The worldwide number of COVID-19 cases is growing daily, with nearly two million currently active cases. Of those cases, approximately 27,000 are within Canada. As the pandemic continues worldwide, more claims have and will be made to insurers regarding COVID-19 losses. Although some losses will be denied coverage, there will likely be indemnification in some circumstances.
Indemnification of COVID-19 claims raises the issue as to an insurer’s ability to subrogate against government authorities for their policies and responses to the pandemic. There may also be claims against other businesses which caused or contributed to the insured’s losses, such as airlines operating without proper screening or manufacturers of defective products.
On April 21, 2020 the state of Missouri filed a claim against the Chinese government in relation to losses allegedly suffered by their state and citizens. The claim alleges that the Chinese government was not honest regarding the dangers of the virus and that the actions of the government did not do enough to slow the spread of COVID-19.
According to a law professor at the University of California, Missouri’s lawsuit may not have much of an impact, since U.S. law generally prohibits lawsuits against other countries. However, it raises interesting questions regarding possible subrogation claims in Canada against both domestic and foreign “wrongdoers”.
The Canadian common law of subrogation requires three elements: (1) the insured must have a right of recovery against a third party; (2) the insured must be fully indemnified for the losses sustained; and (3) the payment by the insurer must be true indemnity.
The various provincial Insurance Acts provide that the insurer, upon making a payment or assuming liability under a contract, is subrogated to all the rights of recovery of the insured person and may bring an action in the name of the insured to enforce those rights.
In order to have a right of subrogation, the business or person who has been indemnified must have a cause of action against the alleged wrongdoer, which the insurer can then enforce. This could exist in tort, contract or any other area of law.
Liability of public authorities
In Canada, the government has no general liability at common law, but statutory liability has been created by provincial Crown proceeding acts. The tort liability of public authorities is similar to that of natural persons or businesses, in that there must first be a recognized duty of care, which is assessed considering the factors of proximity and foreseeability. The existence of a duty of care can be subject to policy concerns which negate the duty.
Legislative schemes can operate to create a positive duty of care for public authorities to protect citizens of a certain class, but these generally operate in a more narrow context than the public as a whole and require additional factors to create proximity giving rise to liability.
For example, in Fullowka v Royal Oak Ventures Inc.,  the Mining Safety Act created a positive duty for the government to protect mine workers. The duty was not created by statute alone, but in conjunction with the fact that the inspectors operating under the act had close contact with miners, miners were a small, defined group and the physical presence of government agents at the mines.
As proximity is crucial to establishing a duty owed care owed by a public authority, it may be difficult for most businesses to advance a claim regarding COVID-19 losses. Orders which affect the entire country or an entire province will likely be too broad to give rise to a duty of care.
Any order or decision made by specific regulatory bodies, such as the inspectors in the Fullowka case, might attract sufficient proximity to create a duty of care. Insurers should investigate any potential public authorities involved in bringing about an insured loss to determine if there are particular facts which give rise to the existence of a duty of care in that specific case.
Even if a duty of care is established, there is immunity for government authorities where the decisions made are policy decisions. True policy decisions are discretionary legislative or administrative decisions and are grounded in social, economic and political considerations. They are generally made by legislators or officers whose official responsibility requires them to assess the balance of their public responsibilities.
The distinction between policy and operational decisions was discussed by the Supreme Court of Canada in Knight v Imperial Tobacco Canada Ltd., where the government of Canada made statements to encourage smokers to consume low-tar cigarettes. In considering the government’s potential liability for these statements, the court found them to constitute government policy. True policy decisions will be protected where they are neither irrational nor taken in bad faith.
Many of the government decisions regarding COVID-19 that have resulted in business loss, could be characterized as policy decisions since they are grounded in social, economic and political considerations. As a true policy decision, the government would be exempt from liability.
In Canada, the State Immunity Act (the “Act”) governs the ability to pursue an action against a foreign state. The Act provides that foreign states are generally immune from the jurisdiction of any court in Canada, subject to the exceptions contained in the Act.
Foreign states are not immune with regard to actions involving: (1) commercial activity of the foreign state; (2) death or personal injury; (3) damage to or loss of property that occurs in Canada; (4) any action relating to support of terrorism; or (5) certain maritime claims
The Supreme Court of Canada has confirmed that the Act contains an exhaustive list and “reliance cannot, be placed on the common law, jus cogens norms or international law to carve out additional exceptions.”
If the indemnified claims fall within any of the above-noted exceptions set out in the Act, a subrogated claim could theoretically be commenced against the foreign state.
There have been reports that Chinese officials downplayed the severity of the virus at the beginning of the outbreak in Wuhan, China. These accusations are currently not confirmed, and it would take a large investigation to determine their accuracy. However, if evidence becomes available to support specific failures either by China, or other countries, that could lead to additional claims such as the one commenced by Missouri.
Product liability and other claims
Product liability and negligence claims could arise in relation to defective products that contributed to the spread of the disease or to specific outbreaks within insured businesses. This could include mask manufacturers, cleaning supply manufacturers, glove manufacturers or any other product aimed at minimizing the spread of COVID-19.
One could also envisage individual or class actions against airlines which did not implement proper screening or which did not close down operations soon enough to prevent the spread of the disease. These actions may be more difficult to prosecute since there would need to be sufficient evidence that the flights in question caused the losses to the insured.
Takeaway for insurers
The potential for subrogated claims varies greatly and is a highly fact-based determination. When it is determined that coverage and indemnity will be provided to the insured, the insurer should collect all information regarding any applicable decisions made by public authorities that led to the losses and any specific interactions with government agents that could create proximity to the insured giving rise to a duty of care. Given the inevitable losses associated with COVID-19 claims, subrogation could be a reasonable loss mitigation strategy in the right circumstances.
 See for example: Insurance Act, R.S.B.C. 2012 c. 1 at s. 36; Insurance Act, R.S.A. 2000, c. I-3 at s. 546; Insurance Act, R.S.O. 1990, c. I.8 at s. 152.
 See for example: Crown Proceeding Act, R.S.B.C. 1996, c. 89, at s. 2; Proceedings Against the Crown Act, R.S.A. 2000, c. P-25, at s. 4; Crown Liability and Proceedings Act, S.O. 2017 c. 7, at s. 8.
 Cooper v Hobart, 2001 SCC 79.
 Fullowka v Royal Oak Ventures Inc., 2010 SCC 5.
 Knight v Imperial Tobacco Canada Ltd., 2011 SCC 42.
 Ibid at para 90.
 R.S.C. 1985, c. S-18.
 Ibid at s. 3(1).
 Kazemi Estate v Islamic Republic of Iran, 2014 SCC 62 at para 56.
 Lawrence G. Theall, “Product Liability: Canadian Law and Practice” (Thomson Reuters: Toronto 2020) at L2:10.
 Ibid at L7:10.
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