May 2020 - Business Interruption Insurance and the Coronavirus Pandemic
Businesses in Alberta and throughout Canada have had to close down or curtail operations as a result of the global Covid-19 pandemic. Some businesses have been closed by government order. Others have chosen to shut their doors because their customers started isolating at home, and the reduction in customer traffic made it impossible to operate profitably. Social distancing requirements have meant that businesses that are able to carry on have had to operate in ways that have significantly reduced revenues.
Most companies have business interruption insurance policies. This type of insurance provides coverage for lost business income and certain business expenses when business operations are stopped or disrupted as a result of an accident or natural disaster. When owners purchase this type of insurance, they are usually thinking about fires, floods, storms, and similar events that damage the business premises.
Is My Claim Covered?
Does business interruption insurance apply when the business has closed because of the pandemic?
We are currently in the midst of an unprecedented worldwide pandemic. Provincial legislatures did not anticipate this type of event, so it is not addressed in Canadian insurance legislation. Since an outbreak of disease on this scale has not occurred in recent Canadian history, there is little or no judicial authority dealing with the issue. There is already a class action pending in Saskatchewan against most of the major Canadian property insurance companies which raises the question of business interruption coverage for the pandemic, but this litigation is in its preliminary stages, and the Saskatchewan courts have not made any rulings.
What Does the Policy Say?
As in any insurance coverage dispute, we have to look first to the policy itself. Your lawyer at Billington Barristers will read the policy language closely, with two questions in mind:
- Is the wording of the coverage clauses in the policy broad enough to include the pandemic?
- Is there an exclusion clause in the policy that the insurance company can rely on to deny the claim?
There are two types of coverage clauses in property insurance policies. The “specified perils” type of coverage lists specific risks that the business is insured against. Generally speaking, these policies list well known risks such as storms, fire, and flood. The premiums for this type of policy are generally lower than the premiums insurers charge for the more comprehensive “all risks” coverage, but specified perils coverage is limited. Standard specified perils policies in use in Canada do not list “pandemic” or “disease” as covered risks, so it is unlikely that business closures resulting from the pandemic will be covered under a specified perils policy.
An “all risks” coverage clause usually extends to “all risks of physical loss or damage” to the property of the business. Any accidental event or incident that causes physical damage is covered. This type of policy could provide coverage for the Coronavirus pandemic, but the business would have to show some kind of physical damage to insured property.
Where’s the Damage?
The physical damage requirement may prove to be a difficult hurdle for the insured. Most businesses will not have carried out any tests that establish the presence of the virus in the business premises. In any event, the virus only survives on surfaces for a few days at most, and does not physically alter the business premises or the fixtures and equipment used to operate the business.
It is certainly arguable that customer access and continuing customer traffic are part of the goodwill of the business, and therefore constitute “property” which has been lost or damaged because of the pandemic. This is an argument that has not yet been tested in any court cases, however.
It should be noted that following the SARS outbreak in 2003, some insurers introduced coverage for “communicable disease” into policies of business insurance. If that type of coverage is included in your policy, it would certainly extend to the Covid-19 pandemic. Other policies provide coverage against “notifiable disease”, which can only be invoked when government health authorities have made an official declaration or pronouncement regarding the disease outbreak.
Some policies now also include “civil authority” coverage, which applies when access to the business premises is prohibited by government order. This coverage would likely still require proof of physical damage to property somewhere within a defined radius of the business premises, but does not require proof of damage to the insured’s premises itself.
It is also important to read the policy carefully to see if there are any exclusion clauses that might apply in a pandemic. Following SARS in 2003, some insures also began to introduce a specific exclusion for losses resulting from viruses, bacteriological infestations, and biological agents. The presence of this type of specific exclusion clause would certainly vitiate coverage.
Who Do I Call?
Many business owners have suffered substantial losses as a result of the pandemic. An experienced lawyer can help you decide whether or not you have a valid business interruption claim. Richard Hayles, counsel at Billington Barristers, has been practicing in the area of property and casualty insurance for more than 35 years. Richard has extensive experience in the interpretation of business interruption policies, and would be happy to assist you with your claim.
Direct telephone: (403) 930-4106