Insurers Refusing to Pay Businesses for COVID-19 Related Losses Hit With Class Action

UPDATE: The Top Class Actions Canada Coronavirus Business Interruption Insurace Coverage investigation is now open. If you are a British Columbia business owner who was forced to temporarily close due to COVID-19, and had your insurance claim denied, submit your information here!

A nationwide class action lawsuit has been launched against 10 of the largest insurance providers in Canada and Saskatchewan alleging that they are refusing to pay business owners for losses related to the COVID-19 pandemic.

Tony Merchant of the Merchant Law Group says that he is hoping more businesses that have been affected will join the class action lawsuit.

“The insurance companies are trying to wiggle out of paying based on that this is not anticipated,” Merchant told CBC News. “It’s a pandemic. It’s so terrible.”

However, he says that “the reality is that they had to know that this kind of thing was going to happen because it has happened before,” and points to the similar impact that SARS and avian flu outbreaks had on businesses in Canada.

According to Merchant, many insurance companies are calling the COVID-19 pandemic a “force majeure,” which is a legal term used to describe unforeseeable circumstances that prevent a party from upholding a contract. He says war might be an example of a force majeure that could prevent an insurer from fulfilling a contract.

He says that the fact that the business interruption was worse than expected is not justification for insurance companies to refuse to pay their claims.

“We believe we’re going to be successful,” Merchant said about the insurance class action lawsuit. “We do not think that the insurance companies can claim [that] this was unforeseen. Pandemics are not unforeseen.”

Memories Dining and Bar in Regina, owned by Thomas Siarkos, is one of the plaintiffs in the insurance class action lawsuit. According to Thomas, he pays for premium insurance from Smith Insurance, which provides insurance coverage through Wynward Insurance Group.

Thomas says he was sure that his business would be compensated if it were to be shut down for a reason out of its control.

“We had insurance to cover all aspects, like fire losses and business interruptions, which was a crucial item for us,” according to Thomas.

“To our dismay and to our disappointment, we found out when we contacted them … the interruption insurance doesn’t fall into this category,” he said.

Thomas told Global News that his broker informed him that only “physical losses” incurred as a result of the COVID-19 pandemic will be covered, even though his insurance policy includes pandemic coverage.

“We have business interruption, but they said the pandemic is not excluded but they can only pay for physical loss,” he said.

In the last three weeks, Memories Dining and Bar has reportedly lost $100,000 due to cancellations. It has been shut down and all of its staff have been laid off. However, even though he does not have income from the restaurant, Thomas is still obligated to pay rent and other fixed costs according to the insurance class action lawsuit.

Thomas is far from the only business owner in Canada who is facing economic hardship as a result of the COVID-19 pandemic. They are facing lost revenue because of public health restrictions on business operations and public gatherings.

“For the people who are affected, I would like to see the industry back down and be responsible,” Merchant told CBC.

“This will be a multibillion-dollar action … even tens of billions of dollars, because the losses are phenomenally high.”

Insurance companies are concerned that the insurance industry could be destabilized if they are required to pay losses from the COVID-19 pandemic. Merchant, however, told Insurance Journal that the insurance industry “will be able to borrow and make up the losses with higher premiums.”

“Governments and courts are less than sympathetic to the complaints of a multi-billion dollar industry, such as insurance, which is meant to provide a social backstop,” he said.

Merchant predicts there will be widespread litigation throughout the United States, Europe and Australia as policyholders make insurance claims for losses stemming from the COVID-19 pandemic.

There have already been several lawsuits filed in the United States against insurers denying business interruption claims during the COVID-19 pandemic. The funding may be imperative for some businesses to bounce back after the coronavirus chaos. 

Some of the insurance companies that are named as defendants in this insurance class action lawsuit include Aviva Canada Inc., Desjardins Financial Security Life Assurance Company, Economical Insurance, Intact Financial Corp., Lloyd’s Canada, Lloyd’s Underwriters, Northbridge General Insurance Corp., Royal & Sun Alliance, TD General Insurance Co., Wawanesa Mutual Insurance Co., Wynward Holdings, Wynward Insurance Group, and Co-Operators General Insurance Company.

The plaintiffs are represented by Merchant Law Group.

Are you a business owner in Canada whose business has been impacted by the COVID-19 pandemic? Have you filed an insurance claim? Tell us your story in the comment section below! 

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