restaurant

During the COVID-19 pandemic, SIR Corp. and its affiliated entities (SIR), operating approximately 60 restaurants, faced operational disruptions due to emergency orders issued by the Ontario government.

These orders, aimed at curbing the spread of the virus, prevented SIR from offering in-person dining, resulting in significant losses, including damage to food and beer stock and overall business setbacks. Seeking compensation for these losses, SIR turned to its insurer, Aviva, under an all-risk insurance policy.

Aviva, however, denied coverage, prompting SIR to pursue legal action. The case went to the Superior Court of Justice in 2022, where SIR faced an unfavorable outcome (see the story published on 24 April 2023). Undeterred, SIR appealed the decision to the Ontario Court of Appeal, contending that the trial judge had committed an extricable legal error in interpreting the policy.

The heart of the matter lays in the interpretation of two crucial clauses within the insurance policy:

Clause 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.”

Clause 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.”

Both the issues were addressed by the Ontario Court of Appeal in its judgment of 22 November 2023.

The central question for Clause 16 was whether the term “a peril insured or threat thereof” could encompass an order from the Ontario Government. The Court, examining the policy as a whole and its factual context, determined that the policy aimed to protect against risks of direct physical loss or damage. Consequently, it concluded that a “peril insured or threat thereof” must relate to the foundational requirement of the policy—direct physical loss or damage, which had not occurred in the case at hand.

For Clause 14, the key inquiry was whether the COVID-19 pandemic and the government orders could qualify as an “other catastrophe.” The Court emphasized that the term “catastrophe” needed to be understood in the context of large-scale destruction to property, akin to a fire. Alternatively, Clause 14 would require the Government Order to be the direct cause of the sustained damage. The Court, however, found the damage suffered by SIR (food and beer spoilage) to be an indirect result of the Government Order, rendering it non-viable under Clause 14.

Additionally, the Court addressed SIR’s argument of estoppel against Aviva, contending that a previous similar claim for a Jack Astor’s restaurant in St. John’s had been successfully covered. The Court rejected this argument, highlighting the distinction between the nature of the Government Order in St. John’s (related to extreme weather causing physical damage) and the pandemic-related orders related to public safety.

In conclusion, the Ontario Court of Appeal upheld the trial court’s decision, asserting that the insurance policy’s clauses did not cover the losses incurred by SIR during the COVID-19 pandemic.

Full text of the decision available at canlii.org en