All-Risk Policy Fails to Protect Against COVID-19 Related Losses: Ontario


Courts are continuing to deal with the novel insurance claims resulting from COVID-19 related losses. In Sir Corp v. Aviva, 2022 ONSC 6929, Justice Ramsay of the Ontario Superior Court of Justice recently considered whether an “all-risk” insurance policy, insuring against direct physical loss or damage to property, would cover the losses of a restaurant operator that suffered significant “food and beverage spoilage” due to government mandated COVID-19 regulations.

Plaintiff’s Position  

The plaintiff, SIR Corp. Ltd. is a food chain operator which consists of 60 restaurants within Canada, including popular franchises such as Jack Astor’s and Scaddabush. Aviva insured SIR Corp under an “all risks” policy which provided coverage of “all risks of direct physical loss or damage to property of the insured, except as excluded.” In addition to the insuring agreement, the policy provided a number of extensions that plaintiff relied upon, including the following:

Extension 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 of other catastrophe.

SIR Corp took the position that this extension should provide it with coverage for the losses it suffered from having to close down its in person dining as a result of government mandates. In particular, SIR Corp stated that the government mandates were indeed “civil authority measures” to retard or prevent a “catastrophe” – the COVID-19 pandemic – and as such, should be covered under the policy.

SIR Corp also relied on Aviva’s post-conduct actions in support of its position, noting that in its policy renewal, Aviva included an explicit exclusion for contagious diseases, which had not been incorporated into the subject policy. SIR Corp argued that by incorporating this exclusion in its renewal policy, Aviva was inadvertently admitting that contagious diseases were not excluded in the subject prior policy.

Of note, SIR Corp conceded that the policy language was unambiguous.

The Insurer’s Position

Aviva agreed that the policy language was unambiguous and, on that basis, submitted that it was subject to a plain language interpretation.

The subject policy was a commercial property insurance policy structured around the concept of an “insured peril”, which covers the risk of direct physical loss or damage to property.

It was Aviva’s position that, in order to trigger coverage, physical loss or damage to property was required and the necessary trigger for coverage is the occasion (real or threatened) of physical loss or damage to property. No coverage was afforded under the policy on the basis that the COVID-19 virus could not cause “direct physical loss or damage” or “destruction or damage” to property.

Turning to the application of the policy Extensions, Aviva argued that the proposed interpretation of SIR Corp that neither direct physical loss or damage was required to trigger their application, would require that policy provisions be read in isolation, divorced from the rest of the policy terms and conditions. This would run contrary to the canons of contractual interpretation. To engage coverage under the Extensions, there must be a nexus with direct physical loss or damage to property, or the threat thereof.

The Court’s Decision

Justice Ramsay found that the policy did not cover the losses claimed by SIR Corp. She emphasized that the “all risk” policy insures the property against risks of direct physical loss or damage. While extensions can expand or restrict coverage, an extension is not a standalone policy. Rather, it is built on the foundation of the policy attached.

The court found that the “civil authority measures” put in place by the government were not, in and of themselves, a peril insured under the policy. Further, looking at the language in Extension 14, it referred to losses covered “herein.” By using the term “herein,” the extension could only refer to losses covered by the insuring agreement. COVID-19, even if considered to be a “catastrophe” within the context of Extension 14, did not cause direct “physical” loss or damage. The government orders themselves, did not result in “direct physical loss or damage” to SIR Corp’s property. As such, SIR Corp’s claim could not succeed.

Justice Ramsay also rejected SIR Corp’s analysis of Aviva’s subsequent conduct, holding that such evidence is only to be relied upon if the policy contains ambiguous language. However, given that the language in this policy was clear and unambiguous, there was no need to rely on any extrinsic evidence.

In light of all the novel claims related to the COVID-19 pandemic, this case serves as a reminder that provisions in an insurance policy should be interpreted in the context of the entire policy. The policy should be read as a whole, and effect should be given to the plain meaning of the words used within.

If you have any questions about this article, please contact Johann Z. Annisette.

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