Interpreting “Physical Loss or Damage to Property”: The Decision in Workman Optometry

The Ontario Court of Appeal’s recent dismissal of the policyholders’ appeal of the trial court’s decision in Workman Optometry Professional Corporation v. Certa Home and Auto Insurance Company (“Workman”) adds to the growing Canadian case law considering insurance coverage for pandemic-related revenue losses.

The Ontario Court of Appeal’s recent dismissal of the policyholders’ appeal of the trial court’s decision in Workman Optometry Professional Corporation v. Certa Home and Auto Insurance Company (“Workman”)[1] adds to the growing Canadian case law considering insurance coverage for pandemic-related revenue losses.  

The plaintiffs in Workman are a number of small to mid-size businesses holding commercial property insurance policies issued by the various insurers. The plaintiffs each sought business interruption coverage under their policies for revenue losses suffered as a result of the COVID-19 pandemic and associated “lockdown” orders. Although the wording of each policy varied somewhat, the fundamental issue was whether the plaintiffs’ business losses qualified as insured losses under the business interruption provisions of their policies. 

The Common Issues Trial – No Physical Loss or Damage to Property

 At a common issues trial heard in February and March 2023, the trial judge was tasked with answering three questions certified on consent: 

1. Can the presence of SARS CoV-2 virus or its variants cause physical loss or damage to property within the meaning of the business interruption provisions of each defendant’s property insurance wordings?
2. Can an order of a civil authority in respect of business activities that was made due to the SARS CoV-2 virus or its variants cause physical loss or damage to property within the meaning of the business interruption provisions of each defendant’s property insurance wordings? 
3. If the answer to either of the first two questions is “yes”, are there any exclusions in any of the defendants’ property insurance wordings that would result in coverage for such loss or damage being excluded? 

In answering “no” to the first question, the trial judge interpreted the meaning of the phrase “direct physical loss of or damage to property” and found:

• the phrase is limiting language that restricts coverage for insurable risks to events that involve direct physical damage;
• the word “physical” modified both “loss” and “damage”; and
• physical damage and physical loss had distinct meanings under Canadian law:
  • physical damage means a detrimental or harmful “distinct, demonstrable, physical alteration of property” or a “harmful” “alteration in the appearance, shape, colour or other material dimension of the property insured”; 
  • physical loss refers to a situation where the insured property no longer exists or is lost to the insured; that is, tangible harm or deprivation.

The trial judge noted this approach to the interpretation of physical loss or damage in the insurance context was supported by other recent pandemic-related law in Ontario.[2]

In considering whether there was “direct physical loss of or damage to property” in the case before it, the trial judge found that the mere presence of the SARS CoV-2 virus or its variants on a businesses’ premises could not cause “physical loss or damage” because, as a scientific fact, it did not adversely “alter, harm, or cause the loss or destruction of inanimate surfaces and does not, therefore, physically harm or deprive the plaintiffs’ of their property”.[3]

The trial judge also found that “loss of use” did not fall within the meaning of “physical loss of or damage to property”. Accordingly, to be covered, business interruption losses including lost income from loss of “use” must have been caused by “physical loss or damage to” property. This accords with the Court of Appeal’s 2021 decision in MDS Inc. v. Factory Mutual Insurance Company which found that the Commercial Property coverage does not insure “loss of use”.[4]

The trial judge also answered “no” to the second question noting that the plaintiffs conceded that the “lockdown” orders did not, on their own, cause physical loss of or damage to property.

The trial judge found that the purpose of the orders was to prevent or mitigate harm to human health, not to property. Although purpose may be relevant to understand government policy, the focus of the trial judge’s analysis was on the effect of the civil orders on insured property. Since the orders did not require the destruction of insured property, there was no insured loss. The trial judge noted this was the same approach adopted by the Superior Court of Quebec in Centre de Santa denature Gendron Delisle inc. c. La Personnelle, assurances generates inc.[5]

In light of the conclusions reached on the first and second questions, the trial judge found it was not necessary to answer the third question.

Appeal Dismissed

The appeal in Workman was heard on June 12, 2024. The nine-paragraph decision on June 14, 2024, dismissed the appeal and confirmed the Court of Appeal’s agreement with the trial judge’s reasoning and conclusion. 

No application for leave to appeal to the Supreme Court of Canada has been filed.