Be physical about the loss of a pandemic business

of MDS vs. Factory Mutual Insurance, The Appellate Body examined whether the definition of “physical loss” or damage could be extended to include “loss of use”. For companies suffering from government-mandated blockades for COVID-19, expanding their definition of “physical loss” could be a relief to their financial distress.

In 2006, MDS agreed to purchase radioisotopes from the Atomic Energy of Canada. MDS planned to sell radioisotopes worldwide for cardiac imaging, cancer treatment, and sterilization of medical products.

In 2009, heavy water containing radioactive tritium was found leaking from the reactor wall. The reactor was shut down for 15 months to repair the leak. Due to the shutdown, MDS lost both radioisotope suppliers and more than $ 121 million in profits. Later, it was discovered that the leak was caused by unexpected corrosion.

The MDS argued that the loss of use of the Atomic Energy of Canada’s reactors to produce radioisotopes was “property damage” and therefore an exception to the corrosion elimination of factory mutual policies. The MDS All Risk Policy states that if an excluded hazard (such as corrosion) causes physical damage that is not excluded by the policy, the damage caused by the leak is not excluded and must be covered.

Factory Mutual denied MDS’s allegations of lost profits and claimed that it was excluded from the policy because it did not involve any physical asset loss.

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The judge said the term “physical injury” was ambiguous and ruled in favor of MDS. The court ruled that there is no clear definition of what constitutes “physical damage” in Canada’s overall risk policy, as physical damage is not defined and the dictionary does not provide specific guidance.

A higher court in the MDS case has revealed that the interpretation of damages is highly dependent on the specific wording of the policy. However, the insurance industry may mean that a broader interpretation of physical damage is eligible for business interruption compensation if the business becomes unavailable due to an intangible pathogen such as COVID-19. I was worried about that. The Canadian Insurance Department has even ended up as an intervener in the case.

“I’m afraid of the court’s willingness to grant claims for financial loss due to physical damage. [insurers]”” Said Robert Martz, a lawyer at Burnet Duckworth & Palmer LLP in Calgary. “If the court’s view is generally adopted, it will be much easier to succeed in claiming financial loss. This is usually much more important than claiming physical damage,” he said. Given the global nature of the pandemic, it is likely to be devastating to the industry.

Therefore, it is not surprising that the MDS Superior Court’s decision was appealed. It’s also not surprising that for many lawyers, the Court of Appeals in September overturned the lower court’s ruling and concluded that it was clear if there was “physical injury.”

The Ontario Court of Appeals “regained the broader approach adopted by lower courts,” Marts said. “When it comes to insurance contracts, it’s not uncommon to see the Court of Appeals reign in court.” He is often relatively sympathetic to the argument that policyholders have denied coverage. He added that there is.

Justine Forsythe uses Whitelaw Twining in Vancouver, and even though it slowly “returns to normal” as the effects of the pandemic become apparent, he says: The litigation strategies used in insurance cases have also evolved, including attempts to broaden the definition of physical damage. However, she believes that “although there may be exceptions based on the particular wording of a particular contract, the traditional view of the meaning of” physical damage “is likely to prevail.”

read more: Aviva Canada on the hook of a $ 300 million class proceeding

Forsythe points out the 2015 BC Appeals Court ruling. Acciona Infrastructure Canada Inc.v. AllianzGlobalRisks US Insurance Company, It defines “physical loss” and “damage” as changes in the insured’s appearance, shape, color, or dimensions of other materials. This definition is what most people consider to be physical damage, she says.

However, Forsyth also states that some cases from the United States indicate that, depending on the wording of the policy, there may be arguments that policyholders can argue. Insurance regulations are processed at the state level, and attempts to file class action or multi-district proceedings have been unsuccessful. As a result, thousands of individual COVID-related compensation proceedings have been filed, and one of the University of Pennsylvania Law School proceedings trackers has filed approximately 2,000 proceedings.

