Most businesses not covered for potential interruptions from COVID-19, insurance industry warns

The insurance industry is sounding the alarm that most businesses in Canada are not covered for the potential business interruptions caused by the novel coronavirus pandemic.

“Generally, commercial insurance policies and traditional business interruption policies do not offer coverage for business interruption or supply-chain disruption due to a pandemic such as COVID-19,” said Craig Stewart, vice-president, federal affairs with the Insurance Bureau of Canada.

Businesses and individuals typically take out property and casualty (P&C) insurance to cover for natural disasters such as storms and fires. For example, about $3.7-billion of the damage caused by the 2016 fires in Fort McMurray, Canada’s costliest disaster, were covered by insurance.

Specialty coverage for disruption of business and supply-chain operations due to a pandemic does exist, and it could have been triggered by the World Health Organization’s official designation last week of the global outbreak as such. But “it is anticipated that the number [of companies that have it] is quite limited,” Mr. Stewart said.

Jennifer Beaudry, a spokeswoman for Intact Financial Corp., Canada’s largest P&C insurer, said coverage for pandemics “is not common in Canada and Intact does not offer [it].” She said Intact’s base contracts require an insured party to have a damaged building, equipment or stock on location to trigger business-interruption coverage.

Insurance-industry officials briefed the federal government last week about the potential issue after Ottawa reached out to key sectors to gauge how the pandemic could affect them.

“The government is in contact with Canadian insurers,” a finance department spokesperson said in an e-mail to The Globe and Mail. “We understand that not every business has business-interruption insurance and that pandemics are not likely covered in this type of insurance. If businesses have questions about their coverage, they should consult with their insurance advisers.”

Dennis Darby, president and CEO of Canadian Manufacturers & Exporters (CME), a leading business lobby group, said as a result of the pandemic, “manufacturers will have to shut down, business continuity will be affected and, unfortunately, it is unclear if they will be able to rely on their insurance policies.” The CME has urged the government to take steps to blunt the impacts on the Canadian economy.

The government moved Friday to help the private sector by making $10-billion in business credit financing available through the Business Development Bank of Canada and Export Development Canada. In addition, the Bank of Canada slashed interest rates and the Office of the Superintendent of Financial Institutions lowered the domestic stability buffer for Canada’s systemically important large banks, enabling them to increase their lending capacity by more than $300-billion.

Source: Chris Helgren – Reuters

ILScorp is here to assist you with your studies

ILScorp is here to assist you with your studies

As the COVID-19 outbreak continues to evolve, we want to reassure you that we’re taking precautions to keep our customers and employees safe.

Most staff are now working from home to help with social isolation. ILScorp will continue to provide online educational programs and resources, and customer support services are available via phone, email, and chat.

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We understand this is an uncertain time for everyone, so whether you are considering a new career in insurance, or successfully continuing your online studies, we are here to assist you as best we can.

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How are insurers working with plan sponsors amid coronavirus pandemic?

The Canadian Life and Health Insurance Association has been conducting weekly calls with its members since mid-January to discuss issues around the ongoing coronavirus crisis, including how insurers can develop messaging and policies to communicate to plan sponsors.

“We’ve basically been facilitating weekly calls to say, ‘OK, we have a very fluid situation.’ It changes almost daily, so [we’re] talking about best practices, talking about what’s known and what’s unknown,” says Joan Weir, the CHLIA’s director of health and disability policy.

On Wednesday, the World Health Organization officially declared the coronavirus outbreak a pandemic. But even before that stark announcement the CHLIA had been helping its member companies — which account for 99 per cent of Canada’s life and health insurance business — develop short-term disability leave policies for their plan sponsor clients to in turn communicate to plan members.

About six weeks ago, the CLHIA began recommending that plan sponsors waive the waiting period for short-term disability benefits if an employee is quarantined so they can stay at home and still receive their salary. “And we . . . developed an industry form where the person fills [it] out on their own, so as not to make them go to a physician to get a referral, which is a really important part of this, right? Because you don’t want someone who is possibly infected going into a health-care practitioners’ office and infecting everyone else.”

Over the past several weeks, Canada’s major insurers have been communicating with plan sponsors regarding everything from disability coverage to travel insurance to employee assistance programs. Last week, RBC Insurance Services Inc. sent a message to its plan sponsor clients saying it was giving a “time limited exception” to the need for an attending physician’s statement for a short-term disability claim and provided a form that could be filled out by plan members and then emailed to RBC directly.

