Court of Appeal for Ontario

Date: 2023-11-22 Docket: COA-23-CV-0024 & COA-23-OM-0183

Before: Hoy, Benotto and Favreau JJ.A.

Between: SIR Corp., US S.I.R., LLC and/or Subsidiaries and/or Franchises and/or Affiliated and/or Associated Firms and/or Other Interests as directed by SIR Corp. Applicants (Appellants/Moving Parties)

And: Aviva Insurance Company of Canada Respondent (Respondent/Responding Party)

Counsel: Rory Barnable and Mirilyn Sharp, for the appellants Ellen Snow and Mark C. Mandelker, for the respondent

Heard: May 24, 2023

On appeal from: The judgment of Justice Audrey P. Ramsay of the Superior Court of Justice, dated December 20, 2022 with reasons reported at 2022 ONSC 6929, and from the costs order, dated June 13, 2023 with reasons reported at 2023 ONSC 3506.

Endorsement by: Hoy J.A.

I. INTRODUCTION

[1] The appellants, SIR Corp. and related entities (collectively “SIR”), own and operate approximately 60 restaurants. During the COVID-19 pandemic, an emergency order under the Emergency Management and Civil Protection Act, R.S.O. 1990, c. E.9, and similar orders in other provinces of Canada and in the State of New York (collectively, the “Orders”) prevented SIR from offering in‑person dining at its restaurants.

[2] SIR applied for a declaration that it was entitled to coverage under an insurance policy, covering the period September 30, 2019 to September 30, 2020 issued by the respondent (the “Policy”), Aviva Insurance Company of Canada (“Aviva”), for damage to its food and beer stock and for business losses allegedly suffered as a result of the Orders. If successful, SIR sought an order directing a reference under r. 54 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, to determine the quantum of its losses.

[3] The application judge found that the Policy did not cover the losses allegedly sustained by SIR. She also rejected SIR’s alternative argument that Aviva was estopped from denying coverage because it had covered a similar claim in January 2020 at a SIR restaurant in St. John’s, Newfoundland and Labrador, which occurred when a government-declared state of emergency was in effect. She dismissed SIR’s application and awarded costs to Aviva in the amount of $100,000.

[4] SIR now appeals the dismissal of its application and seeks leave to appeal the costs award.

[5] For the following reasons, I would dismiss the appeal and deny leave to appeal the costs award. Although I agree that the application judge made an extricable legal error in interpreting the Policy — by treating an insurance binder prepared by SIR’s broker and signed by Aviva in 2017 (the “Binder”) as forming part of the Policy — I agree with the result reached by the application judge: SIR is not entitled to coverage under the Policy. Further, the application judge did not err in rejecting SIR’s estoppel argument.

[6] Before turning to my analysis, I begin by providing some relevant background.

II. FACTUAL BACKGROUND

(1) Binder

[7] In 2017, SIR’s former insurer announced that it was exiting the Canadian property market. SIR’s insurance broker invited Aviva to provide a quote on a commercial property policy for SIR.

[8] In September of 2017, SIR’s insurance broker prepared the Binder for Aviva’s signature. In October of 2017, Aviva returned the signed Binder. The Binder states that it is evidence that the insurance described in it has been placed with Aviva, subject to the terms, conditions, exclusions, and provisions contained in the policy to be issued and any endorsements attached thereto. By its terms, the Binder was effective until it was subsequently replaced by delivery of Aviva’s written contract.

[9] On the first page, under the heading “Perils Insured,” the Binder specifies “All Risks of Direct Physical Loss or Damage (except as excluded)”.

[10] On its third page, under the heading “Special Endorsements/Extensions,” the Binder includes “Interruption by Civil Authority‑No. of Weeks-8” and “Ingress/Egress-No. of Weeks-8.”

(2) Insurance Policy

[11] The Binder was replaced by an insurance policy for the policy period 2017‑2018. That policy was renewed in 2018. Although certain changes proposed by Aviva were incorporated in the policy for the policy year 2018-2019, for the most part the policy remained the same. That policy was renewed in 2019, covering the period in question in this case.

[12] The Policy is a “manuscript policy,” negotiated by SIR’s insurance broker and Aviva’s underwriters. It is not a standard form policy.

[13] The Policy is structured into four sections: Section I - Policy General Conditions; Section II - Direct Damage Section; Section III - Business Interruption Insurance Including Contingent Business Interruption (Profits); and Section IV - Extra Expense Insurance Including Contingent Extra Expense.

[14] The first clause of Section I provides that:

This Policy, subject to the terms, conditions and limitations hereinafter set forth insures:

Direct Damage as provided under Section II

Business Interruption (Profits) as provided under Section III

Business Interruption Extra Expense as provided under Section IV

[15] Among other things, and subject to various conditions and limitations, Section II [^1] insures the property described in that section against all risks of direct physical loss or damage. Subject to various conditions, provisions, and limitations, Section III provides coverage for loss resulting from interruption or interference with the insured’s business as a consequence of the property of the insured or others being destroyed or damaged by the perils insured under the Policy. Subject to various conditions and limitations, Section IV covers the “Necessary Extra Expense” incurred by the insured to carry on its business following damage to or destruction of the property of the insured or others caused by perils insured under the Policy.

[16] Clause 1 of Section II of the Policy provides that the Policy, subject to various conditions and limitations, insures the property described “herein” against “All Risks of direct physical loss or damage…except as hereinafter excluded,” which echoes substantially similar language in the Binder.

