For business owners facing critical issues that might result in the temporary closure of their business, their worries extend far beyond remedying strictly the issue causing the stoppage. Rent or mortgages still have to be paid, employees have to be paid, and more. Business interruption insurance exists to provide coverage for these types of circumstances, but as with any insurance policy, it is important to read the terms of coverage before signing or making a claim. This type of situation was recently covered in a recent decision from the Court of Appeal for Ontario shows that the specifics of how a loss occurred can be tremendously important.
An Indian meal moth infestation
The plaintiff own a plant which produced baked goods and cereal bars. In October 1999 the plant experienced an Indian meal moth infestation. On September 29, 2000, they commenced a business interruption claim as well as a claim for property loss caused by the infestation. They brought two actions. The first was an action seeking indemnification for lost rental income as well as a bonus of $950,000 that the owner then lent the company and was not able to recover. A second action sought indemnification for the alleged theft or wrongful handling of certain equipment and related business interruption losses.
Direct loss from any Peril
At the first trial, the judge found that the policy provided coverage for “direct loss resulting from any Peril…” However, the trial judge found that while the infestation was the peril, the actual losses were unrelated, and could have been avoided but for the failure of the plaintiff to meet their financial obligations. While there can be concurrent perils resulting in loss, the court agreed with the judge’s finding that the financial hardships experienced by the plaintiff were not a result of any peril. The court wrote,
“The losses alleged to have been suffered were the result of the failure of (the plaintiff) to meet their financial obligations and not the infestation. This finding was amply supported by the record, including evidence that (the plaintiff’s) sales actually increased after the infestation. I would therefore not give effect to this argument.”
Theft and wrongful handling
The second point of the appeal focused on was the loss of property due to alleged theft or wrongful handling by the receiver, and for business interruption losses. The trial judge had originally ruled in favour of the plaintiffs, finding that there was a rolling limitation period which could be applied to the losses. However, the court determined that such rolling limitation periods cannot apply to business interruption situations unless the plaintiff were to have recurring contractual obligations. The court summarized common law as follows,
“The jurisprudence suggests that a rolling limitation period may apply in a breach-of-contract case in circumstances where the defendant has a recurring contractual obligation. The question is not whether the plaintiff is continuing to suffer a loss or damage, but whether the defendant has engaged in another breach of contract beyond the original breach by failing to comply with an ongoing obligation. In cases where there have been multiple breaches of ongoing obligations, it is equitable to impose a rolling limitation period.”
The court reversed the trial judge’s decision on this point and ruled in favour of the defendents.
As tireless litigators, HMC Lawyers has a track record of successfully arguing insurance claims at courts and tribunals throughout Alberta and Western Canada. We develop strategies to protect our client’s best interests, move matters forward in a timely manner, and minimize costs.
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