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COVID-19, class actions and business interruption: Quebec court renders trilogy of decisions

Thursday, September 16, 2021 @ 1:11 PM | By Nicolas Sacha Nesviginsky


Nicolas Sacha Nesviginsky %>
Nicolas Sacha Nesviginsky
During the COVID-19 pandemic, governments adopted several measures, such as the decision to order the closure of businesses, in order to contain the rapid spread of the virus. In the case of certain professionals, such as dentists, with the exception of certain proceedings deemed urgent, they were forced to cease their professional activities. As such, this resulted in disputes vis-à-vis the coverage afforded by insurers in the context of interruptions and business losses.

In the context of authorizations to institute class actions, the Superior Court of Quebec rendered a trilogy of decisions regarding the coverage provided for business interruptions: Centre dentaire Boulevard Galeries d’Anjou inc. c. L’Unique assurances générales inc. 2021 QCCS 3461; 9306-6876 Québec inc. c. Intact compagnie d’assurance 2021 QCCS 3462; Centre de santé dentaire Gendron Delisle inc. c. La Personnelle, assurances générales inc. 2021 QCCS 3463.

While dentists submitted claims to their respective insurers pursuant to their policy, they were ultimately denied coverage. In Centre de santé dentaire Gendron Delisle inc. (CDSDGD or the applicant), the Superior Court of Quebec dismissed the authorization to commence a class action pursuant to the policy’s provisions.

Facts

CDSDGD is a dental clinic. As part of its practice, on Nov. 14, 2019, it obtained a policy with Promutuel Portneuf-Champlain, société mutuelle d’assurance générale (Promutuel), which provided coverage for (i) property, (ii) loss of revenue and (iii) civil liability (inapplicable in this instance).

On March 16, 2020, given the COVID-19 pandemic, the Ordre des dentistes du Québec, the dentist’s professional corporation, recommended that its members only perform procedures deemed urgent. On March 24, 2020, pursuant to the order-in-council 223-2020, the Quebec government ordered that workplace activities be suspended. (See Order in council 223-2020 “Ordering of measures to protect the health of the population during the COVID-19 pandemic,” 2020. The order-in-council’s schedule provided for the priority services which were to be maintained.)

In the case of dental clinics, they were limited to urgent cases. These measures inevitably resulted in business losses for CDSDGD. Following Promutuel’s decision to deny coverage, the applicant sought to commence a class action alleging it suffered a business interruption which covered the following group:

“All dentists (whether practicing individually or through a professional corporation), dental clinics, and dental offices situated in the Province of Québec who, as of March 16, 2020, were subject to a contract of insurance with the Defendant that included “business interruption” or “operating loss” or similar types of insurance coverage,the whole as it more fully appears in the Court Record” (Centre de santé dentaire Gendron Delisle inc., para. 4).

CDSDGD alleged that the government’s decisions resulted in a business interruption and thus in a loss of revenue. As such, it was entitled to be compensated in accordance with Promutuel’s policy. While the application alleged the need to rectify the damages due to contamination, Justice Thomas M. Davis noted that there were no allegations that the offices or the equipment were contaminated or needed to be closed as a result of COVID-19.

i. Property insurance

This section of the policy provided coverage regarding losses or damages directly caused to an insured good regarding a covered risk which occurred during the policy period (see para. 11, note 1, “Nature et Étendue des Protections”). Pursuant to s. 2, the equipment located in a dental clinic was covered as insured goods. With regards to the risk covered, the policy stipulated that “[Translation] Unless otherwise provided, this insurance covers all the risk of loss or material damage directly caused to an insured good” (para.13, note 3). Finally, the policy defined a loss as any event directly causing damages.

ii. Loss of revenue insurance

This part of the policy, located in a separate endorsement, provided coverage as follows:

[Translation] Subject to the conditions, limitations and exclusions of the policy, this insurance guarantees the insured against operating losses actually suffered during the indemnity period, due to a covered loss having affected the insured property located in the premises. (Para. 20)

Analysis

In order for a class action to be authorized, the court must conclude that the applicant respected the criteria stated in article 575 of the Code of Civil Procedure, L.R.Q, c. C-25.01 (CCP):

575. The court authorizes the class action and appoints the class member it designates as representative plaintiff if it is of the opinion that
(1) the claims of the members of the class raise identical, similar or related issues of law or fact;
           (2) the facts alleged appear to justify the conclusions sought;
(3) the composition of the class makes it difficult or impracticable to apply the rules for mandates to take part in judicial      proceedings on behalf of others or for consolidation of proceedings; and
(4) the class member appointed as representative plaintiff is in a position to properly represent the class members.

