Business Interruption Insurance and COVID

Business Interruption Insurance and COVID

As the COVID crisis unfolds, many businesses remain shuttered by government fiat. In these times, it is likely that more and more business owners will turn to insurance, particularly those that have been forced to completely shut down.

Business interruption insurance is a type of coverage that applies to income loss due to disaster. This form of coverage may be purchased as a stand-alone policy, but more commonly as a rider to an existing policy such as a CGL or Property policy. These policies may reimburse the insured in different ways, but there are four general categories of reimbursement: (1) Payment for loss of gross revenue; (2) Payment for loss of profits; (3) Payment for expenses; and (4) Payment for loss of rental income.

That said, the typical business interruption coverage is designed to cover loss arising from a named peril, such as due to property damage from a fire. Most run-of-the-mill policies would not apply to government closure caused by a pandemic, particularly if there is an exclusion for damage arising from the outbreak of a disease or pandemic. Many insurers were careful after SARS in 2003 to “inoculate” their policy wordings, particularly in the wake of some high-profile cases in Hong Kong where hotel chains received multimillion-dollar insurance payments following the cancellation of bookings due to the outbreak.

However, there are likely to be exceptions, and it should be emphasized that each policy is uniquely worded with possible loopholes. Businesses will want to have their policy wording evaluated carefully to determine if there is an argument for coverage.

In addition, even if insurance coverage is unavailable for COVID-related losses, businesses will want to scrutinize lease agreements and other commercial agreements for provisions that may provide relief, particularly under force majeure, common law frustration, or under Ontario’s Frustrated Contracts Act.

Jason Rabin, Gibsons LLP