INSURANCE COVER: COULD THE RECENT DECISION OF THE ONTARIO SUPERIOR COURT PAVE THE WAY FOR SUCCESSFUL BUSINESS LOSS CLAIMS ARISING FROM THE COVID-19 PANDEMIC?
In a standard business interruption insurance policy, whether cover is available depends on whether COVID-19 can be said to have caused physical damage or loss to premises or property. In assessing this, various issues need to be considered and the question is likely to become the subject of lengthy and expensive litigation in this jurisdiction which will not be determined for some considerable time yet.
Whilst it would appear that few business interruption policies will respond to COVID-19, a decision of the Ontario Superior Court of Justice in March 2020 has challenged this presumption against cover, and has adopted an interpretation of “physical damage” which suggests there may well be coverage for business interruption losses caused by COVID-19 under property insurance policies in certain cases.
The issue arose in the case of MDS Inc V Factory Mutual Insurance Company,(FM Global), 2020 ONSC 1924, per J. Wilson, J. The background to the case arose in a different context to the COVID-19 pandemic, with MDS shutting down its operations for safety reasons linked to a nuclear facility that was not actually damaged. Factory Mutual, the Defendant Insurer, sought to resist the indemnity claim, asserted that shutting down one’s premises due to the presence of a threat does not give rise to “physical damage” to those premises, but merely constitutes uninsured “loss of use”. Essentially, the question that the Canadian Court had to decide was what constitutes “physical damage” in the context of an all-risks property insurance policy? In making its decision, the Court rejected the Insurer’s argument - noting that physical damage was not defined in the policy and that dictionaries did not provide much guidance. The Court broadly interpreted the term “physical damage” in an all-risk insurance policy to include the “impairment of function or use of tangible property.” In reaching its decision, the Court expressly rejected “narrow” interpretations of what constituted physical damage in favour of a “broader” interpretation, which incorporated such things as the loss of the function or use of a building, even if only temporary.
While it is important to keep in mind that this case was decided on unique factual circumstances and the precise insurance terms that applied, Insurers should view this decision cautiously in light of their own policies’ language and the specific facts resulting in COVID-19-related claims that seek coverage for business losses.
It has been observed that external pressure has been building for some time both in Ireland, the UK and worldwide to bring Insurers to account and confirm business interruption cover more widely. The issue will be what the Irish government will do, will it back the Irish insurance market’s response, or take a more aggressive stance. This decision and reasoning of the Ontario Superior Court of Justice (while only of persuasive authority in this jurisdiction) can potentially be used to ramp up pressure on Insurers – and certainly a strong argument can be made for any policy ambiguity to be interpreted in the policyholder’s favour. On 27 March, the Minister for Finance requested Insurance Ireland members take a more consumer focused approach when dealing with businesses and consumers during COVID-19. The situation continues to evolve and the matter is not without risk for Irish Insurers. The MDS case in Canada (although dealing with COVID-19 clams) did eliminate a significant hurdle that businesses would have had to overcome with respect to claiming business interruption losses arising from COVID-19 under traditional commercial policies. Without a doubt, this landmark decision will have an impact on business interruption loss claims as they relate to COVID-19, as both businesses and insurance companies strive to assess coverage.