[17] Six endorsements describing specific exclusions under the Policy follow these sections. The parties agree that none of these exclusions apply to SIR’s claim.

(3) Clauses relied on

[18] In asserting entitlement to coverage, SIR relied primarily on clause 14 of Section I (“Clause 14”) and clause 16 of Section I (“Clause 16”) (and continues to do so on appeal):

14. CIVIL OR MILITARY AUTHORITY:

This Policy insures loss, as covered herein, which is sustained by the Insured as a result of damage caused by order of civil or military authority to retard or prevent a conflagration or other catastrophe . [Emphasis added.]

16. INGRESS/EGRESS:

This policy is extended to include the loss sustained by the Insured during the period of time when as a result of a peril insured or threat thereof, ingress to or egress from any part of premises of the Insured or of others is prevented or impaired, including prevention or impairment of such access by any civil or military authority. Maximum 8 weeks. [Emphasis added.]

[19] Section I of the Policy includes a definition section, but it does not include a definition of “catastrophe” or “peril insured,” which are key terms in interpreting Clauses 14 and 16.

[20] In the court below (but not appeal) SIR argued that coverage under clause 15 of Section I (“Clause 15”) may also be available. Clause 15 reads:

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.

III. PROCEEDINGS BELOW

(1) Parties’ positions below

[21] The parties agreed that, if not entitled to coverage under any of Clauses 14, 15, or 16, SIR was not entitled to coverage under any other provision in the Policy.

[22] SIR argued that the Orders caused damage to its food and beer stock, the COVID-19 pandemic was a “catastrophe,” and the Orders were an “order of civil…authority to retard or prevent a…catastrophe.” Accordingly, SIR argued that its loss as a result of damage to its food and beer stock was covered under Clause 14.

[23] In addition, SIR argued that Clause 14 extended coverage under the Policy by adding an insured peril: the risk that “an order of civil or military authority to retard or prevent a conflagration or other catastrophe” would cause loss to SIR. Thus, it contends that the Orders are a “peril insured” for the purposes of Clause 16 and, because of the Orders, ingress to or egress from its restaurants by the public was prevented or impaired. Accordingly, SIR argued that it was entitled to coverage under Clause 16 in respect of its business losses at each of its restaurants for an eight-week period.

(2) Application judge’s reasons

[24] The application judge rejected SIR’s interpretation of the Policy.

[25] She described the Policy as consisting of “a Binder, Insuring Agreement, and six endorsements relating to exclusions under the Policy.” She recognized that the Policy must be read as a whole and must be examined in light of the surrounding circumstances, or the factual matrix, in which it was formed.

[26] She agreed with the parties that there was no ambiguity in the language. Accordingly, there was no need to resort to evidence of after‑the‑fact conduct, or the doctrine of contra proferentem, and the contra proferentem clause in Section I was not triggered.

[27] She characterized the Policy as an all-risk insurance policy and stated that “[t]he commercial reality is that an all-risk insurance policy is a form of property insurance.” As any endorsement or extension would be built on the foundation of the policy, the starting point was the perils insured, as set out in the Binder. The Binder described the perils insured as “All Risks of Direct Physical Loss or Damage (except as excluded)”.

[28] She concluded that coverage was not available under Clause 16. In her view, the words of Clause 16 were clear: “[t]his policy is extended to include the loss sustained by the Insured during the period of time when as a result of a peril insured or threat thereof, ingress to or egress from any part of premises of the Insured … is prevented or impaired” (emphasis added). In her view, the Orders were not a peril insured (i.e. a risk of direct physical loss or damage).

[29] Similarly, the application judge found no coverage under Clause 15 – a finding that is not challenged on appeal.

[30] She also concluded that coverage was not available under Clause 14. For there to be coverage, there must first be a “loss, as covered herein”. “Herein” can only refer to “in” the Policy (as opposed to the particular clause). There must be a “loss” covered under the Policy. For SIR to be afforded coverage the loss must be as a result of “direct physical loss or damage”. Here that was not the case: neither the COVID-19 virus nor the Orders resulted in “direct physical loss or damage” to SIR’s property.

[31] The application judge also found that Clause 14 was not engaged because there was no order “to retard or prevent a conflagration or other catastrophe ” (emphasis added). Although the application judge acknowledged that the COVID-19 pandemic can be characterized as a catastrophe in ordinary parlance, she interpreted “other catastrophe” in Clause 14 in light of the word “conflagration,” which she described as “a physical event, an extensive fire.” She concluded that “other catastrophe” in Clause 14 would require a similar large-scale destruction to property. Therefore, for the purposes of the Policy, COVID-19 was not a “catastrophe.”

[32] The application judge did not accept SIR’s alternative argument that Aviva was estopped from denying coverage under the Policy because it had covered a “similar claim” for a SIR restaurant in St. John’s, Newfoundland and Labrador, in January 2020. Those losses occurred during a government-imposed state of emergency due to hurricane-force winds and extreme snowfall, which required SIR’s restaurant to remain closed for roughly nine days. The application judge concluded that there were competing versions of events and there was no basis for the court to determine that Aviva should be estopped from denying coverage in this case.

