Top COVID-19 Business Interruption Insurance Mistakes To Avoid

Business owners throughout Canada are left scratching their heads, wondering whether their business interruption insurance policy covers COVID-19 losses, and why their business interruption insurance claim was denied.

Questions abound, especially given that countless businesses were covered under an all-risks property or business insurance policy, but were still denied coverage.

In this quick guide to business interruption insurance, we dismantle the top COVID-19 business loss insurance mistakes and misconceptions. If you have more questions or think you were unjustly denied insurance coverage, fill out the form on this page, and Top Class Actions will connect you with experienced insurance lawyers who will look at your case free of charge.

COVID-19 Not Included in “All-Risks” Business Interruption Policy

Although many insurers will have you believe that COVID-19 losses are not covered under an all-risks policy, the pandemic may likely be included in such a business interruption insurance policy, and here’s why:

All-risks business interruption insurance policies are understood to protect against fortuitous losses, meaning, those that are unexpected, unless such losses are otherwise explicitly excluded in the policy. This means that losses resulting from COVID-19 closures may be covered because they were unexpected.

So, what does Canadian caselaw say? In 2010, the Supreme Court of Canada defined fortuity as an event that is “unlooked for, unexpected or not intended by the insured […]. This is a requirement of coverage.”

All-risks insurance is therefore intended to cover only fortuitous or accidental losses subject to express conditions or exclusions provided in a business interruption insurance policy. Forced business closures were unexpected and unintended by Canadian business owners, and may therefore be covered under an all-risks policy, as per the Supreme Court.

COVID-19 Not a “Direct Physical Loss”

Losses resulting from the global COVID-19 pandemic may be interpreted as a “direct physical loss,” as Canadian courts will likely define these terms broadly.

Insurers have been, and will likely continue to take the position that loss of business income or business interruption is only triggered  by a physical peril or loss at an insured’s premises.

However, in a March 30^th decision, MDS Inc. v. Factory Mutual Insurance Company (FM Global), the Court provided insureds with some key arguments to make the case for coverage due to loss of business income or business interruption where there has not been any physical loss or damage to their property.

In examining the scope of insurance coverage under an all-risks policy, Justice Wilson, the Ontario judge presiding the case, noted that such policies are understood to protect against fortuitous losses, unless such losses are excluded, and should be consistent with the reasonable expectation of the contracting parties.

The Court noted that the purpose of the policy in the case was to insure the plaintiffs for loss of profits in their business operations, which is likely similar to the purpose of the policies of many business owners affected by COVID-19 closures.

According to the Court there are two approaches to defining physical damage:

• A narrow view that limits damage to corporeal, tangible damage; or
• A broader view that encompasses not only tangible damage but also impairment of use or function.

In considering the purpose of all-risks coverage in the context of coverage for loss of profits in the case, the Court took into consideration the circumstances of case, which included a government declaration of uninhabitability of the business premises. Justice Wilson concluded that there was a direct physical loss justifying coverage in this case. Although the case did not concern COVID-19, it offers business owners this crucial insurance precedent: A government order prohibiting use of a business premises may count as a physical loss.

Government Shut-Down Orders Are Not Covered Under Business Interruption

Provincial government shut-down orders for non-essential businesses may be, by analogy, equivalent to a declaration of uninhabitability, which courts have previously held constitutes a direct and physical loss required to be covered under an all-risks policy.

In the Court’s words in the MDS decision, to “interpret physical damage as suggested by the Insurer would deprive the Insured of a significant aspect of the coverage for which they contracted, leading to an unfair result contrary to the  commercial purpose of broad all-risks coverage.”

As such, the Court clarified that physical or tangible loss of use or damage to property may not be necessary to advance a claim for loss of business income or business interruption under an all-risks policy. The implications of this case for the COVID-19 pandemic are significant, because it provides a precedent for requiring coverage under a broader scope of circumstances.

What Can I Do?

If you are a B.C. business owner who was denied business interruption insurance coverage after closing due to COVID-19, you may be eligible to join a COVID-19 business interruption insurance class action lawsuit.

Fill out the free form on this page and experienced insurance lawyers will examine your case free of charge.

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