Business Interruption Insurance and = COVID-19 in=20 Ontario
Download PDF =- Shapiro= ,=20 Mark S. Hulton,= Wendy=20 G. Bain,=20 Paul E. = Di=20 Giorgio, Liana C. =20 =20
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Industry Alerts =
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During the COVID-19 pandemic, most businesses have suffered = losses=20 caused by business interruption, whether related to staff falling ill, = loss of=20 customers or suppliers, or governments requiring new forms of = compliance. Some=20 businesses have made COVID-19 related claims which have been met with = resistance=20 by their insurers and are already taking legal action as a result = =E2=80=93 for example,=20 a nation-wide class action was recently launched in Saskatchewan against = several=20 insurance companies in respect of denied claims relating to COVID-19, = and a=20 group of Ontario optometrists has started a petition urging their = insurers to=20 approve claims resulting from COVID-19. It is important to note that = generally=20 speaking, commercial property insurance policies cover losses caused by=20 actual physical damage.
In the past few weeks, the Ontario Superior Court=E2=80=99s = decision in MDS=20 Inc. v. Factory Mutual Insurance Company has made waves throughout = the=20 legal and insurance communities. Some interpretations of this decision = have=20 suggested that courts may require all-risk and business interruption = insurers to=20 cover certain losses caused by COVID-19. However, a closer review of the = decision reveals that these interpretations are likely too good to be = true for=20 insureds. This decision does not relate directly to COVID-19, nor does = it alter=20 the terms of all-risk and business interruption insurance policies as = they=20 relate to losses caused by COVID-19.
The Facts
MDS Inc. (the =E2=80=9CPlaintiff=E2=80=9D) was = in the business of=20 buying and selling radioisotopes. A leak occurred at the nuclear reactor = facility from which the Plaintiff obtained radioisotopes, causing an = unexpected=20 shutdown of the facility. The leak did not cause physical damage to the = area of=20 the facility responsible for producing the radioisotopes. The shutdown = lasted=20 over a year and prevented the Plaintiff from sourcing these = radioisotopes. As a=20 result, the Plaintiff suffered over $120M in losses.
At the time of the incident, the Plaintiff had an all-risk = insurance=20 policy (the =E2=80=9CPolicy=E2=80=9D) in place with = Factory Mutual Insurance=20 Company (the =E2=80=9CInsurer=E2=80=9D) for losses from = all risk of physical=20 loss or damage, except as excluded by the policyThe Plaintiff made a = claim for=20 its losses under the Policy but the claim was denied by the = Insurer.
The Reasoning
One of the main issues explored in the decision is the meaning = of the=20 term =E2=80=9Cresulting physical damage=E2=80=9D found in the Policy. = The Insurer claimed there=20 was no resulting physical damage as physical damage would require=20 actual damage to the area where the radioisotopes were = produced. The=20 Plaintiff argued for a broader interpretation, suggesting the shutdown = caused by=20 the leak should constitute resulting physical damage, as it prevented = the=20 facility from being used.
Though the Court ultimately agreed with the Plaintiff, this = decision=20 involved specific facts, and an important factor was the language = contained in=20 the Policy. The term =E2=80=9Cresulting physical damage=E2=80=9D was not = defined in the Policy.=20 As such, the Court turned to a Supreme Court decision that held that the = interpretation of the scope of a resulting damage exception should be = informed=20 by the specific language of the policy and the relevant factual matrix,=20 including the reasonable expectations of the parties.
The Court applied this principle and spoke to the purpose of = all-risk=20 insurance being to provide broad coverage for risks not typically = covered by=20 other types of policies. The purpose of the Policy included the = compensation of=20 the Plaintiff for interruptions to its supply of radioisotopes caused by = unforeseen events.
The Court also conveyed that certain other provisions in the = Policy=20 supported the broad interpretation of =E2=80=9Cresulting physical = damage.=E2=80=9D Though the=20 Court did suggest that physical damage could include the loss of use of = certain=20 property despite there being no actual physical damage to such=20 property, this decision was based on a unique fact pattern, and = it is=20 unlikely that the decision alone would support the broader notion that = physical=20 damage includes intangible harm that restricts the use of = property.
Conclusion
In this case, the Court adopted a broad interpretation of = =E2=80=9Cphysical=20 damage=E2=80=9D in light of the purpose of the Policy and the = distinctive set of facts=20 before it. While the decision may have some application to future claims = involving COVID-19, one should not read the decision as suggesting that = business=20 interruption or all-risk insurance coverage will unequivocally extend to = interruptions caused by COVID-19.
Some policies may expressly cover business interruption caused = by=20 contagious diseases or restrictions imposed by governmental authorities, = some=20 may expressly exclude these events (as a result of insurers=E2=80=99 = experiences with=20 the SARS and H1N1 outbreaks), and some may be entirely = silent.
It will be very interesting to see how Courts interpret = different types=20 of insurance policies in light of COVID-19 =E2=80=93 some may sympathize = with claimants,=20 while others may not be willing to shift the burden of uninsured losses = to=20 insurers. We also expect different insurers to behave differently in the = face of=20 uncertainty with some being more generous and others more aggressive in = their=20 approach to covering losses before insurance laws catch up to=20 COVID-19.
If your business has experienced losses caused by COVID-19, = Dickinson=20 Wright may be able to assist by reviewing your existing insurance = policies and=20 advising in respect of how they relate to potential claims for such = losses.=20 Dickinson Wright can also help you navigate disputes with your insurers=20 regarding the same. If you have suffered these types of losses you = should act as=20 quickly as possible as your insurance policies may require you to make = claims=20 within a certain time period.
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