In 202135 Ontario Inc. v. Northbridge General Insurance Corporation, 2022 ONCA 304, the Ontario Court of Appeal ruled in favour of the insured on an insurance coverage application related to coverage for business interruption losses as a result of the COVID-19 pandemic. This appears to be the first such COVID-related coverage claim to come before the Court of Appeal.
In this case, the applicants operated seven daycare centres by the name of Helping Hands. The business at the seven locations was insured under a Business Choice Policy by the insurer, Northbridge General Insurance Corporation, from February 2020 to February 2021. The policy included a special endorsement for coverage of business losses arising from a pandemic, called the A.D.C.O. Program Endorsement, which amended the underlying commercial general liability coverages.
The applicants made a claim for business losses from March 17, 2020 to June 22, 2020, because of a COVID-19 outbreak resulting in the closure of all seven day care locations. The application judge concluded that the limit of liability clause in the policy provided coverage of $50,000 for this type of loss on a per location basis, for total coverage of $350,000 for all seven locations.
The insurer argued that the proper interpretation of the limit of liability clause was that the policy limits for this loss were an aggregate total of $50,000 for all seven locations.
The issue on appeal was whether the application judge erred in her interpretation of the limit of liability clause resulting in coverage of $50,000 for pandemic related losses for each location. The Court of Appeal dismissed the appeal, and found that the application judge’s conclusion regarding the meaning of the limit of liability clause was correct.
In coming to this conclusion, the Court outlined six reasons for its decision:
1. The internal wording of the limit of liability clause is unambiguous.
The Court looked at the language of the limit of liability clause itself. The maximum amount of coverage was stated in the policy to be “or as otherwise indicated in the ‘schedule’”. The policy had seven separate schedules, one for each of the seven locations. The reference to “the ‘schedule’” could therefore only mean each individual schedule for each daycare location. The Court found that the wording of the policy contemplated an individual maximum limit, which could have been referenced in each schedule. The Court further noted that the insurer’s interpretation of the policy effectively ignored the words “or as otherwise indicated on the schedule”.
2. The wording of the indemnity provision that the limit of liability clause applies to provides further support.
The applicant’s interpretation of the policy was reinforced by the language of the indemnity agreement for the pandemic loss coverage in the A.D.C.O Program Endorsement. In accordance with interpretative principles from governing case law, both the indemnity agreement and the limit of liability clause were sub-clauses to the “Outbreak & Negative Publicity” extension of coverage. Therefore, these provisions had to be read together.
The indemnity agreement provided coverage for loss of business income as a result of a pandemic outbreak “at your ‘scheduled risk location’”. The applicant argued that the indemnity agreement refers to scheduled risk location in the singular rather than the plural, and therefore applies to each risk location (i.e. each of the seven day care centres). This reasoning was accepted by the Court of Appeal.
3. The applicant’s interpretation does not require the inclusion of the word “each,” as suggested by the insurer.
The insurer argued that the Court was reading in the word “each” into the reference to business losses “at your ‘scheduled risk location’”, and without reading in the extra word, the singular reference could not be given this meaning.
The Court of Appeal rejected this submission, and found that the reference to “location” in the singular indicated that the limit of liability and other policy terms were intended to apply to the daycare locations individually.
4. The Court’s interpretation is consistent with the policy read as a whole.
The indemnity and liability provisions were consistent with the entire policy. The policy insured each location for its losses, as defined in each of the schedules.
5. No other provision supports the insurer’s interpretation.
The insurer was unable to reference provisions of the insurance agreement or applicable endorsements that provided coverage based on loss or damage at a scheduled risk location where the limit of liability applied to all locations on an aggregate basis, rather than on a per location basis. The plain language of the limit of liability clause, which was reinforced by the coverage extension and the structure of the policy as a whole, made it clear that the pandemic business loss coverage limit applied independently to the day care centres.
6. The premium allocation bolsters the “per location” interpretation.
The applicant relied on the fact that the insurer had assessed a separate premium for each location, which supported its argument that the limits applied on a per location, rather than aggregate, basis.
The interpretation of a provision of an insurance policy must be considered in the broader context of the policy read as a whole. The court will give effect to the insuring intent evidenced by the plain language used throughout the policy. As we return to pre-pandemic life, we expect to see Ontario courts deciding more pandemic-related coverage claims.