As a business owner, regardless of your operation’s size or revenue, risk management is vital. No one expects their business to be interrupted by a natural disaster, but as business owners across the world are learning, being over-prepared for the worst-case scenario is often the best policy.
Business interruption (BI) insurance is designed to compensate eligible business owners for financial losses following a disaster. In the wake of a destructive natural event, eligible business owners could potentially recover damages for lost income resulting from their business’s forced closure.
Often an optional add-on to regular property insurance plans, BI insurance may cover earnings lost when a commercial establishment’s brick and mortar location is forced to shut down. Retail stores, restaurants, gyms, salons, and professional services operating out of a physical storefront are examples of businesses that may be protected by policies covering BI insurance.
Amidst the unprecedented public safety measures to reduce the spread of COVID-19, local businesses are facing dire financial circumstances. In York Region and the GTA, business owners who have been forced to close their doors to the public because of the pandemic may be wondering if they are eligible to claim BI insurance benefits.
While most commercial insurance policies do not specifically include coverage for closures caused by pandemics, some businesses may have special contingency clauses which may allow them to collect benefits for financial losses resulting from the COVID-19 outbreak.
One of our lawyers can review your policy and explain the options available to you.
How Does Business Interruption Insurance Work?
If business owners elect to pay for optional, additional BI coverage through their property insurance policies, and their business is forced to close due to physical damage sustained by a disaster for which they have coverage, these business owners may be eligible to collect benefits.
Examples of natural disasters that may be covered under a BI insurance policy include:
- Fire
- Earthquakes
- Floods
- Hurricanes and other wind-storms
As with most forms of insurance plans, the terms of BI coverage vary between policies. For example, BI policies may cover either named perils, or comprehensive risks.
In a named peril plan, the disaster that caused a business-owner to seek out BI benefits may be subject to exclusions. If their building’s damage was caused by one of the specific perils outlined in the terms of their insurance plan, a business owner may be eligible to recover compensation for earnings lost as a result. However, if the damage to their business location was caused by a peril that has not been specifically named within the terms of their policy, business owners may not be eligible for compensation.
On the other hand, comprehensive all-risk policies may provide coverage for damages caused by any peril, even if it has not been specifically cited in the policy’s terms.
Additionally, the period of time during which policyholders may receive coverage for lost earnings due to business interruptions resulting from natural disasters may vary from policy to policy.
There are two basic categories of indemnity periods:
- Limited (or earnings): Eligible policyholders may receive benefits until the damage to their business location has been repaired. Benefits payments will cease upon the resumption of business.
- Extended: Eligible policyholders may continue to receive benefits payments until their business resumes operating at normal, pre-incident capacity, subject to the policy’s maximum period of indemnity.
What Does Business Interruption Insurance Cover?
If a natural disaster covered by your insurance plan forces your business to temporarily cease operations, your insurer may provide you with compensation for lost business-related income, which may include:
- Operating expenses
- Payroll losses
- Replacement of damaged stock or supplies
- Relocation costs
- Revenue loss
After examining a business’s income from previous years, a BI insurance provider may determine the amount of revenue an eligible policy would have earned had the disaster not taken place, and provide compensation for those lost profits.
If a business’s location sustains serious damage, it may be required to find a new location to resume normal operations during the original building’s restoration period. In these cases, eligible policyholders may be able to recover damages for costs incurred as a result of their move to a temporary location.
While many policyholders may believe that paying additional premium costs for BI insurance entitles them to collect benefits for all of their regular costs whenever any incident prevents them from using their brick and mortar location, each policy has specific terms, and possibly, specific exclusions.
For example, the full salaries of all employees may not be covered under individual BI insurance policies. In fact, many plans only provide coverage for key staff members. That means that, in the event of a disaster that causes a business to cease operations, employees who are not considered essential to the business’s survival during a temporary restoration period may face layoffs.
Furthermore, most policies only provide coverage for losses resulting from physical damage caused by a disaster. This means that business interruptions caused by cyber-security breaches, loss of data, loss of utilities, and other unforeseeable events may not qualify business owners to collect BI insurance benefits.
Business Interruption Insurance and COVID-19
Business owners in York Region and Toronto are not alone in their struggle to keep their doors open, and to keep money coming into their cash registers. To reduce the spread of the potentially deadly virus, local employers are taking necessary safety precautions to ensure the health and safety of their employees and customers, which may include limiting the number of patrons who can be served at a time.
An overwhelming number of the province’s business owners are struggling to keep the lights on amidst pandemic restrictions, and many smaller, family-run businesses have already been forced to cease operations for good.
Since most BI insurance policies typically cover financial losses resulting from physical damage to a business’s location, the outbreak of COVID-19 may not entitle policyholders to recover benefits. A business owner’s ability to claim benefits for business interruptions caused by the pandemic depends on the terms of their policies. Some BI policies may specifically cover disease outbreaks in their named peril plans, and comprehensive all-risk plans may provide coverage for income lost during a time of necessary business shutdowns.
If you’re unsure as to what kind of coverage you may be entitled to receive, Hallmark Attorneys LLP may be able to review your policy, determine if your business is insured against COVID-19, and explain any compensatory options that may be available to you.
Contact Hallmark Attorneys LLP
If you believe you may be eligible for business interruption insurance benefits but are unsure of how to proceed with your claim, contact us today.
For a free, initial consultation, fill in the form below or call us at +1 (548) 708 4291.
