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With the social distancing measures necessitated by the Coronavirus (COVID-19), many Ontario businesses have experienced negative impacts. Depending on the industry, some businesses have had to resort to a complete shut down of operations.

In response to the impact on individuals and businesses of COVID-19, the Canadian government has introduced several measures under its COVID-19 Economic Response Plan. For businesses, these measures include, among others, the Canada Emergency Wage Subsidy (CEWS), the 10% Temporary Wage Subsidy (TWS), the Business Credit Availability Program (BCAP), and the Canada Emergency Commercial Rent Assistance program (CECRA).

For further information regarding these measures and to determine your eligibility, visit:
https://www.canada.ca/en/department-finance/economic-response-plan.html

Unfortunately, while helpful, these measures are not a complete answer or even an option for many businesses, especially those that have had to completely cease operations. It is clear that, as Canada prepares to reopen its economy, other options will have to be explored.

A recent Ontario Superior Court decision has given hope for one of these options: making a claim under your all risks property insurance policy.

MDS Inc. v. Factory Mutual Insurance Company (FM Global) (“MDS Inc.”): The Facts

While there is little to no Canadian case law dealing with whether business closures as a result of a pandemic would qualify as “damage” under a property insurance policy, the Court’s decision in MDS Inc. may pave the way for COVID-19 related claims for some policy holders.

MDS Inc. involved a nuclear plant that shut down operations due to safety concerns. Thankfully, given the proactiveness of the nuclear plant’s decision to close, no physical damage had resulted to the plant or to any employees. However, it took the nuclear plant approximately eighteen months to reopen, during which time it was unable to operate or earn any income.

The nuclear plant made a claim under its all-risk property insurance policy to recover the damages it had suffered as a result of the prolonged closure. However, the insurance company denied the claim, arguing that in order for coverage to be triggered under the insurance policy, “physical damage” had to have occurred. The insurance company claimed that the nuclear facility’s inability to use its premises did not constitute physical damage.

The Court’s Decision

The Court in MDS Inc. disagreed with the insurance company.

In this particular case, “physical damage” was not a defined term in the policy. The Court further found that there was no accepted definition of what constitutes physical damage in all-risk property insurance policies in Canada. Moreover, the Court found that a broad definition was appropriate under the circumstances as a narrow definition would be contrary to the whole purpose behind the purchase of a broad all-risks coverage policy – i.e. to cover against “all-risks”.

In the end, the Court held that loss of a function or use of a building fell under the policy terms and coverage should have been granted to the nuclear facility.

What does this mean for me?

As noted above, there is currently very little case law dealing with business closures as a result of a pandemic. However, the MDS Inc. decision is good news for businesses who have broad all risks insurance coverage and who have had to completely cease operations.

Although each decision will necessarily be decided on the language of the policy in question, it is likely that insurers will receive an influx of claims as Canada prepares to return to business post COVID-19.


At Mills & Mills LLP, our lawyers regularly help clients with a wide range of legal matters including business lawfamily lawreal estate lawestate lawemployment law, health law, and tax law. For over 130 years, we have earned a reputation amongst our peers and clients for quality of service and breadth of knowledge. Contact us online or at (416) 863-0125.

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