Insurance education, 9/F. VTC Tower, 27, wood Road, Wanchai, HK, Hong Kong (2026)

Name: Insurance education
Address: 9/F. VTC Tower, 27, wood Road, Wanchai, HK, Hong Kong, HK
Telephone: +85228361922

Disclaimer: The contents of this Facebook are intended to provide sharing of academic interest only and we will not guarantee and cannot be held liable whatsoever about the timeliness, accuracy or completeness. Eddy Lau academic publication:

6. 中小企食肆責任風險管理和持續業務運作規劃手冊摘要

2015 co-authors
https://drive.google.com/file/d/0Bx4w-8lJCX23Wl80OUcwNXZvUXc/view?usp=sharing

5. A comparison of Aspects o

f Insurance Law in Australia, Mainland, China and Hong Kong

2005 ANZIIF journal

Download 《Insurance Law》 in Australia, Mainland China, Hong Kong:

Part I
https://drive.google.com/file/d/0Bx4w-8lJCX23UHJ1REV6VkhxQjQ/edit?usp=sharing

Part II
https://drive.google.com/file/d/0Bx4w-8lJCX23dXdUS3ZaY203dDg/edit?usp=sharing

4. 《中港保險法》 (2003)

《香港保險書》下載 :
https://drive.google.com/file/d/0Bx4w-8lJCX23YUVfRFM3N2dKQkE/edit?usp=sharing

全國人民代表大會常務委員會(1995通過，2002年修改)，最新2009年修訂的《中華人民共和國保險法》(10月1日施行)
http://www.circ.gov.cn/web/site0/tab68/i94860.htm

3. Hong Kong Insurance Litigation (1996 )

A dissertion submitted to the Faculty of Law of the City University of Hong Kong in part fulfilment of the requirements for the Master of Arts in Arbitration and Dispute Resolution
《Hong Kong insurance article download》:
https://drive.google.com/file/d/0Bx4w-8lJCX23ME1saFh1c1pmakU/edit?usp=sharing

1. A Study of the Supply Characteristics of the Insurance Industry in Hong Kong (1984)

A dissertion submitted to the Department of Business and Managment Studies of the Hong Kong Polytechnic in part fulfilment of the requirements for the Professional Diploma in Business Studies (Insurance)

download:
https://drive.google.com/file/d/0Bx4w-8lJCX23VmRSQVZ6WHRuYmc/edit?usp=sharing

For relevant academic interest, pls. also refer Swiss Re topic like
The economics of insurance , as web site
http://swissre.com/pws/research%20publications/alphabetical%20overview/alphabetical%20overview%20-%20r-z.html

24/11/2021

https://www.clydeco.com/en/insights/2021/11/blockchain-technology-and-the-future-of-the-global

The global insurance market is highly competitive. Retail and corporate customers alike expect high-value product offerings at affordable rates with quick, efficient product distribution and claims processing.

The emergence and increasing sophistication and acceptance of blockchain technology provides insurers with an opportunity to take advantage of more efficient workflows, cost savings, greater transparency, faster claims processes and a reduction in fraud.

What is blockchain?
At a high level, the blockchain is a data structure that permits the creation of a digital ledger of transactions and the ability to share this data among a distributed network of computers. The information shared is encrypted as an electronic list of “blocks”. Once information is recorded, the data cannot be erased or changed without changing all existing records. The result is that all information recorded on the blockchain is highly secure.

Blockchain Use Cases for the Insurance Industry
Even in the digital era, the majority of insurance policies and claims are processed manually, and systems have some human touchpoints. While these manual processes are mostly functional, the risk of human error and tampering or misinterpretation of data remains. The integration of blockchain technology can offer a number of process, efficiency, risk management and enhanced customer engagement benefits for insurers. We consider some of these below.

A. Smart contracts
The insurance industry has traditionally relied on trusted intermediaries such as insurance brokers and underwriting agents to arrange and distribute contracts of insurance. However, smart contracts remove the need for human involvement.

At a high level, smart contracts are self-executing contracts between two or more parties that can be programmed electronically and are executed automatically via underlying blockchains responding to the occurrence of certain agreed events. In an insurance context, the terms of agreements between insurers and policyholders are written into the code upon which smart contracts are built.

