A British Columbia court has ordered Aviva Insurance Company of Canada to pay an additional $2.28 million to a commercial policyholder, after finding the insurer fell short in its handling of a business interruption claim and breached its duty of good faith.
The dispute traces back to 1048977 B.C. LTD., a company that set out to open a restaurant and event venue in South Surrey. In August 2016, the business’s plans were derailed when land subsidence - triggered by construction on a neighbouring property - brought renovations to a halt. The property was subsequently hit by a hydrogen sulphide gas escape and a flood from burst pipes. The business never opened, and the property was sold in December 2017.
The company claimed that Aviva underpaid for business losses and mishandled the claim process. Aviva initially paid $1,065,937 for business losses, covering what it considered a 12-month indemnity period following the subsidence. But the policyholder argued that this payment undervalued the actual loss and failed to account for the full indemnity period, which should have extended 12 months after the December 2016 flood—a second insured event.
The court heard that Aviva cancelled and reinstated the policy three times during the claims process. The plaintiff also alleged Aviva failed to warn that accepting a cash settlement would likely result in policy cancellation, and relied exclusively on its own loss estimates, disregarding evidence provided by the business.
The court ultimately sided with the policyholder, finding that Aviva did not adequately compensate for business income loss as required by the policy. The indemnity period, the court ruled, should have run from October 1, 2016 - the date the business was expected to open - until December 21, 2017, 12 months after the flood. The judge found that Aviva’s assessment ignored important factors affecting the business’s potential revenue.
The insurance policy at issue covered “the actual loss of business income” during the “indemnity period” resulting from damage, with recovery measured by the reduction in business income, less non-continuing expenses, plus any extra expenses incurred to resume operations. The court referenced the Murano factors, which allow for lost profits to be established by expert testimony, evidence from similar businesses, and proven managerial experience - even for new businesses without a track record.
The court also found that Aviva breached its duty of good faith contractual performance, particularly by failing to warn the policyholder of the consequences of accepting a cash settlement and by refusing to fairly consider the business’s evidence of loss. While the court declined to award punitive damages, it did issue a declaration of breach. The claim for additional compensatory damages related to the sale of the property was dismissed, with the court finding insufficient evidence that Aviva’s actions caused the property to be sold below market value.
In the end, Aviva was ordered to pay an additional $2,278,000 for unpaid business income loss. The decision underscores the importance of fair claim handling and clear communication by insurers, especially in complex commercial cases.
The ruling is final, with costs to be determined at a later hearing. For insurance professionals, the case stands as a reminder of the critical role of transparency and diligence in claims administration.
