COVID Business Interruption Coverage Denial Upheld by ONCA
Background
The appellants/plaintiffs appealed the June 5, 2023 decision of Penny J. of the Ontario Superior Court (Workman Optometry Professional Corporation v. Certas Home and Auto Insurance, 2023 ONSC 3356), which was heard by the Ontario Court of Appeal on June 12, 2024 (Workman Optometry Professional Corporation v. Certas Home and Auto Insurance Company, 2024 ONCA 479).
The decision involves a proceeding under the Class Proceedings Act, 1992. The plaintiffs are various companies that made claims pursuant to business interruption coverage following reduction in revenues during the COVID-19 pandemic. The plaintiffs’ businesses all relied on in-person customer/client traffic in their premises to generate sales of goods and services. The defendants are various insurance companies that denied the plaintiffs’ claims.
Certification orders in this matter were issued on consent in August 20, 2021 and April 12, 2022.
The 2023 Superior Court decision addressed three certified questions:
1. Can the presence of the SARS CoV-2 virus or its variants cause physical loss or damage to property within the meaning of the business interruption provisions of each defendant’s property insurance wordings?
2. Can an order of a civil authority in respect of business activities that was made due to the SARS CoV-2 virus or its variants cause physical loss or damage to property within the meaning of the business interruption provisions of each defendant’s property insurance wordings? and;
3. If the answer to either of the first two questions is “yes”, are there any exclusions in any of the defendants’ property insurance wordings that would result in coverage for such loss or damage being excluded?
with “physical loss or damage to property” including “physical loss” or “physical damage” or “direct physical loss” or “direct physical damage”, or similar wording as may be used in the business interruption provisions of each defendant’s property insurance wordings.
The Superior Court answered “No” to the first two questions and therefore, it was not necessary to answer the third question.
Court of Appeal Decision
The appellants argued on appeal that the trial judge made two errors:
- He incorrectly held that the real or apprehended physical presence of SARS-CoV-2 on commercial property was not “physical damage” to the extent that it rendered the property dangerous; and
- He incorrectly held that a “loss of use” resulting from the presence of SARS-CoV-2 did not amount to “physical loss” within the meaning of the various insurance policies.
In its brief decision, the Ontario Court of Appeal upheld the Superior Court decision on all points and glowingly remarked:
We do not accept these submissions. On both issues, we agree with the reasoning and conclusions of the trial judge. His reasoning is thorough and impeccable and his conclusion is correct.
Direct Physical Loss or Damage to Property
The Superior Court’s reasoning with respect to defining the physical presence of SARS-CoV-2 on commercial property as “physical damage” was rooted in principles of contract interpretation with respect to insurance policies. At para 52, Penny J. wrote:
…While I agree with the plaintiffs that “all risks” is a broad category capable of including a world-wide pandemic, the additional phrase “direct physical loss of or damage to property”, is properly understood as limiting language that restricts coverage for insurable risks to events that involve direct physical loss or damage.
Penny J. noted further at para 57:
…The nature of the alleged loss goes to the very heart of the matter. In my view, the phrase “physical loss or damage” would convey to the average person that the property has been harmed or lost in a tangible or concrete way. I find that this expression is not ambiguous…
Expert evidence was heard, and the court accepted the evidence that viruses such as
SARS-CoV-2 do not alter inanimate surfaces in any tangible or material manner. They only affect people. American case law was reviewed, which overwhelmingly concluded that the virus does not constitute “direct physical loss or damage”.
Loss of Use
The Superior Court’s reasoning with respect to “loss of use” resulting from the presence of SARS-CoV-2 not amounting to a “physical loss” included consideration of relevant case law, which was not found to be supportive of the plaintiff’s position.
Additionally, the specific phrase, “loss of use” appeared in the CGL policy wording, and not in the Commercial Property and Business Interruption coverages, which were at issue. The CGL policy expressly contained broader coverage than that of the Commercial Property and Business Interruption coverages. It was therefore found that “loss of use” is not covered.
Takeaways
It is now quite clear, with the Court of Appeal’s endorsement of the lower court’s decision in this case and the large amount of case law reviewed in support of the defendants’ position in this matter, that the denial of insurance claims pursuant to Commercial Property and Business Interruption policies by business owners in Ontario for business losses related to the pandemic is appropriate on a proper interpretation of these insurance policies.