A recent Ontario court decision offers some insight into claims being made by businesses in relation to losses sustained as a result of the COVID-19 pandemic that will be making their way through the courts in the near future.
This recent decision addressed two proposed class actions and 17 individual actions that have been launched against a number of insurance companies, all of which relate to business interruption insurance claims and business income losses sustained during the COVID-19 lockdowns and restrictions.
What Is Business Interruption Insurance?
Traditionally, with business interruption insurance, a business owner can claim coverage under the relevant policy to collect the income he or she would have expected to generate were it not for the unexpected event, such as a flood, fire, earthquake, etc.
However, the coverage that can be claimed will depend on the policy itself. For instance, with a named perils business interruption policy, the types of perils that caused the losses that may be claimed will be specifically listed in the insurance policy. Alternatively, an all risk policy will provide protection against loss caused by risks that are not specifically excluded from the policy.
Insurance Companies Seek to Stay Individual Claims
In the present case, the individual actions had been brought after the insurance companies had denied coverage for their COVID-related “business interruption” claims. The claims were brought by the owners of small businesses, who mainly operated dentist and physiotherapist practices.The damages alleged in each action ranged from $250,000 to over $3 million.
Four of the defendant insurance companies brought a motion to stay the individual actions until the certification of the related class action had been decided.
Legal Principles for Staying Individual Claims
As explained by the court, under s. 13 of the Class Proceedings Act, a court has jurisdiction to stay any proceeding related to a class proceeding before it, on such terms as it considers appropriate.
Generally, an individual action may be temporarily stayed pending the certification of a proposed class action if the following four prerequisites are satisfied:
(a) there is substantial overlap of issues in the two proceedings;
(b) the two cases share the same factual background;
(c) issuing a temporary stay will prevent unnecessary and costly duplication of judicial and legal resources; and
(d) the temporary stay will not result in an injustice to the party resisting the stay.
Business Owners Offer Testimony About COVID-19 Losses
As part of the proceedings, several of the individual business owner claimants offered testimony about their losses during the pandemic and their desire to pursue individual claims over the class action. One of their statements explained:
“I am not interested in a class proceeding because I want to retain the ability to make my own decisions about the prosecution of my action. In particular, I want the ability to direct any settlement negotiations and approve any proposed resolution of my claim.
The COVID-19 pandemic has been hard for the Clinic and for me personally. Before all of this happened, my business interruption insurance policy from Intact gave me peace of mind. But Intact has denied my claim, and they have made no offer of settlement. I am tired of waiting for Intact to do the right thing, and I want my claim prosecuted quickly. It would really help to recover my COVID-19-related losses.
I do not want litigation hanging over my head for years, and distracting me from my personal and professional obligations. I did not ask for a lawsuit. It was only necessary because Intact refused to pay my claim. But the money will be most useful now, while the Clinic is still trying to recover financially from the impact of COVID-19. I do not want to wait for money that should already be back in my business.”
Court Allows Individual Claims to Proceed
In its analysis, the court noted that its decision would turn on the fourth prerequisite for the stay, namely the injustice or prejudice to the individual plaintiffs if their actions were stayed pending certification, as it had determined that the first three prerequisites had been satisfied.
Noting that all claimants had sustained significant “business interruption” losses, the court stated:
“These are well-informed individual litigants pursuing individual actions for legitimate reasons — they believe they have substantial insurance claims, they have established the need for speedy judicial determinations, they want control over all aspects of their lawsuit including any settlement discussions and they desire to work with counsel of their choice.”
The court then observed that the COVID-19 restrictions and lockdowns continued to decimate Canadian business and the class actions involved “real people sustaining real harm in real time”. As such, the court opined that it was important for both the class actions and the individual claimants to obtain legal determinations as quickly as possible.
Finally, the court found that the insurance companies would not be harmed by allowing the individual claims to proceed, while the same could not be said for the individual claimants, stating:
“If the individual actions are stayed, the plaintiffs will suffer real injustice and prejudice. […]
In sum, the defendant insurers have not cleared the “no injustice or prejudice” hurdle. In my view, the requested stay would result in significant unfairness to the individual litigants who have obviously chosen not to participate in the class action and who wish to prosecute their claims expeditiously.”
In the result, the court therefore dismissed the insurance companies’ motion for stays of the individual claims. As such, the individual claimants could proceed with their court actions.
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The business lawyers at Bader Law have been establishing trusted relationships with business owners and entrepreneurs in the Mississauga community for over a decade. We work with each client to develop an effective strategy focused on their specific needs. When conflicts do arise, we represent clients in a variety of issues and work to find effective and practical resolutions in every situation. To discuss your needs with a skilled lawyer, contact us online or at (289) 652-9092.