As all transactions relating to smart contracts are logged on a blockchain, there is a high level of transparency. This is because each transaction on the blockchain is publicly viewable. Separately, as the need for human interference is removed, the risk of errors and unauthorised manipulation of the terms of contracts is significantly reduced. Critically, claims investigation, coverage analysis and processing are dramatically quicker as the need for manual assessment is removed. This significantly increases the efficiency of the insurance function and can assist increase the level of consumer trust and confidence in the industry.

However, there are certain inherent limitations to smart contracts. Currently, the technology can only support relatively simple insurance covers with contract clauses which operate on the basis of “if A occurs, the result is B”. The technology is not yet sufficiently advanced to accommodate more complex contractual arrangements and terms or address the sophisticated nuances of insurance law and regulation including concepts such as “utmost good faith” or adequately address fraud and non-disclosure issues.

B. Parametric insurance
In the late 1990s, parametric insurance emerged as an objective and data-driven approach to insurance claim payments. Under parametric insurance models, claim payments are based solely on the occurrence of a clearly defined event/objective measurable data-led criteria and provide an agreed payments or an amount calculated by reference to agreed formulae. For example, if an earthquake occurs within a set radius of a policyholder’s home (measured in kilometres), then the insurer automatically pays out the agreed amount corresponding to that event.

The parametric insurance model is attractive as it avoids subjective assessment of damages and loss. While the uptake of parametric insurance is increasing in first party loss classes (especially the agriculture and crop sectors), it has not progressed as rapidly as expected due to the historical lack of reliable infrastructure and available data for securely settling these forms of contracts. However, blockchain technology provides a means of managing these gaps by connecting real-world data to the ex*****on of insurance contracts.

In that regard, there have been recent major advances in the realm of so called blockchain oracles. These are entities that connect blockchains with live, real-time data. This enables data to be sourced from outside the blockchain and used to trigger the ex*****on of parametric insurance smart contracts in a way that helps reduce concerns about data manipulation. This improved level of transparency in claims processes and decision-making assists to build the level of consumer trust in blockchain models.

The application and adoption of blockchain technology enables parametric insurance products to be accessible to almost anyone with an internet connection. For example, a smart contract between a farmer and an insurer may provide for payment to be made automatically after 30 continuous days without rainfall at the stipulated covered location. The smart contract can be tied to reliable external independent weather data such as official rainfall statistics which immediately trigger claims payments once agreed data thresholds are reached. In other words, a claim payments may be triggered and effected without the need for the usual claims process or the intervention of either internal human decision-making points or the involvement of any other third party service providers. Insurers are able to significantly reduce, even avoid conventional claims management costs, while providing certain, non-contestible and immediate claims service and payment to customers.

The technology and methodology are applicable in theory wherever independent, trusted and verifiable data relevant to the risk is available, or a payout trigger methodology or other formula can be agreed by the insurer and insured. For example, outside the agricultural sector, air travel interruption or delay claims payments may be automatically triggered and paid when linked to data from official air transport authority databases. Perhaps even trauma and life insurance policies linked to public health authority records, and birth and death registries. The latter obviously presents significant (perhaps insurmountable) privacy, data and regulatory considerations, but serves the point of illustrating the enormous potential use and application of blockchain in the insurance sector.

Conclusion
Blockchain technology has evolved beyond its original function of being the underlying Bitcoin cryptocurrency. There are now far more use cases that have been implemented across a wide range of industries including banking, media, healthcare and telecommunications.

The manual processes still used in the insurance industry to arrange insurance policies with insureds and through intermediaries are prone to human error and data issues. Insurers who innovate by exploring ways to apply blockchain technology to their existing processes will benefit from improved data quality in their records and enhanced transparency across parties involved in the insurance value chain.

When blockchain technology is combined with other innovations such as parametric insurance products, insurers can develop a new suite of products to target customers who are focused on efficiency and speed of claims payments, to remain competitive and agile in the rapidly developing global insurance market.

Clyde & Co LLP is a limited liability partnership registered in England and Wales. Authorised and regulated by the Solicitors Regulation Authority. © Clyde & Co LLP

18/11/2021

https://www.deacons.com/2021/11/17/explanatory-note-on-regulated-activity-under-the-insurance-ordinance/

Explanatory Note on “Regulated Activity” under the Insurance Ordinance

The Insurance Authority (“IA”) has recently issued an Explanatory Note on the construction of the definition of “Regulated Activity” under the Insurance Ordinance. As is normal with these kind of explanatory notes, it is stated not to have the force of law and not to constitute legal advice. It does, however, reflect the IA’s views on the matters covered and should therefore be treated with respect.

