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We have previously written about the impact of ongoing lockdowns and safety mandates due to COVID-19, and the impact they’ve had on businesses throughout the country. Soon after the pandemic began, in April 2020, we discussed the concept of business interruption insurance and its potential applicability to the situation at hand. In the months since, companies both large and small have filed claims with insurers to cover the loss of income owing to prolonged and unexpected closures.

Prior to the pandemic, claims for business interruption losses were frequently made in situations where a business experienced physical damage (for example, due to extreme weather), and was unable to continue operations until the damage was repaired. This has been the basis for the denial of coverage by many insurers for claims related to pandemic closures. In response, many businesses have claimed that coverage under an all-risks policy extends to an interruption for any reason, so long as it is not expressly excluded in the policy’s language.

In June, we covered an Ontario decision that found that it was not necessary for a business to experience physical damage in order to make a claim for business interruption coverage under an all-risks policy. This decision, while not related to pandemic closures, provided a potential pathway for coverage for economic losses under these policies unrelated to property damage, which could be extended in theory to cover government-mandated closures.

Class Action Targeting 14 Insurers Certified in Ontario

As predicted back in 2020, class action claims against insurers have begun in earnest. Just last month, a class action brought against 14 insurance companies by a number of businesses, ranging from independent optometrists to national franchises, was certified by the Ontario Superior Court. The statement of claim takes the position that the insurers were unjustly enriched by the sale of business interruption coverage to the plaintiff businesses, which they later refused to honour.

In addition, there are multiple claims aimed at Aviva Insurance Company of Canada specifically. The insurer has also been carved out of the class action mentioned above, owing to the fact that the company’s business interruption policies contain specific language which indicates coverage extends to situations in which an insured experiences a loss of income as a result of the outbreak of an infectious disease. In denying claims related to COVID-19, Aviva claimed that coverage did not extend to global pandemics. Given the unique language contained in Aviva’s policies, the Court found that these actions should proceed ahead of the remaining actions, on an expedited basis.

Organisation for Economic Co-operation and Development Examines Global Impact of Business Losses Due to Pandemic

The fallout of the pandemic and the overall financial impact on business is a global issue. In March of this year, the Organisation for Economic Co-operation and Development (the OECD) released a paper examining the global impact of this issue, and the gap in insurance coverage in particular. Specifically, the paper aims to address “how business interruption insurance against pandemic risk could be provided with support from governments, and some of the challenges and considerations necessary for establishing such a programme”.

The OECD examined 28 countries specifically, including Canada, and found that just one month of confinement measures (or lockdown, as it has been referred to here in Canada), could result in an estimated 1.7 trillion USD in business losses across the countries considered. In Canada alone, the monthly impact on businesses is said to be approximately 71 billion USD.

The ability of insurers to provide coverage for these losses is limited. The OECD notes that the International Association of Insurance Supervisors issued a statement back in 2020 which said that initiatives requiring insurers to cover pandemic-related losses “could ultimately threaten policyholder protection and financial stability, further aggravating the financial and economical impacts of Covid-19”.

The losses experienced by small and large companies across Canada and the world have been immense. However these Candian cases are ultimately decided will no doubt have a significant economic impact on either the insurance industry or the businesses affected by the closures, as damage claims represent billions of dollars in losses in Canada alone. As stated by one Canadian insurance CEO, Irene Bianchi, the COVID pandemic has presented a significant challenge for insurers around the world:

This is really a learning opportunity for insurers to understand and plan for the next massive event that will impact the world. Many are calling for government partnerships to mitigate and help resolve issues like the ones we are seeing now.

Contact Milosevic & Associates in Toronto for Representation in Class Action and Litigation for Insurance Disputes

If you are involved in insurance litigation or a class proceeding resulting from the effects of COVID-19 on your business or expect to be, the exceptionally skilled corporate litigation lawyers at Milosevic & Associates in Toronto can help. Over the years, our team of lawyers has successfully fought for our clients’ rights and our impressive track record speaks for itself. Please contact us by calling 416-916-1387 or connect online for a consultation.