Policies In The Pandemic: Covid-19 Does Not Constitute Property Damage

• Law Firm: Clark Wilson LLP
• Subject Matter: Insurance, Coronavirus (COVID-19), Insurance Laws and Products, Insurance Claims
• Author: Mr Denny Chung
• Published date: 26 April 2023

In Sir Corp. v. Aviva, 2022 ONSC 6929, the Ontario Superior Court found that COVID-19 did not constitute "direct physical loss or damage" to property required to trigger coverage for business interruption under a property policy. Sir Corp is one of the few decisions in the common law world that has ruled on business interruption claims under property policies in relation to COVID-19. Canada joins growing trends¹ in the U.S. and Australian courts that have similarly found COVID-19 does not trigger coverage under a property policy as it does not satisfy the "physical" requirement often included in the definition of "property damage".

Sir Corp is consistent with the dominant consensus of what constitutes "direct physical loss or damage" in Canada: generally there must be some tangible alteration to physical property to trigger coverage. Loss of use alone is not enough, unless the policy wording provides otherwise. In reaching this decision, the Court in Sir Corp reaffirmed the key principle of policy interpretation to read the policy as a whole, rather than any particular provision in isolation such as an endorsement. Endorsements form part of the policy and do not stand alone.

FACTS

During the COVID-19 pandemic, Ontario declared several emergency orders including the suspension of non-essential business. As a result SIR Corp had to close its restaurants. SIR Corp made a claim for business interruption coverage under a commercial "all risks" policy (the "Policy"). The Policy provided coverage against "all risks" of "direct physical loss or damage" to insured property. The Policy also covered business interruption if the insured property was destroyed or damaged.

The Policy contained endorsements which extended coverage, including endorsements for loss caused by a peril insured which prevented or impaired ingress or egress from the property, and loss caused by order of civil or military authority as a direct result of loss or damage or to prevent a "catastrophe".

The insurer denied coverage on the basis that the COVID-19 virus did not constitute "direct physical loss or damage" or "destruction or damage" to property. SIR Corp sought a declaration that there was coverage. SIR Corp argued that the Policy's endorsements applied to trigger coverage because: (1) the ingress/egress endorsement did not require that a loss be "physical"; and (2) COVID-19 constituted a "catastrophe" under the civil authority endorsements.

DECISION

The Ontario Superior Court agreed...