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COVID-19 and Business Interruption: Will Your Insurance Help You?

April 9th, 2020
Nancy Sarmento Barkhordari
JD Barrister & Solicitor

On March 17, 2020, Ontario declared a state of emergency as a result of the COVID-19 crisis. The closure of non-essential businesses was ordered, including bars and restaurants, as well as the banning of large gatherings.  In some cases, factories have been closed due to either virus contamination or the threat of contamination, which has stalled the production of goods. As a result, COVID-19 has caused a financial downfall for those businesses who cannot continue their regular business functioning and activities.

For those businesses affected, a primary concern is whether their commercial and/or business property insurance policies include some relief for business interruption.  This article will examine various types of commercial and property insurance policies, common insurance terms, and prospects for coverage during this COVID crisis. 

Businesses and Insurance

Many small businesses are insured under a commercial and/or property insurance policy.  Extensions under an insurance policy can be tailored to cover specific unexpected losses, if or when they happen.  Depending on the nature of the policy and the wording within the extension, losses arising out of fire, flooding, and pandemics may be covered. In the case of physical damage, property insurance coverage may include coverage for part of or the full cost of rebuilding.  Where damage results in business closures, some policies may provide for business interruption coverage. 

Examples of businesses that generally take out property, commercial, and professional liability insurance include:

This list is non-exhaustive.  Service providers, trades-people, and other businesses may also be insured under varying insurance policies.

What is Business Interruption Insurance? Does It Apply To Me?

Business interruption insurance is a form of property insurance that provides coverage for lost income and expenses in the event of a physical loss or physical damage to the insured property.  What constitutes “physical damage” in the context of a business interruption policy is straightforward where property is affected, destroyed, or rendered uninhabitable by water or fire. It is unclear whether COVID-related closures or disruptions will constitute physical damage within the meaning of this sort of policy. Some Canadian cases have suggested that physical damage requires physical alteration to the property. Other recent cases have supported a more generous interpretation.  Generally speaking, where there is ambiguity within the wording of the policy, it ought to be resolved in favour of the insured.  

The good news is that American cases have supported a broad interpretation of physical damage that may support those who are seeking coverage in the aftermath of these COVID-related closures and disruptions.  Having said this, the reality is that this issue is likely to be widely debated before the courts in upcoming years. Courts will also be faced with questions over whether businesses faced by the threat of contamination, the presence of contamination or governmental orders will trigger coverage under business interruption policies or any other commercial insurance policies.

All-Risk and Named-Peril Policies:  Where Do I Have Coverage For Losses?

Whether or not a COVID-related loss may be covered by a commercial/property insurance policy may also depend on whether the policy is considered an all-risk or an all peril policy, as opposed to a named-peril policy. Generally speaking, an all-risk or all peril policy covers fortuitous losses, except those stipulated by any exclusionary clause.

In contrast, a named-peril policy provides for coverage in case of damages caused by named-perils only.  Generally speaking, an insured under a named-peril policy may only recover losses that are explicitly set out for coverage within the policy.

In assessing whether your policy is all-risk or named-peril, you may look to the terms, conditions, extensions, exclusions, limits, and definitions within the policy.   You can begin this process by:

Other Kinds of Insurance

In addition to business interruption coverage, some policy holders such as dentists, hotels, and restaurants may also have supplemental coverage for losses/expenses arising out of more unusual circumstances. These may include pandemics, loss of attraction, and contamination. Some policy holders may also hold supply chain insurance, which protects against losses as the result of disruption to the insured’s supply chain.

No matter which of the mentioned insurance policies you may hold, determination of coverage will depend on the wording of the policy, the circumstances around entering the policy agreement, whether coverage was negotiated, and/or whether clauses are “standard form”. With a standard form policy, you’re generally dealing with a standard, non-negotiated agreement, which is usually a preprinted contract containing set clauses. 

Where Should I Begin?

In determining whether or not your business may be covered for COVID-19 related losses, you can start by:

The COVID-19 pandemic has resulted in a massive economic downfall for businesses who are now unable to operate as normal.  We understand how difficult this time is for you as a business owner, as you navigate the many challenges that businesses are facing as a result of COVID-19. We at Gosai Law are ready and available to help you examine your insurance policy, so you can have a better understanding of if you may be eligible for coverage resulting from this global pandemic. We can help you navigate potential courses of action when it comes to your business and to pursue relief under your insurance policy.

While our physical office location is currently closed, we are continuing to be an advocate for your case remotely. Please feel free to reach out to us at nsarmento@corp.gosailaw.com or ngosai@corp.gosailaw.com.

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