In my last blog, I lamented the profits that auto insurers will undoubtedly make in the wake of the COVID-19 crisis. In this blog, I would like to take a step back and acknowledge that, despite the potential for profit in some areas, it is not going to be smooth sailing for the insurance industry through the COVID19 pandemic.

With thousands of businesses across the country forced to shut their doors, business interruption insurance claims are expected to skyrocket.

 

When business insurance claims succeed, it can be costly for insurers.

Business interruption insurance can cover the income that a business owner would have expected to receive if not for the unexpected event.

The starting point of any insurance claim is to examine the wording of the individual policy to determine whether the loss can be compensated under the circumstances. After examining their policy, business owners should speak with their insurance broker, and if necessary a lawyer, to assess whether a claim is likely to succeed.

Most business interruption insurance policies require a “physical loss” or physical damage to pay out on the policy. A typical example of a physical loss is a flood or a fire that destroys a factory or a machine. It is actually quite rare for business interruption insurance to explicitly contemplate losses due to a pandemic.

This was the subject of a recent controversy when thousands of dentists across Canada began claiming on a business interruption policy that explicitly included coverage for pandemics. The dentists’ policy covered up to $1,000 per day to a maximum of $20,000 per claim. With over 18,000 dentists across the country, the numbers add up. Their insurer (Aviva) delayed in its decision but ultimately paid out dentists in every province with the exception of British Columbia.

When it comes to making a successful insurance claim you need to be crystal clear on your policy.

Why would Aviva compensate dentists in every Province but one? It comes down to language.

Whether a claim is payable will depend on the wording of the individual policy. In the case of Canadian dentists, they had all purchased the same policy which included the same wording. The key issue was whether the dentists’ potential patients were prevented from entering their businesses by a mandatory government decree. Unfortunately for B.C. dentists, the wording of the applicable provincial order took a permissive approach to the closure of non-essential businesses.

What can be done if your policy does not explicitly include coverage for pandemics?

In a recent Ontario Court decision unrelated to the COVID-19 pandemic (MDS Inc. v. FM GLOBAL, 2020 ONSC 1924), the Court concluded that the term “physical damage” was broad enough to include the loss of use of property, even in the absence of real physical damage.

The MDS decision relates to events that occurred almost a decade ago when there was an unanticipated leak of heavy water caused the nuclear reactor at Chalk River Ontario to be shut down. Although the reactor being shut down caused a significant loss in MDS’ ability to earn revenue, there was no physical damage to the reactor. This unique case offers some precedent for the proposition that true “physical damage” may not be required to make a business interruption claim.

If you are interested in making a business interruption claim, start by obtaining a copy of your policy and examining whether you may qualify. If you have questions, consult with your insurance broker. If your claim is denied, speak with an experienced insurance lawyer to see if legal action is viable under the circumstances.