To reiterate the definition, it is contained in Schedule 1A to the Insurance Ordinance which reads as follows:-

negotiating or arranging a contract of insurance;
inviting or inducing, or attempting to invite or induce, a person to enter into a contract of insurance;
inviting or inducing, or attempting to invite or induce, a person to make a material decision;
giving regulated advice.
For the purposes of (c) and (d) above, a “material decision” refers to a decision made, and “regulated advice” refers to an opinion given, in relation to any of the following matters:-

the making of an application or proposal for a contract of insurance;
the issuance, continuance or renewal of a contract of insurance;
the cancellation, termination, surrender or assignment of a contract of insurance;
the exercise of a right under a contract of insurance;
the change in any term or condition of a contract of insurance;
the making or settlement of an insurance claim.
The salient points of the Explanatory Note are as follows:-

In determining whether any course of action relates to a Regulated Activity, in general the IA applies an objective test taking into account the full factual context and totality of the interactions which the person concerned has with policy holders or potential policy holders and the extent to which the activities carried on by the persons concerned involve the need to protect policy holders or potential policy holders.
“Negotiating or arranging a contract of insurance” would include:-
the process of attempting to agree or agreeing the terms and conditions of a contract of insurance between the insurer and potential policy holder through discussions and communications of offers and acceptances;
activities that would bring a contract of insurance into effect together with the issuance of the policy;
where a person actively assists a potential policy holder to complete an application for insurance or where premium is collected by the person for onward remittance to the insurer;
but would not include persons who only perform clerical or administrative tasks as part of the process of bringing a contract of insurance into being if the person concerned acts on behalf of an authorised insurer or authorised insurance intermediary.
“Inviting or inducing or attempting to invite or induce a person to enter into a contract of insurance or make a material decision” would:-
require an element of encouraging, persuading or convincing a person to enter into a contract of insurance or to make a material decision. It follows that an act or communication which does not have such element would be unlikely to constitute inviting or inducing;
generally be distinguished from a communication which merely seeks to inform or educate a person about certain matters as well as merely providing information which is not accompanied by any element of encouraging, persuading or convincing;
however passive display of literature would not normally involve inviting or inducing a person to enter into a contract of insurance or make a material decision unless the literature includes a statement indicating endorsement of a product or encouraging the reader to purchase the product;
“A material decision” is based on whether the decision relates to a particular contract of insurance, the decision relates to an insurance matter and the decision to be made by the person making the decision is made in its capacity as an existing or potential policy holder. More generalised decisions would not come within the scope of this concept.
“Regulated advice” is similar so in determining whether an opinion on a particular matter constitutes regulated advice, the opinion must relate to a particular contract of insurance, must relate to an insurance matter and the opinion is given to a person in its capacity as an existing or potential policy holder. This would include a recommendation to buy a specific policy but not a recommendation to buy policy of a particular category or class. Also, it would need to go beyond the mere provision of information on the contract of insurance or insurance matter and would generally need to involve the provision of a recommendation on the contract of insurance or insurance matter with a view to the potential policy holder placing reliance on it.
“Holding out”. Regulated Activities are carried on by someone who holds himself out as carrying on a Regulated Activity and in the view of the IA, a person would be holding out as carrying on a Regulated Activity if he represents that he carries on that activity. Thus, where a person is providing a non-insurance professional service but in his marketing of that service indicates a Regulated Activity would be included as part of the professional service, it would constitute “holding out”.
“In the course of the person’s business or employment, or for reward”. The IA’s view is that for the Regulated Activity to be carried on in a person’s business, the activity would need to be carried on for a commercial purpose. This would normally occur where the person is expecting to gain a financial benefit. There may be cases however where the activity is not carried on for a reward where it is still being carried on in the course of a business and the underlying purpose would be to promote customer retention and encourage customer loyalty for the non-insurance business. An area not covered would be where the person is carrying on the activity purely out of friendship or for altruistic purposes, the provision of the Regulated Activity is entirely unconnected with person’s business or profession and there is no suggestion of any benefit being obtained by the person in return.
The Explanatory Note also elaborates on Section 78(1) of the Insurance Ordinance which states that an authorised insurer is not required to be an insurance intermediary to carry out Regulated Activities but clarifies that this is subject to two important exceptions namely that it only applies to an insurer carrying out Regulated Activities in respect of contracts of insurance which it offers and for which it is authorised and that it does not apply to insurer’s employees which may be required to be licensed as explained in the IA’s “Explanatory Note on Licensing Requirements for Employees of Authorized Insurers under Regulatory Regime for Insurance Intermediaries”.
The Explanatory Note also offers guidance on Section 64N of the Insurance Ordinance which prohibits authorised insurers from entering into a contract of insurance or accepting referral of a contract of insurance from another person unless that person is an insurance intermediary or the person’s duties only involve clerical duties. Referral of business to an authorised insurer would denote that the referrer introduces a potential policy holder to the insurer for that policy holder to enter into a contract of insurance with the insurer. Accordingly, where an unlicensed third party introduces a potential policy holder to an authorised insurer by inviting or inducing or attempting to invite or induce a policy holder to enter into a contract of insurance or by giving regulated advice, the insurer is prohibited from accepting the business. Excluded from this, however, is accepting business from a customer who has chosen the insurer because the customer has been told by his friend or relative about the relative’s positive experience in dealing with the customer. These types of word-of-mouth testimonials are part of normal everyday social interaction and should not constrain an insurer from entering into a contract of insurance. Where however an insurer seeks to offer a gratuity to existing customers for referring friends or relatives, it may be constrained. If the insurer is simply providing customers with a small token of appreciation, this may not place the insurer in contravention of Section 64N of the Ordinance but if the size of the gratuity is such as to motivate customers to invite or induce their friends to enter into contracts of insurance with the insurer, the insurer is likely to be at risk of contravening Section 64N of the Ordinance.
The Explanatory Note goes on to set out a number of case studies which elaborate how these principles apply in practice and are as follows:-

