February 20, 2024
The Court of Appeal continues to make it difficult to obtain insurance payouts for the COVID pandemic’s effect on your business.
THE CASE
SIR Corp. v. Aviva Insurance Company of Canada is an example that involves a business interruption claim made by a large chain of restaurants forced to close by government orders. This decision will not apply directly to your insurance coverage, since the corporate group had what is known as a “manuscript policy”- one that contains wordings crafted for the particular policy, not taken from typical industry precedents. However, it not only shows the court’s attitude and approach, but the particular phrase also that sunk the Plaintiff’s ship, is a phrase typically found in business interruption policies. And that is not good for businesses shuttered by COVID.
The court uses a three-step approach to interpreting the contract:
- When the language of the policy is unambiguous, the court should give effect to its clear language, reading the policy as a whole.
- Where the policy language is ambiguous, the general rules of contract interpretation provide guidance, including the rule that effect should be given to the reasonable expectations of the parties, as long as the interpretation is supported by the text of the policy. Similar insurance policies should be construed consistently. These rules should be applied to resolve an ambiguity, not to create one.
- Where ambiguity remains after the application of these rules, the contra proferentemrule applies to construe the policy against the maker, the insurer. This gives rise to the precept that coverage provisions are interpreted broadly and exclusions clauses narrowly.
“Reading the policy as a whole” includes looking at surrounding circumstances.
After examining the wordings, the court decided that “All risks of direct physical loss” was unambiguous, and the other steps did not matter. On the plain wording of the clause, shutting down in response to a government directive is NOT “direct physical loss”. There is no coverage.
TAKEAWAYS
Many businesses were relying on policies that require “direct physical loss” to recover for business interruption. This decision is disappointing news for them.
WHAT WEILERS LLP CAN DO FOR YOU
Weilers LLP has throughout our 75 years represented insurers and insureds in insurance disputes. We know how to read and interpret a policy. We take a practical and assertive approach to resolving disputes, including trials when necessary. If you have a problem with your insurer, give us a call and see if we are the right lawyers for you.
We also continue to work for insurers when requested to do so, which improves our ability to navigate the claims and dispute resolution process.