In an emailed statement, Canada Life said it’s waiving the waiting period for short-term disability benefits for those who are eligible due to the coronavirus. It’s also considering claims for individuals who are under quarantine at the direction of a physician, treatment provider or other public health official, and who are also unable to work from home.

“We are adopting this approach to help minimize any financial disincentive to support the quarantine efforts across Canada,” wrote a spokesperson for the insurer. “As a leading provider of group health benefits, Canada Life, together with our industry peers, has been working with the Canadian Life and Health Insurance Association on an industry approach to handling claims relating to the coronavirus. Most of the concerns we have been hearing from plan members relate to out-of-country medical emergency and travel assistance, as well as disability coverage.”

In RBC’s note, it advised that plan members who contract coronavirus while abroad, or who are being quarantined abroad, should call a toll-free number to get more information about their specific situation. In general, the insurer said its emergency medical coverage will be extended automatically for the full duration of the quarantine and until plan members can return back to Canada at no extra charge.

Canada Life is assessing claims relating to coronavirus based on the terms of the plan member’s respective group benefits plan, including any claims that occur during travel to a country with a travel advisory warning, according to the emailed statement.

In terms of personal travel, March break is coming up next week, so employers will have to come up with policies regarding employees returning from international holidays, says Weir.

Plan sponsors and insurers can, and should, consider lessons learned from previous global health emergencies, such as the H1N1 pandemic in 2009 and the SARS outbreak in 2003, says Alex Boucher, principal and total health management leader at Mercer Canada.

“Dust off your old pandemic plans. . . .  It’s the right time to revisit those plans around communicating,” he says. “We strongly recommend employers and insurers review those plans for applicability. And our overall message for Canadian organizations is that preparation is better than reaction.”

Insurers welcome Insurance Act changes to protect vulnerable seniors

TORONTO, March 11, 2020 (GLOBE NEWSWIRE) — The Canadian Life and Health Insurance Association (CLHIA) applauds the Government of Nova Scotia for passing Bill 238, which amends the Insurance Act to protect consumers, especially vulnerable seniors, by prohibiting trafficking in life insurance policies.  The amendments also clarify the definition of premium for life insurance, which reinforces the separation of insurance and banking in Canada.

Insurers have been urging governments to take these steps to protect policy holders from exploitation. Life insurance trafficking, also known as “life settlements” results in vulnerable persons, very often seniors losing the full value of their insurance policies to unregulated third parties who offer cash payments at rates below the face value of the policy.

“Nova Scotia’s legislation will protect vulnerable consumers while ensuring that life insurance continues to fulfil its purpose of providing financial protection to individuals and their loved ones,” Stephen Frank, CLHIA’s President and CEO said. “Our industry has been vocal in our concerns that life settlements pose a very real and significant risk for fraud and abuses of consumers.”

In the U.S., in several states where life settlements have been allowed there are examples of abuses including insufficient contract disclosure and misleading sales practices aimed at vulnerable policy holders.

With the government’s bill having received Royal Assent yesterday, Nova Scotia became the eighth Canadian province to prohibit trafficking in life insurance.

With the passage of the amendments, Nova Scotia became the second jurisdiction after New Brunswick to clarify the definition of premiums for life insurance.  Alberta has also introduced legislation.

“It’s becoming increasingly clear that legislators across the country are committed to protecting Canada’s longstanding public policy, which differentiates insurance contracts from deposit-taking accounts,” said Stephen Frank, President of the CLHIA. “We will continue to work jointly with all remaining provinces to help them clarify their rules where necessary to enshrine this important principle.”

The CLHIA is a voluntary association whose member companies account for 99 per cent of Canada’s life and health insurance business. The industry provides a wide range of financial security products such as life insurance, annuities (including RRSPs, RRIFs and pensions) and supplementary health insurance to almost 29 million Canadians. It also holds over $850 billion in assets in Canada and employs more than 156,000 Canadians.