An insurer or a licensed insurance intermediary proposes to enter into a collaboration with a non-insurance entity to promote or offer insurance products to the customers of the non-insurance entity. The arrangement is structured to utilize the non-insurance entity’s website or app which is targeted to the non-insurance customers to promote or offer insurance products offered by the Regulated Activity.
A non-insurance entity which provides non-insurance services which is to include as an incidental part of its services to its clients, assistance in procuring suitable insurance. To provide the insurance part of the service offering, the non-insurance entity is considering entering into an arrangement or facility with a licensed insurance intermediary.
An entity operates a price comparison website for insurance products which enables a customer to search for or obtain quotes for different types of insurance products, compare their prices and coverage and then select an insurance product to purchase.
An authorised insurer proposes to launch a referral scheme whereby existing policy holders of the insurer can enjoy cash coupons if they successfully refer their friends to the insurance to purchase an insurance policy from the insurer.
This Explanatory Note will be of importance to unregulated entities who are operating as referrers of insurance business to either insurers or insurance intermediaries as it provides greater detail on the views of the IA the extent of the activities which they may or may not carry on under the Insurance Ordinance.

Authored by: John Richardson View PDF The Insurance Authority (“IA”) has recently issued an Explanatory Note on the construction of the definition of “Regulated Activity” under the Insurance Ordinance. As is normal with these kind of explanatory notes, it is stated not to have the force of l...

11/11/2021

https://hsfnotes.com/pwtd/2021/11/09/hong-kong-high-court-reaffirms-the-significance-of-using-precise-wordings-in-wills/ =1

HONG KONG HIGH COURT REAFFIRMS THE SIGNIFICANCE OF USING PRECISE WORDINGS IN WILLS

NOVEMBER 9, 2021
Background
One of the complications in the recent Hong Kong High Court decision of Harrison Liu v Personal Representative of the Estate of Li Kwok Mi[1] concerned the large family tree of the deceased, who was a concubine of Lau Yam Shan.

Lau Yam Shan had a wife and five concubines, one of whom gave birth to the father of the Plaintiff, and another gave birth to the mother of the Fourth Defendant. Although the deceased did not have any children of her own, one might say that she was in some sense the grandmother of the Plaintiff and the Fourth Defendant. The Plaintiff and the Fourth Defendant are cousins.

The deceased treated one of her husband’s sons, Lau Hing Yiu, most favourably. Under her will, her property was left to (i) Lau Hing Yiu’s male issues in equal shares, or (ii) (if Lau Hing Yiu died without leaving any male issue) any “duly adopted” son of Lau Hing Yiu or his widow “from amongst the grandsons” of Lau Yam Shan. Lau Hing Yiu eventually died without leaving any male issue, as his wife was infertile.

