A class action lawsuit has been filed against Canada’s top indemnity insurers for breach of contract in their refusal to pay business interruption claims from the COVID-19 crisis.
“Indemnity insurers are wrongfully refusing to honor their contracts,” said E.F. Anthony Merchant, a solicitor who works for Merchant Law, a Victoria, British Columbia-based law firm. “Business owners intended their insurance to cover against this. Insurance companies should pay.”
Insurance companies are claiming “force majeure” and refusing to pay, said Merchant, noting, however, that the insurance recovery for BI claims will be trillions worldwide. (Force majeure is invoked when unexpected external events prevent a party to a contract from meeting its obligations and therefore protect it against liability for nonperformance).
Merchant cited the example of the Canadian restaurant industry, “which has sales of C$60 billion each year.” Estimating that the industry could be shut down for two months, or one-sixth of the year, he said, insurers could be liable for BI claims reaching $10 billion, just for that one industry.
The COVID-19 crisis was a foreseeable event and it’s not force majeure, said Merchant in a statement, citing the examples of SARS, MERS and Avian flu, which all caused business interruptions. “The business interruption may be worse than the insurance industry expected, but it is not an excuse justifying a refusal to pay. Business is interrupted! Pay!”