Class action launched against insurers that won't pay businesses for coronavirus-related losses

A Regina-based law firm has issued a national class action against indemnity insurers in Canada that are not paying business owners for losses accumulated due to the COVID-19 pandemic. 

Tony Merchant, the principal lawyer of Merchant Law Group, says the action names the 10 largest providers of insurance in Saskatchewan and Canada, including Desjardins Financial Security Life Assurance Company and Co-Operators General Insurance Company.

As of Friday, the class action has few plaintiffs, but Merchant says he hopes affected businesses with come forward and join the lawsuit. He says he cannot yet provide numbers of how many businesses are involved in the class action.

"The insurance companies are trying to wiggle out of paying based on that this is not anticipated. It's a pandemic. It's so terrible. [But] the reality is they had to know this kind of thing was going to happen because it has happened before," Merchant said.

"SARS impacted businesses significantly in Canada. Now we're back with a similar problem."

Merchant said insurance companies are claiming the pandemic is a "force majeure" — a legal term referring to unforeseeable circumstances that excuse a party from fulfilling a contract.

"We believe we're going to be successful. We do not think that the insurance companies can claim [that] this was unforeseen. Pandemics are not unforeseen."

Merchant points to past MERS and avian flu outbreaks as examples.

In terms of insurance coverage, a war might be a more common example of a force majeure, he said.

But "if [insurance companies] won't pay for business interruption and this kind of circumstance, it's hard to imagine when they would pay."

'I hope that we're successful'

One of the class action's plaintiffs, Memories Dining and Bar in Regina, has relied on the fact that it would be compensated if the business were to be shut down for a reason out of its control, according to Merchant. 

Thomas Siarkos, owner of Memories Dining and Bar, says he pays for premium insurance from Smith Insurance, which provides coverage through Wynward Insurance Group, one of the defendants named in the class action. 

"We had insurance to cover all aspects, like fire losses and business interruptions, which was a crucial item for us," Siarkos said.

"To our dismay and to our disappointment, we found out when we contacted them … the interruption insurance doesn't fall in this category. And we're just [thinking] if there's an interruption … this would be that interruption."

Siarkos says Memories has lost at least $100,000 due to reservation and event cancellations within the last three weeks. The restaurant is completely shut down and all staff has been laid off. Siarkos still has to pay rent and other fixed costs for the restaurant, even without cash flow. 

"I'm sure that if this case will be successful, and we have every reason to believe that it will be, then a lot of other businesses will be benefiting out of this. And basically, we do it for the community at large."

CBC has reached out to Wynward Insurance Group for comment.

Business interruption 

According to the class action statement of claim, business interruptions have been caused either directly or indirectly by the COVID-19 pandemic.

That includes loss of revenue due to the decrease or elimination of customers because of public health orders restricting business operations and public gatherings.

"For the people who are affected, I would like to see the insurance industry back down and be responsible," Merchant said.

"This will be a multibillion-dollar action ... even tens of billions of dollars, because the losses are phenomenally high," he said.

"Business interruption is very expensive for the [insurance] industry."