The Plaintiff raised two claims before the Court:

firstly, upon a proper construction of the will, “grandsons” included the deceased’s “paternal grandsons” only, and hence the Fourth Defendant was not qualified to inherit the property; and
secondly, in any event, the Fourth Defendant was not “duly adopted“. The Plaintiff, as the only surviving male issue of the deceased, shall therefore be entitled to inherit the property.
Judgment
Construction of wills

The principles applicable to the construction of wills are well established.

In the Court of Final Appeal decision of Tan Cheng Gay v Tan Choo Suan[2], Ribeiro PJ confirmed the aim of interpreting a will is to identify the intention of the party or parties by deciphering the meaning of the relevant words of the will in light of the documentary, factual and commercial context, bearing in mind that wills are unilaterally created and are intended to take effect from the time of the testator or testatrix’s death. Subject to statute, the court is concerned with “(i) the natural and ordinary meaning of those words, (ii) the overall purpose of the document, (iii) any other provisions of the document, (iv) the facts known or assumed by the parties at the time that the document was executed, and (v) common sense“, but not any subjective evidence of any party’s intention. Section 23B of the Wills Ordinance (Cap. 30) also provides that extrinsic evidence may be admitted to assist in the interpretation of a will under certain circumstances.

“Grandsons” or “paternal grandsons”?

In support of the first claim, the Plaintiff highlighted the fact that the deceased was a concubine, and argued that the fundamental principle under Chinese Law and Customs is to preserve the family property belonging to the male line, i.e. the male descendants of the Lau family who bear the surname Lau. In other words, the word “grandsons” in the will should be construed to only mean “paternal grandsons“.

The Court, however, considered the deceased was “certainly not a concubine living in a small village in the New Territories who was uneducated, submissive and wholly dependent on her husband“. Instead, on the evidence, she treated the property as entirely her personal property and gave careful thought as to her property disposition in the will, such as by giving different interests in the property to her selected family members.

Further, the natural and ordinary meaning of “grandsons” would include both paternal and maternal grandsons, and there is no hard and fast rule under Chinese Law and Customs that only a child of the same family name may be adopted.

More importantly, the Court weighed heavily the factor that Lau Yam Shan did not have any paternal grandsons at the time the deceased made the will. To confine “grandsons” to paternal grandsons would therefore create a real risk that there was simply no qualified person to be adopted by Lau Hing Yiu or his widow. The Court found that this possibility was not what the deceased had contemplated, as she may otherwise have made a further provision to cover it.

Having held that the word “grandsons” in the will intended to cover both paternal and maternal grandsons, the Court decided that the Fourth Defendant fulfilled the requirement in the will to be “from amongst the grandsons” of Lau Yam Shan.

“Duly adopted”?

The Court also rejected the Plaintiff’s second claim (i.e. the Fourth Defendant was not “duly adopted“), and accepted the Fourth Defendant’s evidence that Lau Hing Yiu adopted him as his son.

In particular, the Court considered a declaration from Lau Hing Yiu, in which he described the status and capacity of the Fourth Defendant as his “duly adopted” son within the meaning of the will, a solemn piece of documentary evidence that bore utmost significance in the question of whether Fourth Defendant was duly adopted. The Court viewed that the declaration was entirely consistent with the Fourth Defendant’s case.

Further, the Fourth Defendant could demonstrate Lau Hing Yiu’s serious intention to adopt him as his son. For example, the adoption ceremony took place at the family dinner to celebrate the Mid-Autumn Festival, a special Chinese festival for family union. The Court noted that, in theory, the serious intention to adopt Lau Hing Yiu did not mean the Fourth Defendant was duly adopted under Chinese Law and Customs. However, the Court held that it should be “very slow to frustrate and defeat the clear intention of the parties unless there is clear and compelling evidence or authorities supporting that the adoption was invalid, or would or could not be recognized under Chinese Law and Customs“. On the facts of the case, there was simply no such clear or compelling materials.

Accordingly, the Plaintiff failed to show that the Fourth Defendant was not the duly adopted son of Lau Hing Yiu.

