This is a time of great uncertainty where businesses are incurring losses and extra expenses due to the coronavirus.
The question is: who has to bear these losses? Is it the businesses themselves? Government? Insurance?
Your company may have insurance that can help save your business during these unprecedented times. This article does not constitute legal advice
What Insurance Does the Business Have?
- Property/Business Interruption
- Act of God/Force Majeuere
- Commercial General Liability Policy
- Umbrella or Excess Policies
- Civil Authority Extension
- All Risks Policy
- Environmental Insurance Policy
- Event Cancellation Policy
- Infectious Disease Endorsement
- Non-Physical Damage Endorsement
- Pandemic Endorsement
- A Policy With Specialized Wording
What Is Business Interruption Coverage?
Business interruption insurance is intended to indemnify a business for its loss of profit and additional expenses that arise due to an insured peril.1
What Is "Act Of God" Coverage?
"Act of God" or "Force Majeure" in insurance terms is a damaging event that is beyond human control, for example, an earthquake or a hurricane2; however most policies have specific exclusions for natural disasters and viruses under the excluded perils exclusions in its policies.
Does the Commercial General Liability Policy Provide the Necessary Coverage?
Many Commercial General Liability Policies provide business interruption insurance but unfortunately, many businesses only have such coverage under their commercial property insurance policy.3 If that is the case, business interruption arising out of property damage may trigger the policy but an event such as coronavirus is unlikely to do so if the claim is for lost income due to loss demand in this coronavirus era.
That said, if the business is unable to operate due to the presence of the contagion in the premises, then more questions should be asked.4 For example, if a manufacturer of food has to shut down while the facilities are disinfected, it becomes a more interesting question, than whether the facilities are losing revenue because the demand for its product has fallen.
Another thing to consider is whether there was "Act of God" coverage under the commercial general liability possibility.5
Umbrella and/or Excess Policies
These policies should be reviewed to consider whether they could be triggered.
Infectious Disease Endorsement
A business should determine if it has an infectious disease endorsement that may provide coverage for losses by infectious or communicable diseases. This may provide COVID-19 coverage for losses.6
Non-Physical Damage Endorsement
Similarly, a business should consider if it has a non-physical damage endorsement as it may provide coverage for COVID-19 losses.7
Civil Authority Endorsement
Civil authority endorsements relate to situations where access to the premises is prohibited by civil authority. Often the length of time may be specified such as 2-4 weeks.8 Issues will need to be considered about mandatory versus voluntary closures and whether there is a partial versus a complete closure and whether there was COVID-19 present versus a closure to prevent its presence.
All Risks Policy
The wording of the policy will need to be considered. This may be an area where COVID-19 claims may be covered through an argument that COVID-19 presents an identifiable risk to human health and safety. Litigation will likely be needed to determine if a virus is a "direct physical loss" under an All Risks policy.
Environmental Insurance Policy
Another policy that should be considered is an environmental loss policy. An environmental policy may cover losses from coronavirus if it covers biological contaminants and/or viruses and/or communicable diseases. It would need to cover indoor loss exposure. Many will not meet these criteria but they should be considered.9
Event Cancellation Policy
Many events such as trade shows, festivals, sporting events, conferences, theatre and concerts may have event non-appearance or cancellation coverage.
This provides insurance protection in cases where the headliner cannot appear for reasons such as illness or an accident.
Many events have been cancelled due to the need for social distancing, so the non-appearance and cancellation clauses may be triggered.10 Policies issued after January 23, 2020, may have a COVID-19 exclusion but policies obtained before that probably do not. Coverage can help the organizers recoup some expenses and losses.
This is not a typical endorsement that a small or middle sized business is likely to have. This policy has been successfully triggered by Wimbledon and NCAA.11
Policy With Specialized Wording
If your business is insured by a policy with specialized wording then there may be coverage where typically there may not be. Consideration of the wording is needed.
Does Your Business Have Insurance Coverage
Once the policies are identified and the particular endorsements and exclusions are identified, one needs to give consideration to the specific wording. At this point, it is unclear how insurers will consider coronavirus claims and whether they will be considered a "force majeure" or whether they will be excluded. There are currently no pending cases or judicial decisions on the issue, but that will undoubtedly change in the coming months. If you submit a claim and are denied, a legal opinion should be considered to determine whether you may have a viable claim or whether to take no as an answer.
1 Gord McGuire & Tim Zimmerman, "Are Coronavirus Losses Covered Under Business Interruption Insurance Policies?", The Star (March 27, 2020), online: https://www.thestar.com/opinion/2020/03/27/are-coronavirus-losses-covered-under-business-interruption-insurance-policies.html.
2 HUB Insights, "Act of God Insurance Claims Currently Remain Under Question as Businesses Look for Ways to Recoup Losses in the Wake of COVID-19", HUB International (April 15, 2020), online: https://www.hubinternational.com/blog/2020/04/act-of-god-insurance/.
3 Chetan Sehgal, Jay Ahluwalia, Matthew Law & Crawford Smith, "Insurance Coverage and COVID-19: Legal Considerations and Loss Quantification Developments", BDO Canada (April 3, 2020), online: https://www.bdo.ca/en-ca/insights/advisory/commercial-insurance-loss-accounting/insurance-coverage-considerations-on-covid-19/.
4 Gord McGuire & Tim Zimmerman, supra note 1.
5 HUB Insights, supra note 2.
6 Tim Zimmerman & Gord McGuire, "The Calm Before the Storm: Business Interruption Insurance Litigation", The Lawyer's Daily (April 9, 2020), online: https://www.thelawyersdaily.ca/articles/18561/the-calm-before-the-storm-business-interruption-insurance-litigation.
8 Chetan Sehgal, Jay Ahluwalia, Matthew Law & Crawford Smith, supra note 4.
9 David Dybdahl, "Environmental Insurance Coverage for COVID-19 and Other Biological Hazards", IRMI (April 2020), online: https://www.irmi.com/articles/expert-commentary/environmental-insurance-coverage-for-covid-19-losses.
10 HUB Insights, "Coronavirus Resulting in Event Cancellation? Your Non-Appearance/Cancellation Policy May Help Counter Costs", HUB International (April 10, 2020), online https://www.hubinternational.com/en-CA/blog/2018/09/event-cancellation-insurance/.
11 HUB Insights, supra note 2.
Originally published 13 May, 2020
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.