Insurers winning court battles to enforce pandemic BI arbitration

Quebec insurers with arbitration clauses written into their business interruption policies are winning battles to have pandemic BI class action suits go through arbitration rather than through the courts.

Both of law firm Clyde & Co.’s Top 2 cases of 2021 dealt with resolving pandemic business interruption cases through arbitration instead of the courts.

Parties to commercial contracts such as insurance policies generally prefer to handle claims through arbitration, as observed in Chubb’s 2018 white paper, The Not So Great Debate: Arbitration v. Litigation.

According to the paper, benefits of arbitration include a faster process that’s less expensive than the courts (i.e., no depositions, and evidence is provided through written statements). Plus, arbitration processes are private and decisions are confidential. And large jury awards can be avoided.

Arbitrations are also perceived as ‘fairer,’ in the sense that the loser of an arbitration pays the winner’s legal costs. As Chubb noted, this ‘loser-pays’ system discourages legally aggressive positions.

“Because the…insurer stands to pay not only the policy limits at issue but also the claimant’s legal costs as well as its own legal costs, there is little incentive for that insurer to arbitrate suspect coverage positions,” Chubb noted. The same applies equally to the commercial insureds.

Clyde & Co., representing two insurers in pandemic BI lawsuits last year, won significant victories in Quebec courts, enforcing the arbitration provisions in the commercial insurance policies in question.

In Restaurant Bâton Rouge c. Allianz Global Risks US Insurance Company, for example, at the Quebec Court of Appeal, Allianz won its right to arbitration as a means to settle a pandemic BI dispute with a Quebec restaurateur, even though the lawsuit was certified in court as a class action.

“The insured, a restaurateur, had brought an application for authorization to bring [a class action] in order to be compensated for the losses resulting from the interruption of its business caused by the pandemic of COVID-19,” according to Clyde & Co.’s annual review of insurance cases in 2021. The court found in favour of Allianz, which had an arbitration clause included in the policy.

“This judgment confirms that coverage disputes relating to commercial insurance policies can validly be settled by recourse to alternative dispute resolution methods, excluding civil courts, even in the context of a class action,” as Clyde & Co. noted.

The Restaurant Bâton Rouge decision, released in January 2021, formed the basis of a second court ruling later in November 2021, when the court sided with Royal & Sun Alliance in a case involving dentists suing for pandemic business interruption coverage. RSA had an arbitration clause in its policy, which caused the dentists to withdraw their case from the courts system.

“Restaurant Bâton Rouge c. Allianz Global Risks US Insurance Company indeed leads to the conclusion that the [dentists’] appeal against the respondent Royal & Sun Alliance is destined to fail,” as the Quebec Superior Court ruled in November. “Were it not for the discontinuance, it would have been summarily dismissed.”

Feature image courtesy of iStock.com/fizkes