Business Interrupted: COVID-19 and Your Commercial Insurance Coverage

While B.C.’s businesses are slowly starting to re-open with new safety precautions, many companies are still facing lost profits from months of closures or reduced services. Naturally, business owners are wondering if there is insurance coverage for the income they lost as a result of the pandemic.

Business Interruption insurance, commonly called BI, can be purchased by organizations to cover lost income if they are unable to operate, as well as the costs they incur to keep operating following a claim (such as rent at another location, if they had to vacate their usual premises).

BI policies, however, are designed to cover businesses after things like fire, flood, or windstorm damage their business property. The key phrase used in BI policy wordings is “direct physical loss by an insured peril.” This means that in order to make a claim for lost income, there must be damage to the business premises/property (like there would be following a fire, water, or weather event).

Due to this requirement for physical damage, coverage for income lost due to pandemics is not provided under most BI policies. In fact, some BI policies specifically exclude losses caused by viruses.

The same condition of direct physical damage usually applies to those who purchased a coverage extension for business income lost due to “civil authority” (mandated closures for public safety). If a civil authority requires your business to close following a fire, there would be coverage since the underlying cause for the closure (fire) is insured. Since the threat of a virus does not damage your property, the revenue lost due to the orders of a civil authority would likely not be covered.

There are some exceptions to these requirements that may provide a small amount of coverage for a few businesses. This coverage, though, would be a limited amount and, in some cases, would cover only the additional expenses incurred to keep the business operational during COVID-19, not any lost income.

Canadian insurance experts do not expect to see pandemic coverage available for purchase in the future, either. Because of the scale and unpredictability of global outbreaks, it would be difficult (if not impossible) to properly price and underwrite pandemic insurance products.

Our team is exploring and challenging policy wordings, trying to find coverage wherever it is available. There is a two-year window from the date of the claim wherein it can be reported to the insurance company, so if more exceptions are found, claims can be made at a later date.

Remember that for some businesses, government relief may be available.

Further Reading

• From our partners at Rogers Insurance: https://www.rogersinsurance.ca/wp-content/uploads/2020/04/COVID-19-What-Will-Insurance-Cover.pdf
• From Canadian Underwriter: https://www.canadianunderwriter.ca/insurance/will-commercial-bi-policies-cover-pandemics-after-covid-19-1004175813/
• From the Insurance Bureau of Canada: http://www.ibc.ca/on/business/COVID-19

Morgan Thomas, BA (Dtn.)
Project Management & Customer Experience Coordinator