Comment
The principles applicable to the construction of wills are well established. As vividly demonstrated in this case, the Court is often required to “go forwards and backwards painstakingly between the various words and phrases, occurring in different parts of the document, which give rise to the problem“[3]. Hence, the use of precise wordings that convey the actual legal intention of the testator or the testatrix is crucial. Additionally, as the Court highlighted in this case, having a reputable firm of solicitors to draft the wills would help draw any potential ambiguity of the terms, such as “grandsons“, to the testator or testatrix’s attention in the first place, thereby avoiding any potential arguments on the interpretation of words and phrases in the future.

[1] [2021] HKCFI 2527

[2] (2015) 18 HKCFAR 430

[3] Secretary for Justice v Joseph Lo Kin Ching (2015) 18 HKCFAR 169

Background One of the complications in the recent Hong Kong High Court decision of Harrison Liu v Personal Representative of the Estate of Li Kwok Mi[1] concerned the large family tree of the decea…

10/11/2021

https://mcmillan.ca/insights/business-interruption-losses-who-is-to-pay-during-the-pandemic/

Business Interruption Losses: Who is to Pay during the Pandemic?
November 8, 2021 Insurance and Litigation Bulletin

Darcy Ammerman, Paola Ramirez, Shahnaz Dhanani

The ongoing COVID-19 pandemic and its associated restrictions on businesses have led to an increase of insurance coverage disputes, raising unique issues for the insurance industry.

Of particular concern is the denial of coverage for COVID-related “business interruption losses”, raising questions about insurer liability for losses as a result of the pandemic.

Emergence of Litigation Regarding Business Interruption Losses

Insurance coverage for business interruption losses has become a notable subject of litigation. Indeed, several pandemic-related claims are currently making their way through Canadian and global courts for business interruption losses as a result of businesses seeking to mitigate their financial burden from reduced or complete cessation of business activity.

Summarily, the plaintiffs allege, either in an individual or class action lawsuit, that insurers have breached their contractual obligations by refusing to honor policy agreements and provide coverage for business interruption losses due to federal, provincial and regional authorities either restricting or closing non-essential business operations.

Many of the policies at issue are “all-risk”;[1] limited coverage to “direct physical loss or damage” to the policyholder’s property;[2] or explicitly contained infectious disease coverage[3]. The analysis of whether pandemic-related losses are covered under business interruption insurance is based on underwriter policies and contractual interpretation principles, whereby coverage is dependent on the extent and impact of the interruption, as well as the relevant policy language stipulating any express definitions, exclusions, exceptions, extensions, contingencies or circumstances requiring special coverage (see our prior bulletin for a more fulsome description of these principles).

The requirement that a business interruption must result from “direct physical loss or damage” is a standard term in most insurance policies, and the interpretation of this term by the courts will likely determine whether or not specified insurance policies for business interruption cover losses resulting from COVID-related interruptions.

The MDS Inc. v Factory Mutual Insurance Company Decision

The most recent and notable Canadian jurisprudence on the interpretation of “physical damage” are the trial and appeal decisions in MDS Inc. v. Factory Mutual Insurance Company[4] (“MDS”). At the trial level, the insured brought a claim for business interruption coverage under an all-risks policy after the nuclear research reactor facility from which the insured purchased radioactive isotopes shut down for 15 months due to a leak of radioactive materials caused by corrosion. Importantly, the shut down was ordered by the Canadian Nuclear Safety Commission. The all-risk business interruption policy excluded losses resulting from corrosion, but that exclusion was subject to an exemption for “physical damage”. The issue before the Court was whether “physical damage” included loss of use of the radioisotopes.

In its analysis, the Ontario Superior Court of Justice reviewed two interpretations of the meaning of resulting physical damage:

a narrow view where “physical loss or damage” is a material or tangible alteration to the insured’s property, specifically “an alteration in the appearance, shape, colour or other material dimension of the property insured”[5]; and
a broader view triggering coverage for loss of use of a business’ premises or equipment because of the presence of dangerous substances and subsequent shutdown orders.[6]
In MDS, the Superior Court concluded that a broad definition of resulting physical damage was appropriate in the factual context and interpreted the words in the relevant policy to include impairment of function or use of tangible property caused by the unexpected leak.[7] Specifically, the Court noted that this interpretation was in accordance with the purpose of the all-risks property insurance to provide broad coverage.[8]

Prior to the appeal, the Superior Court’s decision in MDS paved the way for the application of a broader interpretation of “physical damage.” It also opened the door for the argument that losses resulting from the shutdown of a business could constitute “physical damage” under an all-risks insurance business interruption policy.

