As of March 30, 2020 the Saskatchewan government signed an order pursuant to the provincial State of Emergency directing that all orders of the government and Chief Medical Health Officer must be followed and that law enforcement agencies in Saskatchewan have the full authority to enforce those orders. As a result, gatherings of more than 10 people in one room are prohibited; and nightclubs, bars, lounges and similar facilities are closed.  As other businesses respond to COVID-19 their bottom lines are facing significant impact.

In this uncertain climate, businesses are attempting to manage this crisis and limit their continuing financial losses. One potential avenue for relief is insurance. All businesses should be seeking guidance as to whether their existing insurance coverage can respond to COVID-19 related financial losses.

This article outlines some key insurance coverage considerations to determine whether initiating an insurance claim may be a viable relief option for your business.

COMMERCIAL PROPERTY POLICIES

Most businesses’ first party property insurance policies include coverage not only for property damage but also for lost profits resulting from that damage.  The coverage for lost income often covers loss resulting from:

1. Damage to the policyholder’s own property (business interruption);
2. Damage to the property of a customer or supplier or a supplier’s supplier (contingent business interruption); or
3. Government action (order of civil authority)

The event that triggers any of these coverages is property damage — without which there will be no coverage for lost profits under a first party property policy.

When purchasing your property policy for your business, it may have been referred to as “All Risk.” All risk doesn’t necessarily mean that you are entitled to coverage for all risks. These policies can sometimes exclude coverage for virus, contagious disease or bacteria. In that case, any COVID-19-related claims will likely be denied.

Business Interruption

With respect to your commercial property policy, the definition of physical damage found within the policy becomes crucial to determining whether coverage applies.

Contingent Business Interruption

Contingent business interruption is a coverage that allows a claim for lost income resulting from a covered loss to an insured’s customer or supplier (Indirect Loss). This type if coverage is typically triggered as a result of a physical damage to the customer or supplier listed as a reliant party, critical to the insured’s operations.

Government action/civil authority

Some property policies will responds to Interruption by Civil Authority, which is often defined as “actual loss as insured hereunder during the period of time, not exceeding two to four weeks, while access to the “premises” is prohibited by order of civil authority”

Given that the definition of this coverage may vary by policy, there is a possibility that if operations of a business are restricted due to an Order prohibiting access, then coverage may apply. The opposite would be true if the policy wording specifies the requirement for Physical Damage. Once again, the applicability of this coverage and length would be case specific.

NEXT STEPS

A determination of whether your business is entitled to coverage is wholly depends on your policy wording. Businesses should be evaluating their policies including any extensions and exclusions, with their insurance brokers and legal counsel to better understand terms and conditions. To get started request a complete copy of your insurance policy and review to determine whether coverage might apply to your business.