As the world transitions to a “new normal”, insurers will face a change in the claims landscape. New types of claims will emerge while insurers may see an evolution or even decrease in the traditional types. Here are the types of claims and how they could change in the post-COVID world.
Motor Vehicle Accident Claims
Insurers across the board have decreased premiums, offered rebates or provided coverage modifications because Canadians are driving less. There are fewer Canadians commuting to work, and shops, bars and restaurants are largely closed. As a result, insurers will likely see a decrease in motor vehicle accident claims in 2020.
In fact, insurers and governments in North America are already starting to note a trend:
However, a side effect of empty streets has been an increase in dangerous behaviours.
People may be driving less but some are driving more dangerously. Some drivers are taking open roads as carte blanche to act recklessly, which may lead to an increase in serious claims rather than motor vehicle accident claims.
Business Interruption Claims
Traditional commercial policies are less likely to cover claims for business interruption relating to COVID-19. Typically, business interruption coverage is meant to cover expenses and lost revenue relating to a covered loss, for example, if a business has to shut down due to fire damage. Most policies require proof of physical damage to the insured's premises. Although “contamination” has been found in certain cases to be “physical damage” there has yet to be commentary in Canada on whether the presence of a virus may be considered “contamination”. Further, most businesses are not closed because there is an outbreak of the virus on their premises but rather as a preventative measure or as ordered by local authorities. It is questionable whether losses arising from preventative measures will be covered, and a review of policy language is required in every case.
Certain insureds may seek to claim coverage where their policy responds to losses due to “Interruption by Civil Authority”. As a case example, a restauranteur in Toronto has filed suit against his insurer following a denied claim for loss profits and expenses arguing he has coverage under the civil authority language. The policy contained wording that there was coverage for losses “caused by order of civil authority to retard or prevent a conflagration or other catastrophe” but the claim was denied because his properties did not suffer damage.
Civil authority coverage is meant to provide coverage for “loss of business income, rental value and extra expenses incurred because of denied access or forced evacuation”. However, according to HUB International, often there are a number of conditions to this coverage including:
- The denial of access must be due to an incident of physical damage to a nearby property.
- Damage to that nearby property must be due to a peril covered under your insurance policy.
- There is a limit to the length of time the business interruption coverage applies. Usually between 15 and 30 days.
- Business interruption coverage usually has a deductible in the form of a waiting period. The typical range is 24-72 hours.
While most businesses did not typically carry coverage to recoup losses sustained during a pandemic, some businesses were almost clairvoyant in their coverage purchases. In the sport of tennis, The Wimbledon Championship had been purchasing pandemic coverage since the SARS outbreak in 2003. The cost of the coverage was approximately CAD $2.6 million per year or approximately CAD $45 million over the entire period. While the payout of approximately CAD $200 million will not necessarily cover the entire loss suffered by the cancellation of this year's tennis tournament, it turned out to be a wise decision.
At the end of the day, business interruption coverage is likely to be one of the most litigated issues post-COVID. A Regina, Saskatchewan based law firm with offices across Canada has already announced it is launching a national class-action against a number of insurers in Canada for denied business interruption claims.
Long-Term Care Claims
Nursing homes have been ground-zero for the COVID-19 pandemic in Canada. According to some sources, as of May 7, 2020 82% of Canada's COVID-19 deaths have been linked to long-term care homes. The majority of these deaths have occurred in Ontario and Quebec. However, as of June 5, 2020, 53 of the 61 deaths from COVID-19 in Nova Scotia were tied to one long-term care facility.
Lawsuits have already started to be filed:
- In Montreal, Quebec, a $2 million class action was filed in relation to 31 residents who passed away at a Montreal long-term care home.
- A Toronto law firm has served the provincial government with a proposed class proceeding and a separate firm has filed a $40 million class action against the company responsible for one of the hardest hit homes in Ontario.
- A $25 million class action was filed in Calgary, Alberta.
- A firm in Nova Scotia has filed a proposed class action against the facility at the centre of that province's long-term care outbreak.
- Aside from the class action claims, there have been several individual claims filed against private nursing homes.
The challenge with these claims will be to establish the standard of care required during a pandemic and to show that the actions of the homes and the care provided to the residents breached this standard of care, leading to illness or death. Additionally, many of these actions claim punitive damages, which are typically excluded under traditional commercial policies.
Perhaps an unintended result of the COVID-19 outbreak in long-term care facilities, and the resulting investigations into the individual facilities, will be to bring to light other claims unrelated to COVID-19.
Cyber Claims
Many individuals have had their entire lives moved online. From work and shopping to social interaction. With the increase in online presence, comes an increase of the potential for claims from businesses who had the foresight to purchase cyber policies.
As of mid-March, a large proportion of the workforce in Canada began working from home and businesses had to pivot their operations quickly to accommodate this new working arrangement, potentially without fully reviewing their cybersecurity systems. Without properly assessing cyber risks, including vulnerability in their technologies, use of older technologies and the technological savviness of their employees, as well as the physical threat of stolen laptops or other company equipment, companies may suffer losses or be liable for data breaches.
A number of businesses moved the services they provide to their customers online. Whether it is clothing stores, grocery stores or restaurants newly offering food delivery and pick-up. Shopify, an e-commerce platform for online retailers, saw a 62% increase in new online stores on its platform between March 13 to April 24, 2020. For this business model to work, businesses must collect and store data from their costumers. Given the speed at which these businesses had to adapt, many without a previous online presence, they are at higher risk of being victims of cyber-attacks or data breaches. These attacks might result in an increase of cyber claims being filed.
Finally, the provincial and federal governments are urging Canadians to download contact-tracing applications for their smartphones. These applications identify, inform and monitor people who might have come in contact with a person who has been diagnosed with an infectious disease. However, a number of different companies are scrambling to develop the application of choice. Aside from the privacy concerns that relate to these applications, there are also cyber risks when this type of data is collected.
By offering flexibility to their employees, providing new services or finding new methods to fight the virus, businesses may open themselves up to cyber-attacks and, for businesses with cyber coverage, their insurers to a wide range of claims.
Other Claims
There are a number of other areas where we may see changes or new types of claims.
- Insurers will see decrease in commercial host liability claims and other interior type claims (slip and falls, etc.) due to restaurants and bars being closed. However, restaurants have been permitted by provincial governments across the country to sell alcohol with take-out orders and there is still liability associated with curbside pickups.
- A question we have seen is whether a business or even a homeowner may be sued by an individual who believes they were exposed to COVID-19 at a business or home. While it may be difficult for an individual to prove he or she contracted the virus at a particular location, contact tracing application data may make that link easier. Multiple lawsuits in the United States have already been filed against Princess Cruises for failing to protect passengers from exposure. Many homeowner policies contain an exclusion relating to infectious diseases so ultimately the viability of the claim whether under a commercial liability policy or a homeowner's liability policy will come down to policy wording.
The pandemic has and will prove to be unpredictable for the insurance industry. Insurance companies, like all other businesses, have been doing their best to pivot and respond to the uncertainty. The claims landscape will be altered for the near future and the more prepared an insurer is respond to the new “normal”, the better the outcome.
Please contact your McInnes Cooper lawyer or any member of our Insurance Defence Law Team @ McInnes Cooper to discuss this topic or any other legal issue.
McInnes Cooper has prepared this document for information only; it is not intended to be legal advice. You should consult McInnes Cooper about your unique circumstances before acting on this information. McInnes Cooper excludes all liability for anything contained in this document and any use you make of it.
Originally published 11 June, 2020
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