IV. ANALYSIS

(1) Standard of review

[33] As a general rule, contractual interpretation is a question of mixed fact and law subject to deferential review on appeal: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at paras. 50-52; Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, [2016] 2 S.C.R. 23, at para. 24. An exception to that rule has been recognized by the Supreme Court of Canada in Ledcor, at para. 24:

[W]here an appeal involves the interpretation of a standard form contract, the interpretation at issue is of precedential value, and there is no meaningful factual matrix that is specific to the parties to assist the interpretation process, this interpretation is better characterized as a question of law subject to correctness review.

[34] In this case, that exception does not apply. This is a broker-worded manuscript policy, not a standard form agreement, and there is a meaningful factual matrix specific to the parties.

[35] Accordingly, it is not open for this court to intervene unless the application judge made a palpable and overriding error in her interpretation of the Policy or an extricable error of law, in which case the standard of review is correctness: Sattva, at para. 53; Ledcor, at para. 21.

(2) Extricable legal error: misidentification of the scope of the Policy

[36] I agree with SIR that the application judge committed an extricable legal error by treating the Binder as forming part of the Policy. The Binder was prepared by SIR’s insurance broker in 2017, was not attached to the Policy, and, by its terms, was effective only until replaced by delivery of Aviva’s written contract.

[37] As SIR submits, the application judge’s conclusion that the Orders were not a “peril insured” under Clause 16 rests almost entirely on her finding that the only “perils insured” under the Policy were “All Risks of direct physical loss or damage” ─ a finding based on her view that the Binder formed part of the Policy. This, in turn, impacted her interpretation of Clause 14.

[38] Accordingly, I must consider the interpretation of the Policy afresh and determine whether, properly applying the principles of contractual interpretation, SIR is entitled to coverage.

(3) Interpretation of the Policy

(a) Principles of interpretation

[39] Insurance policies form a special category of contracts and are subject to a unique three-step interpretative approach: Jesuit Fathers of Upper Canada v. Guardian Insurance Co. of Canada, 2006 SCC 21, [2006] 1 S.C.R. 744, at para. 27; Sky Clean Energy Ltd. (Sky Solar (Canada) Ltd.) v. Economical Mutual Insurance Company, 2020 ONCA 558, 152 O.R. (3d) 159, at paras. 54-56; Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33, [2010] 2 S.C.R. 245, at paras. 21-24; Ledcor, at paras. 49-51; Sabean v. Portage La Prairie Mutual Insurance Co., 2017 SCC 7, [2017] 1 S.C.R. 121, at para. 12; and Geoff R. Hall, Canadian Contractual Interpretation Law, 4th ed. (Toronto: LexisNexis Canada, 2020) at pp. 266-68.

[40] This court summarized the three-step approach applicable to the interpretation of insurance policies in Sky Clean, at paras. 54-56:

The principles of interpretation applicable to insurance policies are well settled. The primary principle is that when the language of the policy is unambiguous, the court should give effect to its clear language, reading the policy as a whole: Progressive Homes, at para. 22, referring to Non-Marine Underwriters, Lloyds of London v. Scalera, 2000 SCC 24, [2000] 1 S.C.R. 551, at para. 71.

Where the policy language is ambiguous, the general rules of contract interpretation provide guidance, including the rule that effect should be given to the reasonable expectations of the parties, as long as the interpretation is supported by the text of the policy: Progressive Homes, at para. 23. Similar insurance policies should be construed consistently. These rules should be applied to resolve an ambiguity, not to create one.

Where ambiguity remains after the application of these rules, the contra proferentem rule applies to construe the policy against the maker, the insurer. This gives rise to the precept that coverage provisions are interpreted broadly and exclusions clauses narrowly: Progressive Homes, at para. 24.

[41] Although insurance policies are subject to this unique interpretative approach, as with all contracts, the terms of the policy must be examined in light of the surrounding circumstances: Jesuit Fathers, at para. 27; Carter v. Intact Insurance Company, 2016 ONCA 917, 133 O.R. (3d) 721, at para. 28, leave to appeal refused, [2017] S.C.C.A. No. 53; and MDS Inc. v. Factory Mutual Insurance Company, 2021 ONCA 594, at para. 78, leave to appeal refused, [2021] S.C.C.A. No. 382. This is an essential part of the first step in the three‑step interpretive approach.

[42] I turn to the interpretive issues raised in this case with these principles in mind.

(b) No coverage under Clause 16

(i) Interpretive issues raised by Clause 16

[43] For ease of reference, I repeat Clause 16:

16. INGRESS/EGRESS:

This policy is extended to include the loss sustained by the Insured during the period of time when as a result of a peril insured or threat thereof , ingress to or egress from any part of premises of the Insured or of others is prevented or impaired, including prevention or impairment of such access by any civil or military authority. Maximum 8 weeks. [Emphasis added.]

[44] It is agreed that there is no coverage under Clause 16 for the losses SIR sustained during the period it was prevented from offering in-person dining unless access to its premises was impaired as a result of a “peril insured or threat thereof”.

[45] SIR submits that the requirements of Clause 16 are met. On its interpretation, Clause 16 provides coverage for SIR’s “business and other losses”, resulting from the prevention or impairment of access to its premises by the Orders, in the absence of direct physical loss or damage to SIR’s property or the property of others. It contends that each of the Orders is a “peril insured” because Clause 14 adds a peril insured, namely “the risk that ‘an order of civil or military authority to retard or prevent a conflagration or other catastrophe’ would cause loss to SIR” and the Orders fit within that description. SIR does not accept that the words “All Risks of direct physical loss or damage…except as hereinafter excluded” from clause 1 of Section II of the Policy are overlaid on Clauses 14 or 16.

