As we all know, COVID-era restrictions led many businesses to suffer economic losses. SIR, a corporation that owns and operates restaurants, was prevented from offering in‑person dining at its restaurants due to COVID-19 emergency orders in 2019 and 2020. In SIR Corp. v. Aviva Insurance Company of Canada, 2023 ONCA 77, the Ontario Court of Appeal held that SIR was not entitled to coverage relating to business losses suffered as a result of COVID-19 lockdown restrictions.  

SIR applied for a declaration that it was entitled to coverage under its insurance policy with Aviva (the Policy) to cover “damage to its food and beer stock and for business losses allegedly suffered as a result of the Orders.” The application judge, Justice Audrey P. Ramsay, found that the Policy did not cover the losses allegedly sustained by SIR. SIR appealed and, in a unanimous decision written by Justice Alexandra Hoy, on a panel with Justices Benotto and Favreau, the Ontario Court of Appeal has dismissed SIR’s appeal.  

The Court’s coverage findings in this decision relied on the interpretive principle that requires an insurance policy to be read “as a whole” and examined in light of the surrounding circumstances, or the factual matrix in which it was formed. Aviva’s insurance Binder was crucial in this case because it described “Perils Insured” under the Policy as “All Risks of Direct Physical Loss or Damage (except as excluded)”. Once the Court found that the Binder was part of the “factual matrix” in which the Policy was formed, the Binder was frequently cited to interpret the coverage afforded under the Policy. This foundation led the Court to reject many of SIR’s coverage arguments since COVID-era business restrictions did not result in any “direct physical loss or damage”. 

The main clauses of the Policy that were at issue in this case were Clauses 14 and 16. Clause 14 stated that the Policy “insures loss… sustained by the Insured as a result of damage caused by order of civil or military authority to retard or prevent a conflagration or other catastrophe.” SIR argued that the COVID-19 pandemic was a “catastrophe” and that the emergency Orders were of “civil authority to retard or prevent a catastrophe.” Accordingly, SIR argued that its loss as a result of damage to its food and beer stock was covered under Clause 14. Taking the Binder associated with the Policy into account, the Court affirmed that direct physical loss or damage was required to claim coverage under Clause 14, and that was not the case here. The Court of Appeal also found that the COVID-19 pandemic did not fall within the definition of a “catastrophe” under Clause 14 since the word “catastrophe” requires a risk of direct physical loss or damage to property and that it was preceded by the words “conflagration or other”. The Court found that since “conflagration” involves large-scale destruction to property, physical damage or loss was necessary for an event to qualify as a catastrophe under Clause 14.  

Clause 16 stated that the Policy “extended to include the loss sustained by the Insured… when as a result of a peril insured or threat thereof, ingress to or egress from any part of premises of the Insured or of others is prevented or impaired, including prevention or impairment of such access by any civil or military authority.” SIR argued that the loss resulting from COVID-19 emergency Orders are a “peril insured” under Clause 16 because the Orders caused impairment and prevention of ingress to or egress from its restaurants by the public. SIR contended that restricting the meaning of “peril insured” to risks of direct physical loss or damage would nullify coverage under Clause 16. The Court rejected this argument and found that Clause 16 still provides coverage when access to the business is prevented or impaired as a result of a peril insured in various situations, i.e., where a blockade is ordered in response to the threat of flooding or where there is a threat of a landslide and police cordon off the business, etc. Clause 16 also appears to provide “loss of use” coverage where there is a risk of direct physical loss or damage. Therefore, interpreting “peril insured” as meaning all risks of direct physical loss or damage, except as excluded, did not nullify coverage. 

SIR also advanced an estoppel argument based on a prior coverage claim involving a state of emergency that was declared in St. John’s, Newfoundland and Labrador in January 2020 which ordered all businesses to close due to hurricane-force winds and extreme snowfalls. SIR’s Jack Astor’s restaurant in St. John’s suffered some food spoilage and business losses as a result and SIR made a claim under Clause 15 of the Policy. The Court found that while Aviva did pay SIR’s claim in this previous instance, Aviva did not implicitly represent that it would cover SIR for food spoilage and business losses any time closure of its business was mandated by an order of a civil authority concerned about public safety. Further, it was found that even if Aviva made such a representation, SIR had not established that it was made with the intention that SIR should act on it. Therefore, SIR’s estoppel argument also failed.  

Duha Sikander is an articling student at ZTGH and the author of this blog. If you have a question about this decision or a similar file, please contact Duha