV-2 virus or its variants on the insured premises; or
- The order of a civil authority regarding the SARS CoV-2 virus or its variants.
The Order certified the following common issues to be determined:
- Can the presence of the SARS CoV-2 virus or its variants cause physical loss or damage to property within the meaning of the business interruption provisions of each Defendant’s property insurance wordings?
- Can an order of a civil authority in respect of business activities that was made due to the SARS CoV-2 virus or its variants cause physical loss or damage to property within the meaning of the business interruption provisions of each Defendant’s property insurance wordings?
- If the answer to either of the first two questions is “yes”, are there any exclusions in any of the Defendants’ property insurance wordings that would result in coverage for such loss or damage being excluded?
While there are claims being advanced in relation to “Infectious Disease” coverages provided by certain insurers, none of those claims were certified as part of the class action either. Hopefully that issue will be clarified in the reasons for decision.
The Court’s determination of above issues will likely be relevant to a large volume of policies in Canada.
It appears that the relevant insurers have taken the position that no “physical loss of or damage to property” occurred as a result of COVID-19, and that therefore no coverage is available to the plaintiffs in the class action. The important question for the Court to consider, in our opinion, will be first, whether the COVID-19 issues caused a “loss of use” of the relevant properties, and second, whether that alleged “loss of use” of the properties in question is enough to warrant coverage for the business interruption losses alleged.
In our assessment the common issues address two separate common policy wordings. The first issue relates to the presence of COVID-19 at the actual insured premises. In other words, if a business had to shut down because one of the staff, etc., were infected by COVID-19, will the on-site infection be considered “damage to property”. While this could affect many businesses, the likely quantum of each claim under this category is modest, because of the fact that the businesses in question were able to sanitize their premises and thereafter re-open. In our view, the larger exposure is likely with respect to more broad government orders shutting down business operations.
The second common issue refers to a typical form of coverage for Orders of Civil Authority. This type of coverage usually extends to situations where there is a government order, which prohibits the insured from accessing their property, which in turn causes a business interruption loss. The coverage often requires that the civil order result from some form of property damage external to the insured property. This would seem to be a much broader argument being advanced by the plaintiffs but would, in our opinion require the Court to find that the relevant Order of Civil Authority prevented the Insureds, rather than their customers, from accessing their properties.
SBA will continue to follow the progression of coverage-related class actions as concerns COVID-19 with interest, and we will provide updates as further decisions are released.
Better known around the water cooler as “Amazon Prime”, Tim has a knack for knowing just what his insurance clients need and delivering it overnight (at a premium). Whether he’s flexing his subrogation muscles, “nerding out” over a new coverage issue or investigating fraud, Tim enjoys thinking outside the box.