[46] In Aviva’s view, “peril insured” in Clause 16 means “all risks of direct physical loss or damage, except as excluded” (i.e., the common language from the Binder and clause 1 of Section II). Thus, in Aviva’s view, the Orders must meet that definition for SIR to be entitled to coverage under Clause 16, which they do not. As for whether Clause 14 adds a peril insured, Aviva says that Clause 14 does not apply in these circumstances.

[47] Accordingly, the threshold interpretive issue under Clause 16 is: what is a “peril insured,” within the meaning of that term in Clause 16? The further issue is: are the Orders “perils insured”?

[48] As I will explain, I agree with Aviva that “perils insured” under the Policy are all risks of direct physical loss or damage, except as excluded. Although a civil order, as described in Clause 14, may be a “peril insured” to the extent it creates a risk of direct physical loss or damage, the Orders in question are not perils insured. As a result, coverage is not available to SIR under Clause 16.

(ii) Meaning of “peril insured” for the purposes of Clause 16

[49] As the application judge noted, the parties agreed to an all-risk insurance policy, which is a form of property insurance. As she also noted, any endorsement is built upon the foundation of the Policy: Pilot Insurance Company v. Sutherland, 2007 ONCA 492, 86 O.R. (3d) 789, at para. 21.

[50] Considering the Policy as a whole, it has as its foundation a requirement of a risk of direct physical loss or damage to property. As noted, Section II specifically defines the perils insured as “All Risks of direct physical loss or damage…except as hereinafter excluded”. Sections III and IV of the Policy, while providing coverage for additional losses, only do so where there has been destruction or damage of property. Other clauses in Section I that extend coverage (clause 17, which extends coverage to loss or damage resulting from interruption of services caused “by a peril insured against,” and clause 18, which extends coverage for pollution cleanup and removal) similarly require direct damage to property.

[51] The parties disagree on the application of clause 1 of Section II, which provides in full that “ This Policy , subject to the conditions and limitations as herein set forth, insures the property described herein against All Risks of direct physical loss or damage occurring during the term of this Policy, except as hereinafter excluded ” (emphasis added).

[52] SIR argued that the words “This Policy” should be read as “This Section” since clause 1 appears in Section II of the Policy and clause 48 of Section I of the Policy states that “Wherever the word ‘Policy’ appears, it shall be read as ‘Section’ if the context so indicates.” Aviva took the opposite position.

[53] In my view, examining clause 1 of Section II in light of the Policy as a whole and the Binder, “Policy” should be read as “policy.” In other words, the words “This Policy” mean what they say, and the definition of perils insured in clause 1 of Section II is applicable to Section I of the Policy. This interpretation of peril insured gives effect to the clear language of the Policy, reading it as a whole, in light of the factual matrix. I agree with the application judge that the meaning of “peril insured” is not ambiguous.

[54] The Binder was prepared by SIR’s insurance broker, who acted as SIR’s agent and negotiated the policy that replaced the Binder. While not part of the Policy, the Binder is clearly part of the factual matrix: Lloyds Syndicate 1221 (Millennium Syndicate) v. Coventree Inc., 2012 ONCA 341, 291 O.A.C. 178, at para. 29, leave to appeal refused, [2012] S.C.C.A. No. 276. Indeed, in its supplementary factum below, SIR relied on the Binder as forming part of the factual matrix and setting out a summary of the terms of the Policy. Significantly, the language used in clause 1 of Section II is virtually identical to the language in the Binder describing “Perils Insured” as “All Risks of Direct Physical Loss or Damage (except as excluded)”.

[55] Contrary to SIR’s submission, relying on the Binder to interpret the coverage afforded under the Policy is not contrary to s. 124(1) of the Insurance Act, R.S.O. 1990, c. I.8. That section provides:

124(1) All the terms and conditions of the contract of insurance shall be set out in full in the policy or by writing securely attached to it when issued, and, unless so set out, no term of the contract or condition, stipulation, warranty or proviso modifying or impairing its effect is valid or admissible in evidence to the prejudice of the insured or beneficiary.

[56] The purpose of s. 124 is to protect an insured from unilateral changes to an insurance policy: Sagl v. Chubb Insurance Company of Canada, 2009 ONCA 388, 249 O.A.C. 234, at para. 68, leave to appeal refused, [2009] S.C.C.A. No. 303. Here, I consider the Binder to interpret the Policy, not to modify or impair its effect. As Sattva instructs, the factual matrix is to be “used as an interpretive aid for determining the meaning of the written words chosen by the parties, not to change or overrule the meaning of those words”: at para. 60.

[57] Returning to the meaning of “peril insured,” SIR contends that it is wrong to say that “peril insured” in Clause 16 only refers to “All Risks of direct physical loss or damage”, since Clause 14 adds a peril: the risk that “an order of civil or military authority to retard or prevent a conflagration or other catastrophe” would cause loss to SIR.

[58] Citing Black’s Law Dictionary, abridged 5th ed. (St. Paul: West Publishing Co., 1983), the application judge stated that “peril” means “[t]he risk, hazard, or contingency insured against by a policy of insurance” and “[i]n general, the cause of any loss such as may be caused by fire[,] hail, etc” (emphasis added). “Peril” has also been defined as “The cause of an insured loss or the risk insured against”: Barbara Billingsley, General Principles of Canadian Insurance Law, 3rd ed. (Toronto: LexisNexis Canada, 2020), at p. 358.

