Generally, business interruption insurance is part of first-party commercial property insurance.
Usually, the insurer agrees to pay to, or reimburse, the business owner for the actual loss of business income the business experienced because of the interruption to the business itself, including while the business if being restored, when the interruption was caused by direct physical loss, damage, or destruction to property, caused by an insured against peril.
Accordingly, physical damage to the place of business is a prerequisite.
In addition, the interruption must have been caused by the physical damage.
With COVID-19, it may be problematic to prove direct physical loss or damage.
Furthermore, it not uncommon for a business interruption policy to exclude perils such as viruses and disease.
There may also be problems establishing that virus caused the business losses. For example, for businesses deemed to be "essential" by the Ontario Government, the insurer may take the position that, for example, the losses were caused by the owner's decision to preemptively close the business due to fear of the virus.
For "essential" businesses, that may not be such an issue.
In any event, insurers do sell policy coverage and endorsements offering protection for business interruption caused by a disease. If any owner had such coverage, it would be advisable to consider making a claim.
There may also be an insurance endorsement covering business loss sustained by the owner due to an inability to access the business premises, particularly where it is prohibited by any government order, or the directive of any other civil authority. This is certainly the case currently for "non-essential" businesses in Ontario. It is also likely that more businesses will, in the near future, be declared "non-essential", as the virus progresses throughout our province.
Moreover, a business owner may also have purchased “contingent business interruption” coverage, which protects the business from losses resulting from damage caused by interruption of supply. However, often the business interruption must be caused by damage to the suppliers’ property.
Often whether there is available coverage will depend on the specific language in the policy or endorsement; not all policies are the same – there is no standard language. In fact, may policies vary in terms of the language and coverage options. It will also depend on the nature of the loss, having regard to the language of the policy.
Therefore, if you are a business owner with a commercial insurance policy, you should promptly review your policy and speak to your insurance broker for additional guidance. Ultimately a claim should potentially be considered for business loss arising from COVID-19 and the municipal, provincial and federal government's remedial responses to the virus pandemic.
Indeed, keep a watchful eye on this issue, as the governments' response will surely develop and change as the virus continues to spread.
Interestingly, the March 18, 2020 “National Law Review” reports that a lawsuit was commenced by a restaurant owner in the State of Louisiana asking for the Court declare that its insurance policy did not contain any exclusion for viral pandemic. The owner claimed the commercial policy covers the restaurant business for any future government-related shutdown orders, due to physical loss from COVID-19 contamination. The owner also claimed the insurer should be legally required to provide income coverage if COVID-19 were to contaminate the restaurant.
The owner basically claimed that contamination of the insured place of business by COVID-19 constitutes a direct physical loss, thereby necessitating remediation to clean the surfaces of the establishment.
The Court has not made its final decision, but certainly the issue is already being raised judicially.
Mind you, this is entirely different jurisdiction, whose laws do not apply directly in Ontario.
This said, this issue is certainly to find its way into the Ontario Courts in the near future, if not already.
What should you, as a business owner, do?
If you have a commercial insurance policy, review it.
Contact your broker for his or her advice on whether business interruption insurance should be claimed to the insurer.
Ultimately it is the insurer who must either allow or deny the claim – a broker cannot do so and you should not exclusively rely on your broker's advice about whether to bring a claim, or not – rather, your broker's advice and guidance is a factor to consider in your decision.
Even if a tenable claim cannot now be made, that may change in the future, as the uncertainty of this virus continues to move forward.
