Given Singer Kwinter’s more than 40 years experience in representing policy holders against insurance companies, it is not surprising that we are receiving calls from panicked business owners asking if they have a claim under their policy for losses due the COVID-19 crises.
Insurance coverage is determined by the terms of the policy. Therefore, examination of the insurance policy is a key first step. An insurance policy is a complicated document setting out what losses are covered and those that are not. Losses not covered are referred to as “exclusions” and you can be sure the policy will contain many exclusions. It is unlikely the policy will make specific reference to a pandemic and if it does it will likely be one of the exclusions. Therefore, assuming the coverage is not clearly excluded, the question is: Can there be coverage under what is known as the “Business Interruption” section of the policy? This is the coverage that provides compensation when a business loses sales or profits or has increased expenses as a result of a covered loss such as a fire or a flood. Every business policy will or should include “Business Interruption” coverage.
The problem business owners are facing with the Coronavirus is that a “loss” which triggers the Business Interruption coverage is usually required to be a “physical loss” which caused damage to the business or property. The big question to be decided here is whether the Coronavirus and the subsequent shut-down or slow-down of a business can be linked to a “physical loss”. There has been no case so far in Canada that has addressed this specific issue. There is however some good news. In March 2020 the Ontario Superior Court released the decision in the case of MDS Inc. v. Factory Mutual Insurance Company. In that case a company dealing with radioscopes had to close because the body supplying the material was ordered to shut down due to a leak. MDS’s shutdown lasted 15 months and it sought coverage for its losses of over 100 million dollars.
MDS made a claim under its “all risk” policy. The Superior Court judge held that the shut-down constituted “physical damage” under the policy and therefore held that there was coverage for this loss. While there is little doubt that the decision will be appealed, the decision does give us hope that a shut-down can be found to be physical damage. Also, policyholders should know that when it comes to interpreting the wording of insurance policies the courts have provided some relief. The law governing insurance contracts states that exclusions which restrict or limit coverage should be interpreted narrowly (against the insurance company) while coverage provisions should be interpreted broadly (in favor of the policyholder) to try to find coverage where possible.
Another piece of good news is that in the United States there have been cases dealing with this issue and some courts have held that there is coverage for Coronavirus related losses. Some states have gone so far as introducing legislation requiring insurance companies to cover Business Interruption loses caused by the Coronavirus.
As the law unfolds Singer Kwinter will continue to fight for its clients, continue to change the law and set records as it has done for the last 45 years.