[59] There is no dispute that an order by a civil authority can in certain instances constitute a peril insured. Clause 16 specifically refers to access being prevented or impaired by a civil authority. I agree that an “order of civil or military authority to retard or prevent a conflagration or other catastrophe” could be a “peril insured” but only if the order constitutes a risk of direct physical loss or damage. In other words, I disagree that Clause 14 adds a peril such that the Policy covers a risk of no direct physical loss or damage.

[60] As discussed above, the foundation of this Policy is a requirement of a risk of direct physical loss or damage. Clause 1 of Section II specifies that “This Policy” insures against “All Risks of direct physical loss or damage…except as hereinafter excluded.” If the parties had intended to extend the Policy to include what SIR describes as “non-damage business interruption coverage” one would have expected much clearer language.

(iii) Additional arguments raised by SIR

[61] For the sake of completeness, before turning to the question of whether an Order is a “peril insured or threat thereof”, I will address three further arguments advanced by SIR as to why “peril insured” should not be interpreted as meaning “all risks of direct physical loss or damage, except as excluded”. The first two also apply to the interpretation of Clause 14.

“Peril insured” is not ambiguous and so no broad interpretation in favour of SIR

[62] Below, SIR argued that the Policy is not ambiguous. On appeal, it now argues that it is ambiguous. As indicated above, I conclude that the term “peril insured” in Clause 16 is not ambiguous. SIR and Aviva advance different interpretations. The mere articulation of a differing interpretation or the fact that the terms of a policy require interpretation does not necessarily create ambiguity: Sabean, at para. 42; Canadian National Railway Co. v. Royal and Sun Alliance Insurance Co. of Canada, 2008 SCC 66, [2008] 3 S.C.R. 453, at para. 33.

[63] In light of my view on ambiguity, I disagree with SIR’s first argument, namely that “peril insured” should be interpreted broadly in favour of SIR because Clause 16 is a coverage provision. The principle that coverage clauses are interpreted broadly, and exclusion clauses narrowly, is a corollary of the contra proferentem rule, which comes into play when a contract is ambiguous and all other rules of contractual interpretation have failed to resolve the ambiguity: Sky Clean, at para. 56; Progressive Homes, at para. 24; and Sabean, at para. 12. As will be clear later in these reasons, there is similarly no need to resort to the contra proferentem rule in interpreting Clause 14.

Clauses 16 (and 14) must be read with regard to the Policy as a whole

[64] SIR’s second argument, relying on Le Treport Wedding & Convention Centre Ltd. v. Co‑operators General Insurance Company, 2020 ONCA 487, 151 O.R. (3d) 663, leave to appeal refused, [2020] S.C.C.A. No. 333, is that Clause 16 (and Clause 14) should be interpreted without regard to other sections in the policy. I disagree. Doing so would be contrary to the interpretive principle that a policy should be read as a whole. SIR misconstrues Le Treport. In both Le Treport, at paras. 31-33, and Pilot Insurance, at para. 21, this court held that the policy and the endorsement must be read together. Moreover, in Le Treport, unlike in this case, the endorsement was comprehensive on the subject of the coverage provided in the endorsement. Here, the clauses in question are not comprehensive and so can only be given meaning having regard to the rest of the Policy.

No nullification of coverage under Clause 16

[65] Finally, SIR submits that coverage for business losses resulting from “direct physical loss or damage” to SIR’s property or the property of others would already be available under Sections III and IV of the Policy and/or under Clause 15. It argues that restricting “peril insured” to all risks of direct physical loss or damage, except as excluded, would nullify coverage under Clause 16 and defeat the reasonable expectation of the parties in entering into the contract.

[66] As stated above, reading the policy as whole, in light of the factual matrix, the policy language “peril insured” is not ambiguous. Accordingly, it is not necessary to consider the reasonable expectations of the parties: Sky Clean, at para. 55.

[67] In any event, although I do agree there is overlap, interpreting “peril insured” as meaning all risks of direct physical loss or damage, except as excluded, does not nullify coverage.

[68] As this court has recognized, “[i]nsurance policies…often contain multiple, sometimes overlapping coverages, exclusions, conditions, and endorsements”: EPCOR Electricity Distribution Ontario Inc. v. Municipal Electric Association Reciprocal Insurance Exchange, 2022 ONCA 514, at para. 58.

[69] In this case, Clause 16 captures claims that would not otherwise be covered under Sections III and IV. At a minimum, it extends coverage by providing coverage when access to the business is prevented or impaired as a result of a peril insured or threat thereof . Unlike the coverage provided under Sections II to IV, it does not require actual physical loss or damage to property. For example, it would provide coverage where a blockade is ordered in response to the threat of flooding or where there is a threat of a landslide and police cordon off the business. Also, Clause 16 appears to provide “loss of use” coverage, as contemplated by clause 5(b)(iii) of Section II of the Policy, where there is a risk of direct physical loss or damage. That clause provides that the Policy does not insure against, “loss caused by delay, loss of market or loss of use, except as may be provided under other Sections of this Policy.”

[70] Similarly, while there is overlap between the coverage offered by Clause 15 and Clause 16, coverage under the two clauses is triggered in different ways. Clause 15 covers situations where a civil or military order is given as a direct result of direct physical loss or damage covered by the Policy or a threat thereof, and the business is affected as a result of the order. Clause 16 provides coverage where a peril insured (which might include a civil or military order, depending on the nature of the order) or threat thereof leads to restricted access to the premises of the insured or of others.

