- Introduction and Background
On June 5, 2023, the Ontario Superior Court of Justice released its decision in the class action case of Workman Optometry Professional Corporation v Certas Home and Auto Insurance Company, 2023 ONSC 3356 (“Workman”).
The plaintiffs in this class action proceeding – a number of small and mid-sized businesses, sued various insurers for denial of their claims for business interruption losses resulting from COVID-19 closures. The various plaintiffs all shared one feature in common, each was dependent, to a significant extent, on customer traffic at their premises to generate business. The COVID-19 closures, unsurprisingly, resulted in significant revenue reduction to each of the plaintiffs.
- The Policies
The policies in question were all commercial property insurance policies consisting of the Declarations, the Commercial Property coverage and the Business Interruption coverage. The policies insured each of the plaintiffs’ properties against “all risks” of direct physical loss of, or damage to, the property. On that basis, the Court concluded that the dispute at issue was fundamentally over the meaning and scope of the expression “physical loss of, or damage to, property”. The issues were, effectively, all questions of contract interpretation.
III. The Issue Before the Court
The central issue before the Court at trial was a narrow one – whether the plaintiffs’ business losses resulting from the onset of the COVID-19 pandemic qualify as insured losses under the business interruption provisions of their respective policies.
The Court ultimately determined that the answer to the issue before it was “no”. Effectively, the COVID-19 pandemic is not an insured loss for purposes of business interruption provisions in a commercial insurance policy.
In addressing the issue posed above, the Court considered three certified questions to be answered at the trial:
- Whether the presence of the COVID-19 virus or its variants caused physical loss or damage to property within the meaning of the business interruption provisions of each of the defendants’ property insurance wordings (“Common Issue #1”);
- Can an order of a civil authority in respect of business activities that was made due to the COVID-19 virus or its variants cause physical loss or damage to property within the meaning of the business interruption provisions of each defendants’ property insurance wordings (“Common Issue #2”); and
- If the answer to either of the first two questions in “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? (“Common Issue #3”)
The Court was direct in confirming that the trial here was confined to determination of the above three certified questions. The decision was restricted to the business interruption provisions of the plaintiffs’ commercial property insurance coverage and nothing else raised by the plaintiffs in their pleadings.
- The Onus of Proof
The plaintiffs bore the onus of demonstrating that the damage or loss claimed fell within the initial grant of coverage. Once met, the onus shifts to the defendants to establish that one of the exclusions to coverage applies. Where the defendants are successful, the onus reverts to the plaintiffs to demonstrate that an exception to the exclusion in question applies.
- Common Issue #1
Whether the presence of the COVID-19 virus or its variants caused physical loss or damage to property within the meaning of the business interruption provisions of each of the defendants’ property insurance wordings? [“NO”]
The plaintiffs relied on three arguments in asserting that COVID-19 could cause physical loss or damage to property:
- That on the basis of the wording in the policies, the presence of COVID-19 on their property caused physical loss or damage;
- That physical loss or damage to property included loss of use of that property; and
- That the defendants addition of express pandemic exclusions to their commercial policies after the pandemic, demonstrates that the pre-pandemic policies provided coverage else no subsequent exclusions would have been required.
The Court rejected each of the above arguments.
With respect to the first, the Court determined that while coverage was broadly construed owing to the “all risks” nature of the policies, the wording “direct physical loss of or damage to property” was limiting language. Coverage was restricted by this language to events that involve direct physical loss or damage. In turn, “physical loss or damage” requires some tangible or concrete harm to said property. COVID-19 did not adversely harm property in a sufficiently tangible or concrete way so as to qualify as being direct physical loss or damage.
On the second point, the Court determined that a plain reading of “loss of use” was distinct from “physical loss or damage. The absence of “loss of use” language in the policies themselves, was further evidence that it was not intended to be captured in the meaning of physical loss or damage. To read in coverage for “loss of use” would distort the plain language contained in the policies.
On the third point, the Court anchored its rejection of the plaintiffs’ argument in rules of contract interpretation. Generally, evidence of subsequent conduct is inadmissible at the outset of contract interpretation and is only admissible where a contract is determined to be ambiguous. The Court concluded that because the policy wordings here were not ambiguous, it was inappropriate to consider subsequent conduct. Secondly, exclusions do not create coverage and should not be relied on to imply coverage.
On the above analysis, the Court concluded that the presence of COVID-19 cannot cause physical loss or damage within the meaning of the policies. The answer to Common Issue #1 was therefore, “no”.
- Common Issue #2
Can an order of a civil authority in respect of business activities that was made due to the COVID-19 virus or its variants cause physical loss or damage to property within the meaning of the business interruption provisions of each defendants’ property insurance wordings? [“NO”]
The Court began its analysis here by reiterating that the purpose of the trial was confined to issues respecting the proper interpretation of the business interruption provisions. Its purpose was not to address issues arising from alternative “civil authority orders” provisions contained in the policies outside of the business interruption provisions. The question here was confined only to whether a civil authority order made due to COVID-19 could cause physical loss or damage to property within the meaning of the business interruption provision.
For the following reasons, the Court concluded that answer to Common Issue #2 was, again, “no”:
- The Court rejected the plaintiffs’ argument that the civil orders granted were made to limit physical damage to property during the pandemic. The Court reiterated that a fair reading of the orders indicated that they were intended to mitigate harm to human health and not to property damage; and
- The civil orders did not cause physical loss or damage to property. Again, the wording of the policies confined coverage to circumstances where physical loss or damage to property occurred. The plaintiffs conceded that this did not occur.
VII. Common Issue #3
If the answer to either of the first two questions in “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? [Left Unanswered]
Having answered the first two common issues in the negative, there was no reason for the Court to address Common Issue #3 and, consequently, it opted not to.
VIII. The Takeaway
Effectively, the Court concluded that the business interruption provisions contained in the policies did not extend coverage to the plaintiffs for COVID-19 business interruptions. In reaching the decision, the driving consideration was that COVID-19 could not be properly said to fall within the meaning of causing physical loss or damage to property such that coverage applied.
Importantly, the present case is by no means the end of discussions relating to COVID-19 and coverage for business interruption losses. The Court was frank in stating that the proceedings were far from concluded. Litigation over coverage related issues as it applies to COVID-19 related business interruption will remain ongoing. The plaintiffs in the present case have, in addition to the common issues discussed here, plead for losses arising from breach of contract and bad faith amongst other items. These will undoubtedly yield additional decisions regarding the extent of coverage.
Instead, the present case stands for the narrower point that the COVID-19 pandemic is not an insured loss for purposes of business interruption provisions in a commercial insurance policy.
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