In response to ongoing financial distress caused by COVID-19, many businesses have tried to make claims under their business interruption policies. It remains uncertain whether business interruption losses directly or indirectly caused by the pandemic, such as losses stemming from government restriction orders, will be covered by a standard business interruption policy.
Business interruption insurance normally covers physical damage to the insured's property, physical damage to another property nearby, or physical damage elsewhere (that causes a disruption of supplies to the insured or interference with the ability of customers to access the insured's business).1
Business interruption insurance is likely to be a common subject of scrutiny in the context of pandemic-related claims by policyholders. For instance, a notice of action was recently filed with the Ontario Superior Court of Justice (the "ONSC") to certify a claim as a class action based on several Canadian insurers' alleged breach of business interruption policies.2 The claim asserts that "[certain] companies who provide business interruption insurance have shirked their obligations and are refusing to honor business interruption coverage".3 While it remains to be seen how the ONSC handles this dispute, this filing undoubtedly signals a rise in insurance litigation related to COVID-19 solvency issues.
Insurance trade groups such as the Insurance Institute of Canada (the "IIC") have asserted that "business interruption insurance by-and-large does not cover pandemic-related losses".4 These disputes also exist beyond the Canadian borders; in the U.S, a large retailer was recently denied its $175 million claim for lost revenue due to the mandatory closures under its business interruption insurance policy.5 After suing several of its insurance providers, the company now seeks to move its lawsuit into bankruptcy court for faster adjudication.6
Many businesses won't be able to survive without being able to make a valid claim under their business interruption insurance policies. This situation has major implications for the insurance industry. Insurers may also face major solvency issues if forced to make significant payouts on business interruption claims related to the pandemic. A fundamental principle of insurance is that the premiums paid by policyholders are to be commensurate with the risk, assumed by the insurer issuing the policy. Companies have also tried to purchase business interruption insurance, but pandemic coverage is very costly, so as a practical matter is inaccessible, particularly for mid-market businesses.7 Despite this, businesses continue to attempt to claim or obtain coverage for Covid-19 related business interruption.
There is currently much ambiguity surrounding whether pandemic-related losses are covered under business interruption insurance. We are closely monitoring the ongoing pandemic-related insurance litigation to see how these issues are being resolved, and we will endeavour to keep you informed on matters as this area of law develops.
1. Richard H. Krempulec, Property Damage Claims under Commercial Insurance Policies, (Toronto: Thomson Reuters Canada, 2004).
2. Koskie Minsky LLP, "Business Interruption Insurance Class Action", online at: https://kmlaw.ca/cases/business-interruption-insurance-class-action/
3. Lyle Adriano, "Major new class action lawsuit against Canada insurers", online at: https://www.insurancebusinessmag.com/ca/news/breaking-news/major-new-class-action-lawsuit-against-canada-insurers-230290.aspx; also see: Karen L. Weslowki, "Proposed National Class Action filed seeking payouts for business interruption insurance", (20 April 2020), online (blog) Miller Thomson: https://www.millerthomson.com/en/publications/articles/proposed-national-class-action-filed-seeking-payouts-for-business-interruption-insurance/
4. Naomi Grosman, "Covid-19 litigation and insurance industry insolvency" (July 2020), online at: https://www.insuranceinstitute.ca/en/cipsociety/information-services/quarterly-review-2020-07
5. Jeremy Hill, "Department Store Century 21 Shutting Down, Blames Insurers", Claims Journal (10 September, 2020), online at: https://www.claimsjournal.com/news/national/2020/09/10/299272.htm
6. Century 21 Department Stores LLC, 20-12097, U.S. Bankruptcy Court for the Southern District of New York (Manhattan).
7. Supra note 4.
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