[71] This case is different from Cabell v. The Personal Insurance Company, 2011 ONCA 105, 104 O.R. (3d) 709, at paras. 30-31, on which SIR relies. In Cabell, the court held that a common exclusion in the policy did not apply to an endorsement which the insured had purchased for loss or damage to their outdoor swimming pool and which “amended” the policy. Application of the common exclusion to the endorsement would virtually nullify the coverage purchased through the endorsement and such a result could not have been within the reasonable expectation of the parties.

[72] This is not a case about the interplay of a common exclusion and an endorsement purchased to address that exclusion.

[73] I now turn briefly to whether the Orders are a “peril insured or threat thereof”.

(iv) The Orders are not “perils insured or threats thereof”

[74] According to the affidavit evidence of Kim van Nieuwkoop, Senior Vice‑President and General Counsel of SIR, government orders in Ontario closed restaurants to in-person dining and restricted restaurants to providing delivery or take-out; similar closure orders were made in other jurisdictions. The Orders did not require SIR to destroy or alter its premises or destroy food or beverage stock. Nor, as I discuss below in my analysis of Clause 14, did they result in any direct physical loss or damage.

[75] Accordingly, I conclude that although ingress to and egress from SIR’s premises was prevented and impaired while the Orders were in effect, the restricted access was not “as a result of a peril insured or threat thereof”. In other words, the Orders did not amount to a risk of direct physical loss or damage to SIR’s property.

(v) Conclusion re: Clause 16

[76] SIR is not entitled to coverage under Clause 16. In Clause 16 "peril insured" means all risks of direct physical loss or damage, except as excluded, and the Orders are not “perils insured or threats thereof”.

(c) No coverage under Clause 14

(i) Interpretive issues raised by Clause 14

[77] By way of review, Clause 14 provides as follows:

14. CIVIL OR MILITARY AUTHORITY:

This Policy insures loss, as covered herein, which is sustained by the Insured as a result of damage caused by order of civil or military authority to retard or prevent a conflagration or other catastrophe . [Emphasis added.]

[78] One of SIR’s key arguments below and on appeal is the meaning of “other catastrophe,” which it says extends to the COVID-19 pandemic. It also submits that Clause 14 is engaged because there is evidence of physical damage to its food and beer stock caused by the Orders.

[79] Thus, Clause 14 raises the following interpretive issues.

[80] First, was the COVID-19 pandemic an “other catastrophe” within the meaning of Clause 14?

[81] Second, was the damage “caused by” the Orders? Must the Orders be the direct cause of the damage sustained, as the application judge found? And, if so, were the Orders the direct cause of the food and beer spoilage sustained?

(ii) The COVID-19 pandemic was not an “other catastrophe” within the meaning of Clause 14

[82] As noted, the application judge was prepared to accept that the COVID-19 pandemic may, in certain circumstances, meet the definition of “catastrophe.” However, she found that for the purposes of Clause 14 it was not an “other catastrophe.”

[83] SIR argues that this court should find that the COVID-19 pandemic was a catastrophe for the purposes of Clause 14, since it falls within the ordinary meaning of the term. It urges this court to ignore the two Australian cases relied upon by Aviva and referred to by the application judge, which held that the COVID-19 pandemic was not a catastrophe for the purposes of the policies that were at issue, saying that they are of no assistance: LCA Marrickville Pty Limited v. Swiss Re International SE, [2022] FCAFC 17, (2022) 401 ALR 204; Star Entertainment Group Limited v. Chubb Insurance Australia Ltd., [2022] FCAFC 16, (2022) 400 ALR 25.

[84] A catastrophe has been defined as "an event causing great damage or suffering": Angus Stevenson and Maurice Waite, eds., Concise Oxford English Dictionary, 12th ed. (New York: Oxford University Press, 2011), at p. 222. I agree with SIR that the COVID-19 pandemic was a catastrophe within the ordinary meaning of that term. As the application judge noted in her reasons, “it has been characterized as ‘a natural catastrophe in slow motion’ by virologist Christian Drosten.”

[85] Like the application judge, I also agree with SIR that the insurance policies considered by the Federal Court of Australia (Full Court) are different from the Policy. I do not rely on them for assistance.

[86] The key issue is whether the word catastrophe in Clause 14 should be given its ordinary meaning. One of SIR’s main arguments is that the term should not be read down, or limited, in light of the words “conflagration or other” which precede it. The application judge did so, writing:

I would tend to agree with Aviva that given the sequence of words in [Clause] 14 (“to retard or prevent a conflagration or other catastrophe”), the meaning of “other catastrophe” is informed by the word in which it is in close proximity, that is “conflagration”, which is a physical event, an extensive fire. In my view, “or other catastrophe” would require a similar large‑scale destruction to property.

[87] SIR disagrees with this approach. It submits that the meaning of a word should only be determined by the words immediately surrounding it when the word is unclear, it forms part of a list, and the surrounding words have a recognizable characteristic (citing Tomko v. Wawanesa Mutual Insurance Co. et al., 2007 MBCA 8, 212 Man. R. (2d) 155, at para. 17; National Bank of Greece (Canada) v. Katsikonouris, [1990] 2 S.C.R. 1029). It argues that the word “catastrophe” is not unclear. Nor does it appear in or follow a list of specific words with a recognizable characteristic. It follows one word – conflagration – and conflagration has several meanings. The Merriam-Webster Dictionary (online) defines “conflagration” as a war, a conflict, or a large disastrous fire. Therefore, argues SIR, a conflagration does not necessarily involve large-scale destruction to property.