If the insurance company asks the court to dismiss the proceedings, the majority is successful. However, some U.S. courts have determined that policyholders’ allegations of “physical loss or damage to property” are sufficient to survive the initial allegations, and those proceedings proceed to the discovery process. is.

for example, SWB Yankees LLC vs. CNA Fins. Ltd, In an August 2021 decision by the Pennsylvania State Court, the judge insured that plaintiffs did not claim sufficient “direct physical loss or damage” to trigger compensation for COVID-19 disruption losses. I rejected the company’s claim. The coronavirus has identified the property in question as “unsafe” and “unsuitable for its intended use.”

of Ross Stores, Inc.v. Zurich Am.Inn Co., Ltd. In (July 2021), a judge in the California High Court dismissed the plaintiff’s claim for business interruption compensation. The insurance company argued that the presence of the coronavirus was not “property damage” and could not constitute “direct physical loss”. However, the insurance policy in question did not include the word “direct” in the insurance policy, but instead, the court considered it broader than “direct physical loss”. It covered all risks of physical loss or damage. The court concluded that the policy included compensation for the loss of physical use of the plaintiff’s stores and physical facilities.

of PF Chang’s China Bistro Inc.v.Lloyd’s of London Specific Underwriters In February 2021, the California High Court dismissed the insurance company’s motion for a judgment on the complaint. Lloyd argued that the coronavirus did not cause “direct physical loss or damage to property.” The court has determined that the broad interpretation of “… physical loss of property” includes the inability to access or use all or part of the physical facility.

Forsythe admits that the number of US proceedings that insurance companies were unable to dismiss is small. And Oral Surgeons Pcv in the 8th Circuit of the Federal Court, one of the first appeal-level decisions. Cincinnati Insurance Co. may be more in line with the way she expects a Canadian court to decide. In that case, the court will find that the loss of business income and some additional costs resulting from the COVID-19 pandemic and related government restrictions will be a direct “accidental physical loss or accidental loss” under plaintiff’s policy. It was decided that it did not constitute “physical injury”. Circuit 8 confirms policies that require direct “physical loss” or “physical damage” to trigger business interruption and additional cost compensation, and “some physical loss or damage to property”. There must be a physical characteristic. “

Still, it may be a high hurdle to overcome, but several COVID-related class proceedings have been filed in Canada, along with dozens of individual proceedings. Doug Stewart, a partner at Dentons Canada LLP, said this became a hot button issue and “no one really knows” how the court will deal with COVID-related cases. The MDS decision may address a variety of situations other than COVID, but “obviously it is relevant.”

related news: Class action proceedings against 14 insurance companies approved by the Ontario Superior Court

In Ontario, various COVID-19 coverage class actions are case-managed by a single judge. To date, three class actions have involved Aviva, the other against 14 different insurance companies. Plaintiffs allege that the wording of Aviva’s policy specifically compensates for the loss of business income caused by restricted access to real estate due to government orders related to the outbreak of infectious diseases. doing. Aviva denies that these reports are intended to respond to an international pandemic.

Claims against Aviva have been cut out from a larger “omnibus” action so that more focused claims can be made more quickly for Aviva only. The Ontario Litigation Management Judge calls the accreditation stage of these claims “plain vanilla accreditation,” and coverage issues need to be discussed later on their benefits.

According to Forsyth, there are also various class action proceedings in British Columbia against insurance companies due to business interruption. The majority of the defendants in these claims are also defendants in the Ontario omnibus proceedings. Various plaintiff groups have collaborated and have agreed to file a proceeding in Ontario first with the agreement of duplicate defendants. As a result, BC class actions are relatively dormant at this stage in case management.

For Quebec bass Center Dentea Boulevard Gallery Danju Co., Ltd. NS. L’Unique assurances générale sinc. , The Quebec Superior Court has granted an insurance company an application for a class action proceeding. Judges pointed out that the policy did not include the concept of “direct damage”, saying that the wording of the policy was broad and contained ambiguities that required more detailed analysis. I concluded.

I don’t deal with COVID-19 in particular, MDS In the first case in Canada, the Ontario Superior Court ruling suggested that in the context of all risky property policies, the resulting physical property damage could include loss of use. This case is important because it seems to be. However, given the success of the appeal that overturned that decision, its relevance is subdued. And even if it withstood the appeal, its applicability as a case law is likely limited to cases involving loss of use due to physical damage, or at least closely related. It suggests.

Nevertheless, MDS The cases undoubtedly highlighted some of the challenges that will surely emerge as various cases pass through the court system. And one of these cases could end in the Canadian Supreme Court. (At this time, no party has decided to appeal to the Ontario Court of Appeals. MDS Judgment).

Meanwhile, lawyers working on insurance cases suggest that the wording of insurance contracts is important. Whether the economic losses associated with the COVID-19 pandemic are seen as equivalent to physical or physical damage “depends on the wording of the policy,” Dentons Stewart said.

For example, the Ontario Court of Appeals clearly defines property damage to include loss of use if the insurance contract is intended to include not only physical loss but also financial loss. I will. “

Marts adds: “This goes back to the old advice of buying the most affordable insurance.

Be physical about the loss of a pandemic business

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