COVID-19 may be a distant memory to some, but pandemic related litigation continues to filter through the court system. In Workman, the Ontario Superior Court of Justice recently examined an insured's ability to recover revenue relating to the pandemic.
Introduction
The Ontario Superior Court of Justice recently addressed a class action lawsuit where several businesses alleged to have suffered business interruption losses due to the COVID-19 pandemic in Workman Optometry Professional Corporation v. Certas Home and Auto Insurance Company, 2023 ONSC 3356. The insureds advanced claims for loss of revenue. All of those claims had been denied.
The businesses sought to recoup the losses through their business interruption policies. The policies insured losses such as loss of earnings or profits where an interruption of the business has resulted from "physical loss or damage to" property.
Key Issues
Simply, the core issue at trial was whether the plaintiffs' business losses caused by the COVID-19 pandemic were insured by the business interruption provisions of each defendant's property insurance wordings.
In coming to its decision, the Court had three questions to address:
- 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?; and
- 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?
Arguments
Issue 1: Cause of Physical Loss or Damage to Property
The plaintiffs argued that policies by their nature are to provide coverage to all risks, pandemic risks included, provided there is a physical dimension to the loss. Additionally, the plaintiffs argued that COVID-19 was 'physical' in that it spread to humans in a physical way, by either covering the surfaces of the property or equipment, or by being in the air of the businesses. The plaintiffs also argued that the physical loss or damage to the property included the loss of use of the property. Lastly, the plaintiffs argued that the defendants added pandemic exclusions to the commercial property policies, which showed that the plaintiffs' policies, issued before the pandemic, must have included coverage for any pandemic-related losses.
The Court rejected the plaintiffs' case. It was determined that "all risks" polices, while being broadly interpreted, the wording "direct physical loss of or damage to property" was clear limiting verbiage. As such, coverage would only be granted in a situation where there was direct physical loss or damage.
In order for there to be physical loss or damage, there has to be tangible or concrete alteration to the property involved. COVID-19 did not "...adversely alter, harm or cause the loss or destruction of inanimate surfaces and does not, therefore, physically harm or deprive the plaintiffs' of their property..." (see paragraph 104).
On the argument relating to "loss of use", the Court ruled that "loss of use" was distinguishable from physical loss or damage. All provisions in a policy are to be read as a whole, and the fact that the phrase "loss of use" was absent from the policies, confirmed that it was not to be interpreted in conjunction with physical loss or damage.
At paragraph 117 of the decision, the Court stated "If "loss of use" was intended to be insured as "physical loss of or damage to" property under the Commercial Property and Business Interruption coverages, "loss of use" would have been expressly included in those coverages, as it is in the CGL wording."
As for the plaintiffs' argument of the defendant's subsequent addition of pandemic exclusions, the Court determined that it would only be admissible if the contract was found to be ambiguous. In the subject case, as the policy wordings were deemed not to be ambiguous, the defendant's conduct was irrelevant.
On this issue, the Court concluded that the presence of COVID-19 at the plaintiffs' premises could not cause physical loss or damage to the plaintiffs' property.
Issue 2: Effect of Civil Orders
The plaintiffs conceded that civil orders do not cause physical loss or damage to property, but the orders were made in response to the spread of COVID-19 on insured property. As such, the plaintiffs argued that the orders deprived the plaintiffs of the use of their property and their ability to pursue the sale of their goods and services to patrons.
In rendering its reasons on this issue, the Court reiterated that the wording of the subject policies limits coverage for physical loss of or damage to property. The orders did not require the destruction of the plaintiffs' properties and the orders were to regulate the plaintiffs' use and occupation of their property.
The loss was in the ordinary course of use of the property and in the conduct of the plaintiffs' business. The Court decided that the business interruption provisions of the plaintiffs' commercial property policies do not insure against loss of use in the absence of physical loss of or damage to property.
Issue 3: Possible Exclusions
As the first two issues were answered in the negative, the Court did not find it necessary to answer this issue.
Decision
Ultimately, the Court decided that the existence of COVID-19, or an order of a civil authority that was made due to COVID-19, does not establish physical loss within the meaning of the business interruption terms in the defendant's respective property insurance policies.
Key Takeaways
- Within the parameters of a property insurance policy, COVID-19 cannot fall within the definition of causing physical loss or damage to a property. Additionally, a "loss of use" will typically not fall inside the definition of physical loss of damage.
- There must be an alteration or damage to the property for a virus to be considered the cause of physical or damage to the property. As such, business interruption policies will not regularly cover loss of profit related to COVID-19 unless there is physical damage or alteration to a property.
- By common agreement, the parties agreed to restrict the trial to the three issues noted above concerning only the business interruption provisions in the plaintiffs' policies.
- It is important to note, that in the context of the Workman decision, that the plaintiffs are also claiming breach of contract due to the denial of the claims and breach of common law duties of care, unlawful means conspiracy, violations of the federal Competition Act, bad faith, and unjust enrichment/restitution. As such, the decision in Workman is just one of many that will continue to filter through relating to COVID-19 related losses.
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