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Insurance - Causation. SIR Corp. v. Aviva Insurance Company of Canada
In SIR Corp. v. Aviva Insurance Company of Canada (Ont CA, 2023) the Court of Appeal considered a 'causation' requirement in an insurance policy:(iii) Direct physical loss or damage is required
[96] Even if I am wrong and COVID-19 is a “catastrophe” within the meaning of Clause 14, like the application judge, I conclude that in order for SIR to be entitled to coverage under Clause 14 the Orders must be the direct cause of the damage sustained.
[97] As stated by the Manitoba Court of Appeal, in Sher‑Bett Construction (Manitoba) Inc. v. The Co-operators General Insurance Company, 2021 MBCA 10, 457 D.L.R. (4th) 111, at para. 45:Historically, recovery under an insurance policy has been limited to circumstances where the “proximate cause” of the loss is an insured peril, and “proximate cause” has been treated as synonymous with “direct cause”. As stated in Herbert Broom, A Selection of Legal Maxims, 10th ed by RH Kersley (London, UK: Sweet & Maxwell, 1939) (at p 139):
. . .
It is a well-known rule, that in order to entitle the assured to recover upon his policy, the loss must be a direct and not too remote a consequence of the peril insured against; and that if the proximate cause of the loss sustained be not reducible to some one of the perils mentioned in the policy, the underwriter is not liable. . . . See also Chitty on Contracts, 34th ed., vol. 2 (London: Sweet & Maxwell, 2021), at 44-103; MacGillivray on Insurance Law, 15th ed. (London: Sweet & Maxwell, 2022), at 19-001.
[98] SIR contends that the absence of the word “direct” in Clause 14 is significant, especially when the very next clause, Clause 15, includes the word “direct”. In SIR’s submission, the absence of the word “direct” in Clause 14 indicates that the Orders are not required to be the direct cause of the damage sustained, namely the food and beer spoilage, for SIR to be entitled to coverage under Clause 14.
[99] For ease of reference, Clause 15 provides as follows:15. INTERRUPTION BY CIVIL OR MILITARY AUTHORITY:
This Policy is extended to include the loss sustained by the Insured during the period of time while business is affected as a result of order of civil or military authority, but only when such order is given as a direct result of loss or damage of the type insured by this policy, or threat thereof. Maximum 8 weeks. [Emphasis added.] [100] “Direct result” in Clause 15 speaks to the cause of the Order, not the cause of any loss sustained by the insured as result of the Order. It was necessary to include the word “direct” where it appears in Clause 15. It was not necessary to do so in Clause 14, because the requirement of “direct” causation was imported by the generally applicable principle of causation. The addition of the word “direct” in Clause 15 does not displace the general principle.
(iv) The Orders were not the direct cause of the food and beverage spoilage
[101] On appeal, SIR focused on whether Clause 14 required direct physical loss or damage. It made no submissions on what constitutes direct physical loss or damage.
[102] The application judge found that the Orders did not result in direct physical loss or damage to SIR’s property. I agree with her conclusion. As noted above, the affidavit evidence highlights the government orders made in Ontario, which restricted restaurants to providing delivery or take-out. Similar orders were made in other jurisdictions. Such Orders did not prevent access to the restaurants by restaurant staff. They permitted the restaurants to provide food to the public, although not through in-person dining. Any food and beer spoilage suffered was an indirect consequence of the Orders. The direct cause of the spoilage was a reduced market, the passage of time, and SIR’s inability to use the stock as initially intended.
(v) Conclusion re: Clause 14
[103] Clause 14 does not provide coverage for SIR’s losses because the Orders were not made to retard or prevent a “catastrophe” within the meaning of Clause 14. Further, any loss sustained by SIR was not as a direct result of damage caused by the Orders.
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