[88] I agree with the application judge that COVID-19 is not a “catastrophe,” within the meaning of this particular policy.

[89] Words used in a policy take their meaning from the context in which they are used. Here, that context included that the word “catastrophe” is found in a policy that has as its foundation a requirement for risk of direct physical loss or damage to property and that it was preceded by the words “conflagration or other”. Courts have long accepted that in the construction “X or other Y,” the specific term X may limit the more general term Y by association: see Stag Line, Limited v. Foscolo, Mango & Co., Ltd., [1932] A.C. 328 (U.K. H.L.), at pp. 334, 348-49. Tomko and National Bank do not limit the interpretation of “catastrophe” in the manner that SIR urges.

[90] If the intention were to capture all manner of catastrophes, not just those that are similar in nature to a conflagration, then the clause could have simply been worded “to retard or prevent a catastrophe.” To avoid a tautology, it must be assumed that the words “conflagration or other” were inserted for some reason.

[91] As for SIR’s argument that conflagration has several meanings, including a war or conflict, and is therefore not clear enough to inform the interpretation of “catastrophe,” wars and conflicts can also be the direct cause of destruction to property.

[92] SIR also submits that if Aviva had intended to limit Clause 14 to exclude pandemic catastrophes, it could have included a virus exclusion. While it is true that the Policy does not contain a virus exclusion, that fact does not persuade me that “catastrophe” should be interpreted as including the COVID-19 pandemic. Exclusions do not create coverage: Progressive Homes, at para. 27. Similarly, the absence of an exclusion does not imply coverage.

[93] In addition, SIR submits that if there were an earthquake or cyclone or other such event causing large scale physical damage, SIR would be covered for damage to its property under Section II, and for business losses under Sections III and IV. SIR also submits that if its business were affected by a civil authority order “given as a direct ‘result’ of loss or damage caused by an earthquake, volcanic eruption, cyclone or hurricane, or threat thereof ” it would be covered under Clause 15. With coverage already available, there would be no reason for SIR to pay an additional premium to purchase coverage under Clause 14.

[94] I agree that this interpretation of catastrophe results in some overlap in coverage. However, interpreting “catastrophe” in light of the words “conflagration or other” does not nullify coverage under Clause 14. As Aviva submits, Clause 14 operates to ensure that any incidental damage to an insured’s property caused by civil or military ordered activity to try and contain or prevent an event which could cause large-scale destruction of property is covered. For example, it would provide coverage where a civil or military authority orders the destruction of an insured’s property, such as to create a fire break to stop the spread of fire. I note that Clause 14 may provide coverage that would otherwise be excluded by clause 5(b)(ix) of Section II. It excludes coverage for, among other things, loss or damage caused by war, hostilities (whether war be declared or not), or military power.

[95] In conclusion, I agree with the application judge that COVID-19 is not a “catastrophe,” within the meaning of this particular policy. There is no need to resort to the contra proferentem rule to interpret the meaning of “catastrophe.”

(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.

[104] I now turn to SIR’s estoppel argument.

(4) SIR’s estoppel argument

[105] On January 17, 2020, St. John’s, Newfoundland and Labrador, declared a state of emergency, due to hurricane-force winds and extreme snowfalls, and ordered all businesses to close. The state of emergency remained in effect for approximately nine days. SIR’s Jack Astor’s restaurant in St. John’s suffered some food spoilage and business losses, and SIR made a claim under Clause 15. Aviva paid SIR’s claim.

[106] In its supplementary factum below, SIR asserted that Aviva’s coverage of the St. John’s claim was after-the-fact conduct that could be considered in interpreting Clause 15, if the application judge found that it was ambiguous. As noted, before the application judge SIR argued that it might be entitled to coverage under Clause 15, but it does not appeal the application judge’s determination that it is not entitled to coverage under Clause 15. [^2]

[107] SIR did not seek a declaration in its notice of application that Aviva was estopped from denying coverage. However, during the hearing before the application judge, SIR argued, in the alternative, that if it were not entitled to coverage, Aviva was nonetheless estopped from denying coverage, given that it had paid the St. John’s claim. In the responding affidavit of Kim van Nieuwkoop, SIR asserted that Aviva covered the St. John’s claim because closure of the restaurant was mandated by an order of civil authority made in response to the snowstorm. SIR says that the order, like the Orders at issue, was motivated by a concern about public safety. It argues that Aviva’s coverage of the St. John’s claim amounted to a representation and that SIR relied on it to its detriment.

[108] In its factum on appeal, SIR says that had it known that it was not covered for food spoilage and business losses under the civil authority clauses, it could have requested additional insurance coverage prior to the events giving rise to this application.