What To Do When You Receive a Force Majeure Claim Based On The  Novel Coronavirus

What To Do When You Receive a Force Majeure Claim Based On The Novel Coronavirus

The excerpted article was written by Thomas J. Timmins and Howard XIN Articling student

Gowling WLG

Start with the Clause

A force majeure clause is a common inclusion to contracts for protecting parties from impairment caused by extraordinary or extreme events. These extraordinary events are often referred to as “acts of God”. When a force majeure clause has been included in a contract and force majeure events actually do occur, the expectation is that the party or parties facing impairment as a result of the proscribed force majeure event–a hurricane, war, flooding, political unrest, epidemic, etc.–will be relieved of all or some portion of its delivery obligations under the relevant contract and from all or some portion of liability for damages arising from delay or default occurring in the performance of its contractual obligations.

In drafting these provisions, companies will often use language that defines what will or will not constitute a force majeure event, often by listing specific examples which qualify as such–hurricanes, war, volcanic eruptions, strikes, lockouts, etc. Occasionally, in the rush to get the deal done, not a great deal of thought is given to the breadth or inclusions expressed in the clause and a “boilerplate” is used.

If there is no force majeure clause, courts will still consider defences by the impaired party based on foreseeability of the impairing event. Whether there is a force majeure clause or not, the burden of proof rests on the party seeking to rely upon the force majeure provision. In any case, the key starting point is with the force majeure clause itself. What does it say? Do the events which one party alleges to have occurred actually qualify under the terms of the clause? If so, did those qualifying events actually lead to the delay or the breach in question?

Force Majeure Case Law in Canada

For the past half-century, the leading case on force majeure in Canada has been Atlantic Paper Stock Ltd. v St. Anne Nackawic Pulp & Paper Co. This was a 1975 Supreme Court decision concerning a minimum annual supply of paper pulp over a 10-year period, which allegedly became subject to extraordinary events including acts of God and substantial decline in the market for such paper pulp. In this decision, Justice Dickson established that, “An act of God clause or force majeure clause … generally operates to discharge a contracting party when a supervening, sometimes supernatural, event, beyond control of either party, makes performance impossible. The common thread is that of the unexpected, something beyond reasonable human foresight and skill” (emphasis added). Since then, no Canadian Supreme Court cases have revisited the matter in depth. However, despite the lack of Supreme Court precedents, there have been various lower-court cases affirming Atlantic Paper and exploring the interpretation of force majeure clauses.

In World Land Ltd. v Daon Development Corp., the court accepted the use of basket clauses to define the scope of force majeure applicability. In this case, a land development company was accused of failing to commence construction on the land by a specific date. In the agreement, the force majeure clause included in its definition of force majeure events, the very broad and inclusive language, “…or any other causes…beyond the control of the vendors or the purchasers”. The company had relied on this language and announced that the development would be delayed on the grounds of not having received a development permit, which it claimed was beyond its control. The court accepted the applicability of the basket clause. However, to the detriment of the land development company, it chose to interpret the language plainly and held that it had been within the company’s control to obtain the permit on time. In other words, the party alleging that force majeure events occurred was not entitled to sit idle.

Subsequently, Atcor Ltd. v Continental Energy Marketing Ltd. seemed to have revised the criteria for what constitutes a force majeure event. In this decision, a gas supplier successfully relied on force majeure when it failed to deliver gas because of various technical pipeline issues suffered by a third party pipeline owner. Here, the Alberta Court of Appeal rejected the idea that a force majeure event had to make performance impossible. Instead, “a real and substantial problem” that makes contractual performance commercially unfeasible was held to be the standard—i.e. a significantly lower threshold than the impossibility of performance standard posited in Atlantic Paper, cited above.  Despite the apparent departure in Atcor, the impossibility standard set in Atlantic Paper has continued to be followed in recent cases. Thus, from a practical viewpoint, unless you have expressly contracted otherwise, ‘impossibility of performance’ should be viewed as the basic standard when reviewing force majeure circumstances.

As if to emphasize this point, in the 2011 British Columbia Supreme Court decision Domtar Inc. v Univar Canada Ltd., there was a focus on language of the force majeure provision. The facts were that a supplier could not source and supply caustic soda on commercially acceptable terms and, therefore, alleged that an event of force majeure had occurred and that it should be exempted from its contractual supply obligations. The force majeure event, in this case, was not being able to purchase raw materials at a commercially acceptable price because of an unprecedented rise in price of caustic soda. The argument was ultimately unsuccessful. The B.C. court found that the force majeure clause in the relevant contract did not include or contemplate economic or market conditions, and agreed with earlier findings from the English courts that, “the fact that a contract has become expensive to perform, even dramatically more expensive, is not a ground to relieve a party on the grounds of force majeure.

