An update on Business Interruption
One of the most commonly asked questions by business owners is “does my insurance policy provide Business Interruption coverage as a result of the COVID-19 outbreak?”
To date, it remains unclear how this question will be answered by insurance companies. There have been several recent lawsuits initiated in the U.S. and Canada that will push for an answer. While legal proceedings will likely take some time, we wanted to share with you the latest developments.
Insurance companies are advising that insurance policies are designed to respond to direct physical loss resulting from a covered peril. Pandemic, infectious disease or outbreak illness does not appear to meet the threshold of direct physical damage, traditionally caused by perils such as a fire, lightning, flood, windstorm, water damage and vandalism.
We continue to review customers’ policy wordings in the hope that we might find some way to challenge for coverage consideration but to date we have not found a wording that we believe can be used to trigger coverage.
There are a number of coverages such as business interruption that can be purchased by a business owner / operator when they are dependent on their place of business. In addition to Business Interruption coverage itself, extensions such as Contingent Business Interruption, Extra Expense, Rental Income and “Civil Authority” coverage can be obtained. The majority of these extensions also require there to be direct physical damage to the premises by an insured peril.
We have uncovered some exceptions within a couple off-the-shelf insurance packages that might allow for a sub-limit of coverage up to $5,000 or $10,000 related only to extra expenses necessary to keep the business running. This small extension does not apply to loss of income. Extra expense is generally defined as the excess of the total costs of conducting your business, during the period required to repair or replace damaged property, over the total cost of conducting your business that would have been incurred had no loss occurred.
It is important to remember that you as a policy holder have up to 2 years to report a claim. We will continue to update you and announce any industry shifts related to coverage considerations as things continue to evolve.
What are we doing to assist?
If you are applying for Government subsidies or financial assistance with your business, it is possible you will be asked to submit proof that no insurance proceeds are available in order to qualify for government assistance. While we have not seen government communication requiring a claims denial, if and when necessary we can open and submit a claim to your insurer at any time during the claims prescription period.
We have also been advised by some clients that Landlords may be asking for proof that insurance will not cover COVID-19 losses
How can I learn more?
We are working closely with all our clients and insurance company partners to understand what coverage is available during these unprecedented times. We will continue to advocate on behalf of our clients and will share information we feel is relevant and timely.
Business Interruption Resources:
- Frequently Asked Questions document from Rogers Insurance.
- White paper from legal firm Dolden Wallace Folick that addresses What Will Insurance Cover?
- Overview from legal firm Davies Ward Phillips & Vineberg of the recent MDS Inc vs Factory Mutual Insurance Company case in Ontario Superior Court that highlights Considerations For Business Interruption.
- Reference article from Canadian Underwriter titled “The huge price tag of U.S. political interference with COVID-19 BI exclusions”
- Canadian Underwriter article titled “Will commercial BI policies cover pandemics after COVID-19?”