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.
England’s Financial Conduct Authority (“FCA”) was largely successful in its test case against eight (8) insurers, with respect to business interruption coverage for infectious disease and/or prevention of access/orders of civil authority. The decision considered 21 policy forms issued by these eight insurers, but FCA’s counsel has suggested that “some 700 types of policies across 60 different insurers and 370,000 policyholders could potentially be affected by the test case.” The 150-page decision considers many issues, and notes that the particular policy wording is important. Subtle differences lead to potentially different results. However, there are some very important issues decided that appear to have very broad application.
A recent Ontario case appears to be one of the first interpreting a data exclusion often found in liability policies. The case went in favour of the insureds, with the insurer being ordered to defend claims arising out of an alleged security breach on a website owned by Family and Children’s Services of Lanark, Leeds and Grenville (“FCS”). Following the alleged breach, a lawsuit was brought against FCS, and FCS claimed over against Laridae Communications Inc., who had given FCS advice on the design and security of its website. The insurer for FCS and Laridae was ordered to defend all the claims, on the basis that not all of the claims were captured by the policy’s data exclusion.
In MDS Inc v Factory Mutual Insurance Company, the Ontario Superior Court of Justice recently held that an insurer who wrongfully denied a US$121 million claim must pay prejudgment interest based on the actual cost of borrowing, and not the rates stipulated in the Courts of Justice Act. This decision is one that counsel and adjusters would be wise to carefully consider in any future insurance coverage dispute, as it sets out a number of factors that a Court could consider in deciding whether to award commercial interest rates.
In Markham (City) v. AIG Insurance Company of Canada, 2020 ONCA 239, the Ontario Court of Appeal addressed three important elements of the duty to defend, where there is concurrent coverage under two policies: whether there was a concurrent duty to defend given the existence of an “other insurance” clause, the obligation to pay ongoing costs and its allocation, and the right to participate in the defence.
In Intact v. Clauson, The Alberta Court of Appeal ordered an insurer to defend claims made against the insured’s cold storage business, which was sued when its warehouse thawed and damaged its customer’s food products. This decision is consistent with leading principles of insurance law, which emphasize the importance of reading the contract as a whole when interpreting the meaning of a particular provision, and underlines that it is important to always review the specific words of a policy to determine coverage, not rely on received wisdom about what a policy typically covers.
In Watt v TD Insurance, the Superior Court of Justice confirmed that interest is payable on judgments against insurers, even where the damages awarded are only to compensate for the loss of chattels. The decision followed an earlier Court of Appeal case that held an insured was entitled to interest notwithstanding that policy limits had already been reached. Together, the two decisions underline that insurance considerations do not negate a policyholder’s entitlement to interest payable under ordinary litigation principles. The implications of the decision are welcomed in all disputes with insurers that fail to indemnify policyholders in a timely manner.
The Alberta Court of Appeal recently addressed a recurring coverage issue: the conflict between the broad protection intended by an “all perils” property insurance policy and an exclusion for the costs of making good faulty workmanship. Based in part on the general purpose of such insurance, the decision in Condo Corp No 9312374 v Aviva Insurance Co of Canada held that property damage directly caused by the faulty workmanship of a contractor was covered, as long as it was outside the scope of work for which the contractor was hired.
Insurance for Business Interruption resulting from the COVID-19 pandemic: What your policy may cover
On March 23, 2020, the Ontario government announced that to fight the spread of COVID-19, effective March 24th at 11:59 pm, all businesses not deemed “essential” by the government would have to close their physical workplaces. A little over a week later, the list of “essential” businesses was significantly restricted. Some businesses, such as certain retail establishments, remain “essential” but have been ordered to restrict their operations, such as by only allowing customer pickup of goods outside the store. Non-essential businesses can only operate remotely, which for many means they operate at a reduced capacity, if at all.
This article provides basic information on business interruption insurance (BII), which is a common type of commercial property insurance. For many insureds, BII is the coverage most likely to respond to losses resulting from restrictions imposed to fight COVID-19.