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What You Need to Know About Business Interruption and COVID-19

insurance Ontario

We have been covering a lot of different topics around COVID-19 and its effects on the insurance industry.

(We’ve got the full list of posts on the site at the end of this blog for those of you who’d like to do further reading).

One facet of insurance coverage that keeps on coming up again and again in the headlines and around the industry is business interruption so we’d thought we’d do a little deep dive into what has been going on and what this means for business owners around Ontario.

Business interruption defined

If you’re unsure about the definition of business interruption (or BI), it refers to insurance coverage against business expenses and loss of income resulting from fire or other insured peril. For more details on this important business insurance term, check out our blog post.

As we discussed here, many commercial insurance policies do not offer business interruption coverage for pandemics. Typically BI is triggered by some form of physical damage.

Business interruption and COVID-19

With the COVID-19 pandemic sweeping the globe, and businesses being forced to shutter their operations or greatly shift how they run their business (which unfortunately for many has resulted in severe or catastrophic effects on revenue streams), business insurance and specifically BI has been a hot topic. Here’s a little overview of some of what has been going on…

~ In Britain there is a lawsuit currently underway around wordings in insurance policies and whether the imposed lockdown by the government should trigger insurance coverage (UPDATE – the verdict in the case has been passed. Click here to learn about the ruling and the impact it could have on businesses in Ontario). While obviously a ruling in Britain would not directly affect business in Ontario, it is interesting to note that courts in Canada often will use precedents set in Common Law countries (which includes Britain and the US). There are several breach of contract lawsuits underway in Canada due to denial of COVID related BI claims, so the implications of rulings across the pond could be felt here at home. (See more here: Why insurance regulator says this ‘notifiable contagious disease’ clause covers BI in pandemic – Canadian Underwriter).

~ Down in the States (specifically in Michigan and New York) there were a couple of court decisions that upheld that the pandemic did not constitute physical contamination and thus onsite physical damage to the properties of businesses and that BI was not triggered by COVID-19. (Source: Canadian Underwriter).  

~ Specifically in Ontario, the owner of three restaurants in the Toronto area is going to court based on this policy wording: “damage caused by order of civil authority to retard or prevent a conflagration or other catastrophe.” (Source: Canadian Underwriter).

Considerations for businesses suffering losses due to the pandemic

So given some of the specific cases we have listed above, it’s easy to see that business interruption coverage has become quite contentious and many businesses are trying to understand how they fit in to the puzzle. Here are some considerations…

~ As we mentioned above, traditionally BI refers to a physical loss. But could contamination (that then makes the property unusable) be deemed physical damage? This is something that many courts are contending with.

~ With business coverage, it is crucial to understand the specifics of your insurance plan as plans differ greatly from business to business and from provider to provider. And when it comes to coverage disputes being brought before the courts, policy wordings are what will be scrutinized. Read through the language carefully or reach out to your broker for clarification. For example, some BI clauses specifically include or, on the flip side, exclude outbreaks of disease. You need to find out with certainty what you are actually covered for. Don’t just assume that you know whether or not you have coverage in a particular situation.

~ Civil authority may be a part of the wordings of some insurance plans and could play into the orders from government to shutter businesses. Again, this is something currently being contested.

Check out this article from BDO Canada for some more details of some of the legalities.

Making a claim

If your business is planning to make a claim, ensure that you gather all the necessary details and information – this intel is essential for the insurer to make a decision. Make available your loss of income (comparing it to last year’s revenue for the same time frame) as well as an outline of the costs that your organization incurred in preparations to reopen or in readjusting your business operations to meet the requirements of our new reality. See more: Hub’s rationale for advising clients to file BI claims – Canadian Underwriter.

If you have any questions at all about your business insurance coverage, please reach out to someone from our team. If this pandemic has you thinking about your coverage, or considering a revamp of the plan you have in place, we would be happy to discuss further with you. Request a quote here.

Want more on COVID-19 and its effects on the insurance industry? Check out our posts:

Click here to get in touch with us for a business insurance quote or give us a call at 1-855-237-2905

Image source: | Stuart Miles


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