Domtar Inc. suggests that “economic” force majeure would be extremely difficult, if not impossible, to justify. It also emphases the point which we made above—start by reading the force majeure clause in your contract.

Considering the Novel Coronavirus

It is not uncommon for force majeure clauses to include specific references to terms such as “plague” or “epidemic” when describing force majeure events. In light of global health emergencies that have surfaced in the last few decades, we have found that these types of clauses have included increasingly specific event references such as “public health emergencies” and “communicable disease outbreaks”. However, whether these specific wording inclusions will be of use to the party alleging that a force majeure event which can be relied upon as relieving it from its contractual obligations has occurred remains uncertain.

The Canadian case law surrounding force majeure provisions based on global health concerns is limited. For example, most mentions of the 2003 SARS outbreak or the 2015 Ebola pandemic pertain to cases of domestic occupational health and safety and refugee protection. Reported cases that refer to these specific health crises as triggers of force majeure are few. There is one 2005 decision issued by the Canadian Radio-television and Telecommunications Commission (CRTC) concerning rate adjustment plans in the Telecom industry that linked SARS to a force majeure event. In the decision, Bell Canada, TELUS, and several other telecom companies submitted that the 2003 SARS outbreak in Toronto fell within the scope of the following force majeure clause:

“No penalty shall apply in a month where failure to meet the standard is caused, in that month, by fire, strikes, default or failure of other carrier, floods, epidemics, war, civil commotions, acts of God, acts of public authorities or other events beyond the reasonable control of the Company which cannot reasonably be foreseen or provided against.”

In this case, Canadian telecom carriers sought to rely upon the force majeure wording above, arguing that factual circumstances, including the necessity to quarantine of a number of Bell Canada employees, and the specific mention of “epidemics” in the force majeure clause, lessened their respective quality of service obligations. (In many force majeure clauses, epidemics are not specifically included in the clause and left to be read-in under the sweeping category “other events beyond the reasonable control of the Company”.) In the end, the CRTC held that the approach to be adopted in order to determine whether or not SARS-related events were sufficient to trigger force majeure clause protections was a case-by-case one.


Tough insurance market conditions driving premiums through the roof

The cost of catastrophes, construction, claims and reinsurance has pushed insurance premiums on many British Columbia condominiums through the roof.

While petitions and critics call for government intervention, industry experts say it’s a complex market issue with no easy fix. And for some, it’s about to get worse.

“We saw half of the stratas get hit on December 31, and the other half are going to get hit on April 30,” said Mike Alavi, senior property manager with Korecki Real Estate Services Inc.

The company manages 7,500 strata units across dozens of buildings in the Lower Mainland. Of the strata corporations that have recently renewed their insurance, Alavi said, around 90% saw premium increases of between 50% and 100%.

“I think what we’ve seen is a correction in the market,” Gioventu said. “It’s not like it’s exponentially incorrect, but it’s just that it’s happened all at once.”

CHOA reviewed B.C. insurance premiums dating back to the 1980s and 1990s and found that they are not far off from where they were before industry players began adjusting their rates this past year. Gioventu called it a “bit of a revelation.”

He said on a low-risk building with a good insurance history, an insurance company charges between $0.13 and $0.15 per $100 of insured property. High-risk buildings – ones that are old and poorly maintained – might cost $0.22 per $100 of property.

At that rate, insuring a high-risk property with a replacement value exceeding half a billion dollars – which exists in B.C. – might cost $1.1 million annually. In the event of a total loss, an insurer would be paying out roughly 455 times what it collected in premiums in a given year, meaning – all else equal – the insurer would have had to collect 455 years of insurance premiums to break even on the claim.

Gioventu believes market competition is partly responsible for keeping insurance premiums relatively stagnant over the past several years, despite the fact that buildings have kept aging while property values have increased and risk has grown.

The number of residential strata claims and what they cost has also risen. According to insurance broker BFL Canada, one in three stratas will submit a claim this year. Average losses now cost more than $50,000, and 54% of losses claimed are worth more than $100,000.


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