Business insurance after COVID-19

BY ANDREW STEWART

On June 19^th, 2020, areas of Ontario like Hamilton, Durham, Niagara, and several other regions will join most other parts of Ontario in moving to Stage 2 of reopening from the COVID-19 global pandemic shutdown. This will allow for outdoor dining at restaurants, resumption of business at hair salons and barber shops, as well as for public swimming pools and other services to operate. After enduring the hardest four months for businesses who were either forced to shut down entirely or reduced to partial operations owners are happy to be reopening but they still will have to embrace reality and prepare for the long-lasting impacts of COVID-19.

As part of the process, many owners have asked if their business insurance covers COVID-19-related business closure or interruption.

In this uncertain climate, businesses are looking to understand how they can manage this crisis, limit their continuing financial losses, and perhaps seek avenues for financial relief. An obvious potential avenue for relief an owner should think about is their insurance policy. All businesses should be speaking with their representative as to whether their existing insurance coverage can respond to COVID-19-related financial losses. The lifeblood of any business is cashflow and policies such as these are there to protect when a business is inoperable due to physical damage, such as a fire or structural damage. Disasters of this caliber can quickly, albeit temporary, close businesses, resulting in severe loss of income. Generally, commercial insurance policies and traditional business interruption policies do not offer coverage for business interruption or supply chain disruption due to a pandemic such as COVID-19. Some businesses have sued on the basis that “COVID-19 contamination” on surfaces in their office or store is physical damage to their property and it has rendered the property unusable or uninhabitable.

Some policies also include coverage for civil authority interruptions, which is when a governmental authority such as the police orders the closure of businesses. Although this coverage is mostly limited to circumstances where there has been physical loss or damage, the definition of this coverage can vary by policy. There is a possibility that if operations of a business are restricted due to a governmental order prohibiting access, coverage may apply.

Businesses that operate and draw most of their income from hosting and organizing large events are especially affected. Normally they would purchase event cancellation insurance which covers cancellation fees or other out-of-pocket expenses, but potentially lost income anticipated from the event. Within event cancellation insurance policies, infectious or communicable diseases can either be included or excluded from coverage. Policyholders should be incredibly careful in how they describe the cancellation of their event for their claim. For example, most event cancellation insurance will not apply if the reason for the cancellation is poor attendance, regardless of the reason for that poor attendance. But it may apply if the event is canceled for health and safety reasons.

“The future depends on what you do today.” ― Mahatma Gandhi

Insurers are stubborn and are not easily persuaded to change their policies regarding pandemic coverage and business interruption. Our government will hopefully listen to its residents and recognize when policyholders have been given a bad hand. An interesting development in the United States is taking place in New Jersey, where the state legislature is considering a bill to require insurers to pay COVID-19 business interruption claims expressly excluded by a policy “virus” exclusion. With the government supporting small employers with the temporary wage subsidy program (CEWS), defer payment of any tax payments until August 31^st with no interest or penalties and financial support through loans and access to credit (CEBA), it will be a slow recovery but for now, it seems we are all on the same page.