On 17 March 2020, the Government of Ontario declared a provincial state of emergency under s. 7.0.1 of the Emergency Management and Civil Protection Act, implementing a series of measures that limited the size of gatherings, restricted access to public places, and suspended non-essential services.
Among such measures, Regulation 51/20 imposed the closure of non-essential businesses and recreational facilities, including bars and restaurants which could only provide “take-away” services.
The applicant, a company that runs a chain of restaurants that were forced to close during the pandemic, submitted a claim against its insurer affirming that, due to the restrictive measures implemented by the government, its business was forced to suffer significant losses. In addition, it submitted that such restrictive orders constituted “civil authority orders” within the terms of the insurance policy and that the damages sustained – business losses and food and beverage spillage – should be covered by the policy. The policy was a commercial “all risks” policy of insurance (the “Policy”) which provided coverage against “all risks” of “direct physical loss or damage” to the property of the insured, except where excluded. The Policy also provided coverage for business interruption insurance if the insured’s property was destroyed or damaged, and extra expense insurance where there was destruction of the insured’s property, except where the cause of the loss or damage was excluded. The respondent insurer denied coverage of losses claiming that Covid-19 cannot be considered a “direct physical loss or damage”, nor a “destruction or damage to property”.
By decision no. 2022 ONSC 6929 of 20 December 2022, the Ontario Superior Court dismissed the claim brought by the applicant and found that losses deriving from the restrictive orders implemented by the government are not covered under the insurance policy. To interpret the policy, the Court considered that, based on the wording of the policy, damages insured were all risks of direct physical loss or damage to property. On that basis, the Court held that neither Covid-19, nor the government orders in response to Covid-19, resulted in any direct physical loss or damage to trigger coverage under the policy. To corroborate its findings, the Court recalled cases issued by Australian Courts which had previously clarified that Covid-19 and related restrictive measures cannot be considered as “physical damages” for the purpose of identifying the scope of insurance policies.