COVid-19: Business Interruption loss – Can You Claim It?
Due to the outbreak and continuous spread of the novel coronavirus (COVID-19), businesses across Ontario and Canada are bracing for real and substantial economic challenges during these unprecedented times.
A question we are repeatedly hearing from clients is whether they have insurance coverage for business interruption and related losses as a result of COVID-19. Whether or not a COVID-19 loss will be covered by insurance will depend on the terms and conditions of the applicable policy, applied to the specific circumstances of the loss.
What to Consider When Reviewing Potential Insurance Coverage
Begin by reviewing your insurance policy(ies) to determine the scope of the coverage available. Your most likely sources of coverage will be found in a Commercial Property Insurance policy, General Liability Insurance policy and/or Business Interruption Insurance policy. Also, remember to check the riders and endorsements of your policies, as well.
Many property policies will set out the specific perils (i.e. Fire) and covered consequences. In these cases, the risks assumed by the insurer are defined by the subject matter of the insurance.
Some property insurance policies provide coverage on an “all risks” basis providing coverage for “all risks of direct physical loss or damage…from any external cause.” Business interruption insurance is a form of property insurance that provides coverage for lost income and extra expenses during a period of interruption, typically arising from a “direct physical loss” to the insured property.
What is physical loss or damage?
It remains unclear whether a loss will be considered physical in the context of a global pandemic. Ultimately, each incident will depend on the policy in place, its specific wording and the facts surrounding each individual loss. We anticipate litigation on this issue across the globe due to the enormous amount of economic loss businesses are suffering and the practicality that they will seek to rely on their commercial insurance policy. The key question will be whether there is sufficient proof of actual damage to the insured property. In most cases, “virus”, “disease” or “pandemic” are not named perils, unless added by an endorsement. Beware, “virus”, “disease” or “pandemic” may be defined terms, which are expressly excluded in your policy.
After the SARS epidemic in 2002, a specific endorsement became available that names a viral epidemic or pandemic as listed perils. As a result, unless this special endorsement is listed in the policy, there is likely no coverage.
Another form of business interruption insurance is Supply Chain Insurance. It protects against losses arising from disruptions to an insured’s supply chain. Whether such insurance will apply to losses from COVID-19 will again be dependant on the factual details of your matter.
Government action may also trigger coverage under a commercial property insurance policy. Key to the availability of this form of coverage is that there was a government order (i.e. order to close restaurants) that caused or contributed to the loss.
In the event coverage is available, it will be important that your business should clearly establish its financial losses and the root cause of same. It is therefore important to work with your legal counsel early on to assist you in determining your legal options.
It is best to use a corporate or commercial lawyer in these cases. Corporate/commercial lawyers are trained to review the precise language of a contract, agreement, policy or coverage to provide their opinion on whether business interruption loss can be claimed.
Please note, this article does not provide legal advice. We encourage your review of the precise language of the insurance policy with an insurance lawyer.
-Baber Rahim, JD Candidate and Tax Law Clerk
© Kalfa Law 2020