Further to my recent article on the Workman decision, where the Ontario Superior Court of Justice examined an insured’s ability to recover revenue relating to the pandemic, the Ontario Court of Appeal in SIR Corp. confirmed the same stance; business interruption losses relating to COVID-19 are not insured losses.
The Ontario Court of Appeal recently addressed a claim by SIR Corp. who own and operate approximately 60 restaurants. The pandemic related emergency order prevented SIR from offering in-person dining at its restaurants, which caused damage to food and beer stock.
SIR brought an application arguing that it was entitled to coverage under its insurance policy with Aviva for the damage to the beer and food stock, as well as for other business losses caused by the pandemic orders.
The application judge found that SIR’s policy did not cover the losses sustained by SIR and SIR subsequently appealed the decision.
SIR Corp. appealed the application judge’s decision on the basis that there was a palpable and overriding error in her interpretation of the Policy or an extricable error of law.
In arguing the entitled to coverage, SIR Corp. relied on Clause 14 and Clause 16 of Section I of the policy. The two clauses read as follows:
14. CIVIL OR MILITARY AUTHORITY:
This Policy insures loss, as covered herein, which is sustained by the Insured as a result of damage caused by order of civil or military authority to retard or prevent a conflagration or other catastrophe. [Emphasis added.]
This policy is extended to include the loss sustained by the Insured during the period of time when as a result of a peril insured or threat thereof, ingress to or egress from any part of premises of the Insured or of others is prevented or impaired, including prevention or impairment of such access by any civil or military authority. Maximum 8 weeks. [Emphasis added.]
SIR Corp. also argues that its insurer should be estopped from a denial of coverage as it had provided previous coverage to an SIR Corp. restaurant relating to a government order in St. John’s due to a January 2020 storm.
Clause 14: Civil or Military Authority
Clause 14 raised the issue of whether COVID-19 was an “other catastrophe” within the meaning of Clause 14, and whether the damage was “caused by” the emergency orders, and if so, were the orders the cause of the food and beer spoilage.
The key issue was whether the word “catastrophe” in Clause 14 should be given its ordinary meaning. As the word “catastrophe” followed “conflagration”, the Court decided that use of the word “conflagration” was intended to apply to events such as wars, conflicts or large disastrous fires.
The Court further held that for SIR Corp. to be entitled to coverage under Clause 14, the emergency orders must be “the direct cause of the damages sustained.” The Court confirmed that the orders did not stop SIR Corp. accessing its restaurants. The restaurants were still able to serve food to the public, albeit not with in-person dining. The spoilage of the food and beer was deemed to be because of a reduced market, passage of time, and SIR’s inability to use the stock for its initial purpose.
Clause 16: Ingress/Egress
In analysing Clause 16, the Court had to decide if the emergency orders applied to the term “a peril insured or threat thereof”. The Court concluded that “perils insured” under the subject policy were for all risks of “direct physical loss or damage, except as excluded”. When the policy, and the factual matrix, were interpreted in totality, the Court decided that the emergency orders were not perils insured. On this issue the Court concluded, based on the lack of direct physical loss or damage, that “If the parties had intended to extend the Policy to include what SIR describes as “non-damage business interruption coverage” one would have expected much clearer language.
SIR Corp. argued that its insurer should be estopped from denying coverage. On January 17, 2020, St. John’s, Newfoundland and Labrador, declared a state of emergency, due to hurricane-force winds and extreme snowfalls, which resulted in businesses being ordered to close. SIR Corp.’s St. John’s restaurant was covered for loses during this emergency order.
The Court rejected SIR Corp.’s arguments of estoppel pointing out that the order in St. John’s related to high winds and extreme snowfall which could cause physical damage to a property. Conversely, the COVID-19 related orders were implemented due to concerns for public safety.
Ultimately, the Court dismissed the appeal and decided that the pandemic was not a “catastrophe” within the meaning of the subject policy, there was no direct damage to SIR Corp.’s properties due to the COVID-19 orders and there was no estoppel based on the previous St. John’s coverage.
- As with the decision in Workman, the SIR Corp. decision confirms the Courts unwillingness to allow losses related to COVID-19 unless there is physical damage or alteration to a property.
- The SIR Corp.decision emphasizes the Court’s continued interpretation of the words “direct physical loss or damage” which is found in many property policies in Canada. The policy terms were unambiguous and that a physical alteration to the property is required to trigger coverage.
- Interestingly, SIR Corp. also highlights the importance that policy endorsements are part of the complete policy. The endorsements must be read as a whole with the entire policy.