The defendants concurrently submitted that the applicant (i) did not allege and failed to demonstrate the existence of an occurrence or a material damage directly caused to insured goods thereby triggering coverage; (ii) the orders in council adopted in the context of the COVID-19 pandemic did not result in any material loss or damage to insured property; (iii) the coverage regarding business interruption was only triggered if the interruption or business reduction resulted from a covered loss, (iv) the negative effects of the pandemic and the governmental measures such as the loss of business and revenues were not covered and (v) the policies contained clear exclusions whereby the alleged losses were not covered (para. 22). (Also, Royal & Sun Alliance du Canada, société d’assurances, Desjardins Groupe d’Assurances générales inc. and La Personelle, assurances générales inc. submitted additional means of defence.)

In addition, the defendants alleged that the loss of revenue was not due to an impossibility for dentists to serve their clients due to damaged material, but rather as a result of the government’s measures. As such, this was not a covered risk.  

In order to establish whether the application ought to be authorized, the Superior Court of Quebec adopted a two-step analysis:

i. The policy’s interpretation and its vocabulary in order to determine the type of losses covered pursuant to the business interruption coverage; and

ii. The analysis of the facts contained in the application in order to establish if CDSDGD presented an arguable case. (paras. 39-40).

Pursuant to article 575 of the CCP and as established by the Supreme Court of Canada (para. 42; see also Desjardins Financial Services Firm Inc. v. Asselin 2020 SCC 30), an applicant must demonstrate that its action presents an appearance of right or an arguable case. If the court is of the opinion that the application is frivolous, it will be dismissed.

i. Review, analysis and interpretation of policy

While CDSDGD invoked that the policy and the business loss interruption endorsement covered all type of risks, the court disagreed. Indeed, the endorsement did not provide a separate coverage, but rather depended on the terms regarding the goods.

As mentioned previously, the policy provided coverage to the “[Translation] Insured against the loss or damages directly caused to insured goods regarding a covered risk.” It covered “[Translation] all risks of loss or material damages directly caused to an insured good.” In the event of a business interruption, the coverage provided was for a covered loss regarding insured goods located on the insured’s property.

In light of the above, the court concluded that “[Translation] […it] consider[ed] that the provisions of the Promutuel policy (and all other similar policies) ensure[d] that the business interruption endorsement indemnifies the insured in the event that there is a covered loss, that is, an event that directly causing damages to property. To put it another way, the business interruption must be the result of the direct damage to an insured good.” As such, it was of the opinion that the deterioration caused to a good due to contamination was not covered by the policy.

ii. Factual analysis

In order for the court to conclude that a party met the criteria provided in article 575 CCP, the factual allegations regarding the loss must establish a risk covered pursuant to the endorsement regarding business interruption. The policy required a direct damage to an insured good resulting from a loss.

In support of its application, CDSDGD provided a chronological analysis of the different measures adopted by the government to prevent the spread of COVID-19. The Superior Court of Quebec nevertheless concluded that the factual elements provided were not only general, but did not address the relationship between the parties. Moreover, there were no allegations addressing the requirement that a business interruption result from a damage regarding an insured good. As stated by the judge, there was no evidence that CDSDGD’s equipment was affected due to COVID-19.

In light of the above, the Superior Court concluded that the evidence did not establish an arguable case. The allegations and the policies led to the conclusion that there was no evidence demonstrating that CDSDGD’s goods were affected thereby providing coverage.

Conclusion

Contrary to a regular claim where this issue would have been adjudicated at trial, subject to certain exceptions, the authorization to commence a class action requires sufficient facts to support the requested orders. Indeed, the authorization stage is a filtering process aimed at ensuring that claims meet the required burden provided in article 575 of the CCP. While the court concluded that the requirements stated in paragraphs (3) and (4) of article 575 of the CCP were met, it ultimately dismissed the application.  

This is the first of a three-part series. Part two: COVID-19, class actions and business interruption: 9306-6876 Québec inc.; part three: COVID-19, class actions and business interruption: Centre dentaire Boulevard Galeries d’Anjou.

Nicolas Sacha Nesviginsky is a qualified lawyer in civil and common law member of the Ontario, Quebec and Paris bars. He also completed a postgraduate certificate in international dispute resolution at the Queen Mary University of London. He is fluent in English, French and Spanish.

Photo credit / Maridav ISTOCKPHOTO.COM

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