[109] The application judge wrote this:

…Ms. Young [a Senior Property Claims Examiner for Aviva] dealt with Aviva’s decision to afford coverage to SIR Corp’s Jack Astor’s restaurant in St. John’s, which was left without power causing some food spoilage to occur. Aviva’s position is that it investigated and paid the claim. It argues that the snowstorm caused a power outage, which led to the food spoilage, and the restaurant had to remain closed for nine days under a civil order due to the hazardous conditions caused by snowstorm. SIR Corp challenges the veracity of Ms. Young’s evidence, and points to hearsay evidence from Aviva’s adjusters, indicating that the snowstorm did not cause any physical damage to SIR Corp’s property. SIR Corp also points to the Emergency government orders which make no mention of any threat of or actual damage to property but only indicate a concern for “public safety”. There are competing versions of events. This court cannot determine whether the major snowstorm constituted a peril insured under the Policy or even whether the claim was paid intentionally or in error. There is no basis for the court to determine that Aviva should be estopped from denying coverage in this case. [Emphasis added.]

[110] SIR argues that the application judge erred by concluding that there was no basis for the court to determine its estoppel argument when all the necessary evidence had been put before her. It says there was absolutely no evidence that Aviva paid the St. John’s claim unintentionally or in error, as the application judge suggested.

[111] With respect, SIR mischaracterizes the application judge’s reasons. She did not determine that there was no basis to determine SIR’s estoppel argument. She determined it. She was not satisfied that SIR made out its claim for estoppel by representation. Her determination was sound.

[112] SIR cites Ontario v. St. Paul Fire and Marine Insurance Company, 2021 ONSC 7786, at paras. 15-16, 18 and 24, aff’d on other grounds 2023 ONCA 173, 480 D.L.R. (4th) 30, for the requirements to establish estoppel by representation in an insurance case. Specifically, it cites the case for the proposition that the insured must prove that the insurer made a representation to the insured and the insured relied on the representation and acted to its potential detriment as a consequence. The representation may be implied from conduct, but the insured must nonetheless prove that it was made: Ontario v. St. Paul Fire, at paras. 15‑16.

[113] SIR’s articulation of the elements of estoppel by representation is not entirely accurate. In Ryan v. Moore, 2005 SCC 38, [2005] 2 S.C.R. 53, at para. 5, the Supreme Court of Canada described estoppel by representation:

Estoppel by representation requires a positive representation made by the party whom it is sought to bind, with the intention that it shall be acted on by the party with whom he or she is dealing , the latter having so acted upon it as to make it inequitable that the party making the representation should be permitted to dispute its truth, or do anything inconsistent with it. [Emphasis added.]

[114] Clause 15 requires that the order be “given as a direct result of loss or damage of the type insured by this policy, or threat thereof.” The order giving rise to the St. John’s claim was given as the result of a major snowstorm. Damage to property is insured by the Policy and a snowstorm can be the direct cause of physical damage to property. In contrast, the Orders were not given as a direct result of loss or damage to property, or threat thereof. The cause of the safety concerns underlying the St. John’s order and the Orders is different.

[115] It is clear from the application judge’s reasons that she was not satisfied that Aviva impliedly represented that it would cover SIR for food spoilage and business losses any time closure of its business was mandated by an order of a civil authority concerned about public safety, regardless of whether the order was “given as a direct result of loss or damage of the type insured by [the] policy, or threat thereof.” Further, even if Aviva made such a representation, SIR has not established, on this record, that it was made with the intention that SIR should act on it: see Fram Elgin Mills 90 Inc. v. Romandale Farms Limited, 2021 ONCA 201, 32 R.P.R. (6th) 1, at para. 139, leave to appeal refused [2021] S.C.C.A. No. 176.

[116] In conclusion, the estoppel argument fails, and I would dismiss SIR’s appeal. I now turn to SIR’s motion for leave to appeal costs.

V. COSTS

[117] Before the application was heard, SIR and Aviva agreed that costs of the application would be $100,000, all inclusive. While SIR had incurred costs well in excess of $100,000, it was willing, at the time it entered into the costs agreement, to forgo the potential to recover its full costs in exchange for the certainty that, at most, it would be responsible to pay Aviva $100,000, if the court found that Aviva was entitled to costs.

[118] The application judge rejected SIR’s argument that the costs agreement should not be enforced and that there should be no costs because Aviva drove up costs by taking unnecessary steps in the application and had changed its position in the course of the hearing. She held that Aviva was successful on the application and that there was no conduct on the part of Aviva worthy of depriving it of its costs. She accordingly awarded Aviva costs in the all-inclusive amount of $100,000, as stipulated in the costs agreement, as well as full indemnity costs for the preparation of Aviva’s costs submissions in the all‑inclusive amount of $8,136. SIR seeks leave to appeal that decision.

[119] A judge’s discretion in determining the entitlement, scale, and quantum of a costs order is entitled to considerable deference. Leave to appeal a costs decision is granted sparingly. I am not persuaded that there are strong grounds on which this court could find that the application judge erred in exercising her discretion to award costs in accordance with the costs agreement. Leave to appeal the costs award is not warranted.

VI. DISPOSITION

[120] For these reasons, I would dismiss the appeal and deny leave to appeal the costs award below. I would order that SIR pay Aviva its costs of the appeal and the motion for leave to appeal the costs award fixed in the all-inclusive amount of $43,600.

Released: November 22, 2023 “A.H.” “Alexandra Hoy J.A.” “I agree. M.L. Benotto J.A.” “I agree. L. Favreau J.A.”

[^1]: The descriptions of the scope of Sections II, III, and IV are summaries only. [^2]: Clause 15 requires that the order be given “as a direct result of loss or damage of the type insured by [the] policy.” The application judge found that the type of loss or damage insured by the Policy is all risks of direct physical loss or damage, except where excluded.