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Business Interruption Insurance Claims and the novel coronavirus, COVID-19
The COVID-19 pandemic has had a devastating impact on economies and businesses around the world and here in Waterloo Region. Businesses in Kitchener, Waterloo and Cambridge have not been immune to the crushing effect that the emergency shutdown and self isolation has had to their revenues. Businesses like restaurants, hotels, theatres and other public venues have been especially hard hit and are facing a very uncertain future, as are many other businesses. Even those businesses that are operating, it is not business as usual. Some businesses have had to shut down because of a confirmed COVID-19 case at their premises or in a business within their complex. The impact of the novel coronavirus, COVID-19, is that business have incurred substantial business losses. These sizeable business losses will result in the termination and potential bankruptcy of many businesses. According to several media stories, it is reported that the general response from the insurance industry is to dismiss claims for business losses as a result of the novel coronavirus, COVID-19.
However, before you walk away from what you presume to be no claim, you should give it some consideration. Business Interruption Insurance is a contract between the business and the insurer. Each contract and business experience are unique. Many commercial insurance policies will set out specific perils such as fire. Some policies will provide for more general coverage on an all risks of direct physical damage or loss from any external cause. It is not clear whether a global pandemic like the novel coronavirus, COVID-19, would meet the definition of physical loss. Therefore, your business interruption insurance coverage needs to be carefully reviewed. Your ability to recover under your business interruption insurance will depend on your business circumstances and your business interruption insurance coverage. Business Interruption Insurance is complicated. The courts have provided a wide interruption as to what factors constitute business interruption. That’s why you need to have your business interruption insurance coverage reviewed by a business interruption insurance lawyer.
Typically, Business Interruption Insurance coverage is activated when a business experiences a loss of revenue or increased operating costs that result from physical damage to the property where the business operates. The issue that will arise however is how is “physical damage” defined. The courts have generally shown that they are willing to consider reasonable arguments that look at the definition of physical damage that consider damage outside the traditional or usual definition. The question to be determined is whether there are fact circumstances during this novel coronavirus, COVID-19, pandemic that brings a business loss within the terms of the Business Interruption Insurance coverage
In a recent decision of the Ontario Superior Court, MDS Inc. v Factory Mutual Insurance Company, the issue of business interruption centred around the leak of radioactive water as a result of corrosion. The leak resulted in a shutdown ordered by the Canadian Nuclear Safety Commission. The plaintiff was in the business of purchasing and processing radioisotopes. Corrosion was a specific exclusion under the Business Interruption Insurance policy. The court concluded that “resulting physical damage” as provided in the plaintiff’s Business Interruption Insurance policy, from something that is excluded, like the corrosion, could include the loss of use of the business premises which resulted in a shut down and which is not excluded under the Policy. The court wanted to provide a broad definition the term “resulting physical damage”. The court decision in MDS is not determinative of how any interruption would be applied to the novel coronavirus, COVID-19, and business interruption insurance in general where the shut down is due to a government order, for example and no physical damage having occurred. It is interesting to note that the court provided that the intent of property insurance is to provide broad coverage. This is in line with the general view of the courts to provide broad interpretation to the terms an insurance policy, similarly to Business Interruption insurance.
So the question is whether your Business Interruption Insurance coverage will cover losses due to your business in Kitchener, Waterloo and Cambridge having to shut down because of the novel coronavirus, COVID-19. If the novel coronavirus, COVID-19, is present in your workplace, is that sufficient to come within terms of your Business Interruption Insurance coverage? Does the presence of a virus in your workplace meet the definition of physical damage or physical loss? Is a mandated government shutdown, like being declared a non-essential service sufficient to trigger the Business Interruption Insurance policy benefits? The answers to these questions and related questions will depend on the contractual terms of your Business Interruption Insurance coverage, particularly the exclusions. While there has not been a court decision specific to this issue yet, there have been previous decisions in Canada and the United States that have determined that where conditions in and around a building are hazardous to the health of the employees and occupants, than these situations were considered to be instances of property damage and that triggered the coverage under the Business Interruption Insurance. The presence of asbestos and the presence of gas fumes were situations where the Business Interruption Insurance coverage was triggered, and coverage provided. These were examples of situations where there was a risk of human health and safety was identified in or near a building resulting in the building being considered unfit for use. If your closure is the direct result of a government order, it will be difficult to attempt a claim under your Business Interruption Insurance coverage without the presence of the novel coronavirus, COVID-19. It will be difficult to tie the government order itself to property damage without more.
Before an assessment of your circumstances can be made, it is important to complete a review of the terms of your Business Interruption Insurance coverage to determine the extent of the coverage, and then the specified exclusions contained in the policy. There are some Business Interruption Insurance coverages that specifically exclude contamination but fail to provide a definition for contamination. This raises some uncertainty about what is actually excluded and may require a final determination by the courts. After the SARS epidemic in 2002, some insurers did offer specific coverage for a viral pandemic. You should review your Business Interruption Insurance coverage to determine whether this coverage was specifically listed in your policy. A government order to shut down may also be covered under your Business Interruption Insurance coverage.
Claims for Business Interruption coverage will be very difficult. Most claims will not qualify for coverage under a Business Interruption Insurance policy. However, in order to satisfy yourself, you would be well advised to pull out your Business Interruption Insurance policy and have one of our insurance lawyers review the terms of your Business Interruption Insurance policy and see how it applies to the facts and circumstances of your business interruption.
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