April 27, 2020

Business Interruption Insurance

Business interruption insurance is contractual and its availability will depend on the term of the specific insurance policy in issue. Over the past 20 years of reported decisions in Alberta regarding business interruption insurance, all revolved around a fire or explosion, usually in the oil and gas context, with one exception being a transformer failure causing an outage at a power plan. In all of those cases, the coverage of the event by the policy was not in issue.

It’s been observed that in most insurance policies, it is unlikely that business interruption insurance will cover COVID-19.  This is so as the policies typically require a physical act like a explosion or fire for the business interruption clause to be applicable. For example, typical business interruption insurance provisions in a policy state:

This Form insures, up to the amount stated in the Declarations, against loss directly resulting from necessary interruption of business caused by destruction or damage by the perils insured against, to building(s), structure(s), machinery, equipment or stock on the described premises.

As can be seen, the clause is limited by precondition of specified causations and specific items damaged. Further, in the above example, the business interruption insurance is limited to perils insured against, which would be listed in the policy. In British Columbia, the above clause was held to apply to the theft of jewelry where the peril insured against included “physical loss” and the business that the jewelry was stolen from, being a jewelry store, resulted in the jewelry being qualified as “stock”. What is clear is that what each claim and case arising from COVID-19 will turn on is the specific wording of the business interruption insurance policy provision and the perils the policy covers. The above example clause would not likely cover COVID-19 as it only covers perils that physically damage chattels and fixtures, being building(s), structure(s), machinery, equipment or stock on the described premises.

Most insurance policies also have a time limit that an insured can file a claim with an insurer. It is imperative that the insured meet such deadlines and proceed to seek coverages right away. If the claim proceedings in a contested fashion, it is important to ensure that the business interruption loss is properly quantified, and may in some circumstances require a qualified business valuator.

If your business’s insurance policy does not cover COVID-19, but it was understood from the insurance broker at the time the policy was purchased that such an event would be covered, there is the possibility that your insurance broker could be liable on the basis of several causes of action. This will depend on the specific interactions between the business and the broker, and whether the broker made any misrepresentations, was negligent etc. regarding the coverage.

Walsh LLP partner, Brendan Miller, has experience resolving disputes for businesses against their insurance companies. Following the 2013 Alberta Flood, Brendan acted for a number of businesses seeking coverage arising from the flood where insurance companies initially denied the claim. He has also acted against insurance companies refusing to cover fires and other disasters. If your business is seeking to apply for business interruption insurance, has done so and been denied, or the insurance company is not contacting you back, do not hesitate to contact Brendan.