Court of Appeal for Ontario Holds That Loss of Use Does Not Constitute “Physical Damage” In the Context of a Business Interruption Claim
Last year, policy holders were intrigued by a Superior Court decision that suggested business interruption losses caused by COVID-19 restrictions might be covered under their policies. The Court of Appeal has put a damper on these hopes: loss of use is not “physical damage” within the meaning of at least one standard form policy, and business interruption coverage was therefore not engaged.
The Superior Court has released a decision that provides some useful guidance on what use can be made of an expert’s report in a duty to defend application. In AIG Insurance Company v Lloyd’s Underwriters, the court was faced with the question of what knowledge could be imputed to a municipality upon the receipt of an expert’s report. Noting that the report itself may not be non-controversial as the case law demanded to be considered at the duty to defend stage, the Court nevertheless held that the report was too preliminary to either make the harm “expected” within the meaning of an exclusion in the policy, or alternatively crystallize the harm upon receipt of the report such that the harm would constitute an “occurrence” outside of the insurer’s policy period.
The Court of Appeal for Ontario has issued the highly anticipated decision in MDS Inc v Factory Mutual Insurance Company. Last year, the Ontario Superior Court of Justice awarded prejudgment interest based on the insured’s actual cost of borrowing, and not the much lower rates under the Courts of Justice Act. Although the Court of Appeal overturned the trial judge’s decision on the merits, it would not have interfered with the prejudgment interest award.
During the past twenty years, many provinces have simplified their legislation governing limitation periods. One remaining complexity is that courts have continued to assess when a claim is discovered – which starts the limitation clock running – based on knowledge of the material facts to support the required elements of a legal cause of action. That issue has now been addressed by the Supreme Court of Canada in Grant Thornton LLP v New Brunswick, which has simplified the required analysis.
Timely reporting to the insurer is essential for liability insurance policies structured on a claims-made basis. Coverage can be lost if a policy renewal intercedes between knowledge of a potential claim and before the insurer is notified. While that result can be justified in some circumstances, a recent decision from the Ontario Superior Court of Justice helpfully confirms that the policy had better be clear for the insurer to take that position.
The Ontario Court of Appeal (ONCA) has released a decision that reiterates a key guiding principle in proceedings brought to enforce an insurer’s duty to defend: the court must carefully review the underlying pleading and focus on the true nature of the claim, not simply the words used by the plaintiff in the underlying claim, to determine if any of the claims could potentially be covered by the policy. In Family and Children’s Services of Lanark, Leeds and Grenville v. Cooperators, the ONCA overturned a lower court judge who the Court said failed to properly conduct this analysis.
Insureds who suffer a loss may find they are covered by multiple insurance policies for that loss. Such situations can arise inadvertently, or the existence of multiple overlapping policies may be by design. For example, the prudent insured may have purchased several distinct types of coverage, one or more of which overlap to cover a risk. Or the insured may have required another entity to name it as an additional insured, while also having its own coverage for the risk. In the context of liability claims, having multiple insurance policies can cause disputes over which insurer(s) have a duty to defend, and if more than one, how associated defence costs should be allocated. It is not uncommon for the insured to get caught up in these fights, although they most frequently involve disputes between the insurers. This paper will provide an overview of several issues that may arise with the duty to defend, where there are “overlapping” or concurrent insurance policies.
The Ontario Insurance Act requires that every property insurance contract in the province give the parties a right to require that disagreements about the amount of an insured loss be resolved via an appraisal process. Other provinces’ insurance statutes contain similar provisions. However, the principles applicable to appraisals are often not well understood. Northbridge General Insurance Corp. v. Ashcroft Homes-Capital Hall Inc. seems to be the latest example of this. In that case, an Ontario judge terminated an appraisal, and in the course of doing so, reviewed the principles applicable to appraisals. Ashcroft Homes is necessary reading for any insured thinking about invoking an appraisal.
Insurance applications can be challenging. The questions are often ambiguous and remembering every piece of relevant information is difficult. However, being diligent is important, as an insurer may deny coverage of a claim if an insured incorrectly answered a question or failed to disclose material information. On the other hand, insureds should be aware that courts will scrutinize claims of inadequate disclosure on a reasonableness basis. Typically, insurers cannot rely on answers to ambiguous questions in application materials unless the nature of the risks those questions sought to elicit is obvious or was brought to the insured’s attention.
On January 15, 2021, the UK’s Supreme Court rendered its much-awaited decision on business interruption coverage for COVID-19. In a decision over 100 pages long, the court ruled in favour of policyholders on almost every issue. As of today, there are no reported cases in Canada on the merits of coverage for business interruption losses caused by COVID-19, and this case will likely be positively received by our courts.