However, the Superior Court’s decision was overturned by the Ontario Court of Appeal, which held that the exception to the corrosion exclusion for resulting physical damage did not apply to economic losses caused by the inability to use the equipment during the shutdown.[9] Most notably, the Court stated that “while economic loss may result from physical damage, it is not physical damage”.[10]

The Court of Appeal’s decision signals the Canadian courts’ preference of a strict and narrow interpretation of physical damage in favour of insurance providers. This is a win for insurers, but may have negative implications on the ability of insureds to bring successful claims for coverage from COVID-related business interruption losses in the future.

Other Jurisdictions

Foreign jurisdictions have also begun to examine the intersection of COVID-related losses and business interruption policy interpretation. Recent American case law supports the view that the mere presence of COVID-19 on insured premises does not amount to “direct physical loss”. Generally, coverage for COVID-19-related losses has been denied on the basis that physical loss or damage occurs only when property undergoes a “distinct, demonstrable, physical altercation”[11], not simply a loss of use[12].

Comparatively, the United Kingdom Supreme Court recently rendered a decision regarding the test case brought by the Financial Conduct Authority. This case aimed to seek legal clarity about the meaning and effect of a wide range of insurance policy wordings in the context of COVID-19 claims and business interruption losses. In analyzing disease, prevention of access, hybrid and trends clauses, the Supreme Court held in favour of policyholders and concluded that such clauses, in principle, provide coverage for business interruption losses caused by the COVID-19 pandemic.

Even more recently, the Superior Court of Quebec refused to authorize a class action of dentists who argued that their insurance coverage protected them from losses experienced as a result of government limitations on their practice during COVID-19. The dentists were unable to show that their claim was “relate[d] to loss of income occasioned by material loss or damage to its insured property.”[13]

Takeaway

Overall, the rise in pandemic-related insurance litigation has led businesses and insurers to focus on whether relevant policy language provides coverage arising from the COVID-19 pandemic. It also highlights the need for insurance underwriters to develop clear and detailed business interruption loss policies that carefully consider exclusions and potential extensions for government-mandated closures, as well as capacity restrictions attributed to viral outbreaks.

Based on the example of MDS, it is likely that the specific policy language, as well as the relevant factual matrix (including the reasonable expectations of the parties) will inform any future decisions on whether damages arising from business stoppages and slowdowns, or damage to commercial property as a result of the pandemic, triggers coverage under business interruption insurance. Given the confirmation of the Court of Appeal in MDS that “physical damage” in all-risk business interruption policy does not include loss of use or economic loss, it is likely that this decision will be highly persuasive in determining pending and future COVID-related business interruption insurance claims in Canada.

[1] Matrix Production Services Ltd. v. Economical Mutual Insurance Company, Case No. VLC-S-S-208574, in the Supreme Court of British Columbia, Canada.
[2] Workman Optometry Professional Corporation, et. al. v. Aviva Insurance Company of Canada, et. al., Case No. CV-20-00643488-00CP, in the Ontario Superior Court of Justice, Canada.
[3] Ibid.
[4] MDS Inc. v. Factory Mutual Insurance Company, 2020 ONSC 1924 (Ont. S.C.J.) rev’d 2021 ONCA 594 [“MDS”].
[5] Acciona Infrastructure Canada Inc. v. Allianz Global Risks US Insurance Co., 2015 BCCA 367 [Acciona] at para 38.
[6] Jessy’s Pizza v. Economical Mutual Insurance Co., 2008 NSSM 38 (N.S. Small Cl. Ct.); MDS, supra note 4.
[7] MDS, supra note 4 at para 518.
[8] Ibid at para 519.
[9] Ibid at para 12.
[10] Ibid at para 97.
[11] 10E, LLC v. Travelers Indemnity Co. of Connecticut, 483 F.Supp.3d 828 (C.D. Cal. 2020) at 836.
[12] Diesel Barbershop, LLC v. State Farm Lloyds, 479 F.Supp.3d 353 (W.D. Tx. 2020).
[13] Gendron Delisle dental health center Inc vs The Personal general Insurance Inc, 2021 QCCS 3463 at paras 73-76.

By Darcy Ammerman, Paola Ramirez and Shahnaz Dhanani

Insurance coverage for business interruption losses has become a notable subject of litigation as pandemic-related claims make their way through the courts.

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