Background
On March 17, 2020, the Province of Ontario declared a provincial emergency due to the COVID-19 virus under the Emergency Management and Civil Protection Act. In an attempt to limit the spread of the virus, the province ordered the closure of non-essential businesses and recreational facilities. Restaurants and bars were required to reduce their services to take-out facilities only.
The applicant SIR Corp is a Canadian restaurant franchise with approximately 60 restaurants in Canada and 2 restaurants in the United States. It owns and operates restaurants such as Jack Astor’s Bar and Grill, Scaddabush Italian Kitchen & Bar, and Canyon Creek. SIR Corp estimated its losses arising from the closures to be $27,000,000 in damaged stock, food, and beverages, costs of disposal, business losses and other expenses.
SIR Corp argued that the government’s orders constituted “civil authority orders” as described in Special Endorsement 14, and Extensions 15 and 16 found in Section 1 of its insurance policy (the “Policy”), which had caused SIR Corp to suffer losses. It argued that it was entitled to recovery of its losses under Endorsement 14, or in the alternative, 8 weeks’ worth of losses under Extension 15 or 16 of the Policy.
The Policy
SIR Corp was insured by the respondent Aviva Insurance Company of Canada (“Aviva”). The Policy provided coverage for “all risks” of “direct physical loss or damage” to the insured’s property. The Policy also covered business interruption losses if the insured’s property was damaged or destroyed. It consisted of a Binder, Insuring Agreement, and six endorsements with a policy limit of $50,000,000. The Binder referred to “Special Endorsements/Extensions” which were contained in the main Policy.
The relevant clauses of the Policy are the endorsements or extensions 14, 15, and 16 found under section 1. They read as seen below:
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 or other catastrophe.
15. INTERRUPTION BY CIVIL OR MILITARY AUTHORITY:
This Policy is extended to include the loss sustained by the Insured during the period of time while business is affected as a result of order of civil or military authority, but only when such order is given as a direct result of loss or damage of the type insured by this policy, or threat thereof. Maximum 8 weeks.
16. INGRESS/EGRESS:
This policy is extended to include the loss sustained by the Insured during the period of time when as a result of a peril insured or threat thereof, ingress to or egress from any part of premises of the Insured or of others is prevented or impaired, including prevention or impairment of such access by any civil or military authority. Maximum 8 weeks.
SIR Corp notified Aviva on March 17, 2020 that it would be claiming for losses arising from the closure of its businesses under the Policy. On or about June 5, 2020, Aviva denied SIR Corp’s claim, stating that the COVID-19 virus did not satisfy the definition of “direct physical loss or damage” or “destruction or damage” to property.
Issues
SIR Corp brought an application under Rule 14 of the Rules of Civil Procedure seeking a declaration of coverage.
Decision
The court ruled that SIR Corp’s losses were not covered under the Policy. It rejected SIR Corp’s position that the endorsement and extensions identified were independent of the Policy and could therefore apply to business interruption losses absent physical damage or threat thereof to property.
The court agreed with Aviva and held that the Policy should be interpreted as a whole. All the endorsements, binders, and other addendums were found to constitute one agreement. As a result, it found that the Policy’s general requirement that the insured suffer physical damage or the threat thereof, applied to the attached endorsements and extensions cited by SIR Corp.
Analysis
SIR Corp argued that the Ontario government’s closure of the majority of restaurant services constituted an “order of civil authority” which had caused SIR Corp to incur business interruption losses.
The court commenced its analysis with a summary of general principles regarding the interpretation of insurance contracts outlined in the jurisprudence.
When interpreting a contractual provision, the court noted that it was required to consider the reasonable and objective expectations of the parties regarding the provision.
Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at para. 55; Ledcor Construction Ltd. v. Northbridge Indemnity Insurance, 2016 SCC 37, [2016] 2 S.C.R. 23, at para. 65 Co-operators Life Insurance Co. v. Gibbens, 2009 SCC 59, [2009] 3 S.C.R. 605, at para. 21; see also Ledcor, at para. 27.
The court further noted that it should consider the ordinary meaning of the provisions instead of the meaning that would be interpreted by a person who was well-versed in insurance.
The court also held that the clear meaning of a contract would be upheld if the contract was unambiguous, unless doing so would produce an unreasonable result. Further, if there was no ambiguity, the court would interpret the language of the policy read in the context of the policy as a whole. The court also noted that it was not necessary to consider external evidence or the parties’ subsequent behavior where there was no ambiguity identified in the policy’s language.
After concluding that the extensions and endorsement were to be read within the context of the Policy as a whole, the court noted that the Policy defined the perils insured as “All Risks of Direct Physical Loss or Damage”. The court then concluded that all three clauses referred to losses to property or threats of losses to property that were physical in nature. Endorsement 14 stated that the Policy insured losses “as covered herein”. Extension 15 referenced damage “of the type insured by this policy, or threat thereof”. Extension 16 referenced ingress or egress being barred “as a result of the peril insured or threat thereof”.
As SIR Corp claimed for business interruption losses and had not suffered physical damage or losses to property, the court ruled that it was not covered under the Policy.
Progressive Homes, at para. 22; Scalera, at para. 71.
Eli Lilly & Co., at para. 55; Fraser River Pile & Dredge Ltd. v. Can-Dive Services Ltd., [1999] 3 S.C.R. 108, at para. 32; Dunn v. Chubb Insurance Company of Canada, 2009 ONCA 538, 97 O.R. (3d) 701, at para. 33; Simex Inc. v. IMAX Corp. (2005), 206 O.A.C. 3 (C.A.), at para. 23
Ledcor, at para. 49; Sabean v. Portage La Prairie Mutual Insurance Co., 2017 SCC 7, [2017] 1 S.C.R. 121, at paras. 12-13; and Progressive Homes at para. 22
