The Covid-19 pandemic has forced many businesses to send their staff home and close their doors. We continue to see organizations disrupted and staff laid off. As a commercial insurance provider we're receiving many questions asking to clarify if Business Interruption coverage offers protection in a situation like this. Unfortunately it does not, here's why.
Business Interruption Insurance is a coverage that can be added to your Commercial Property Insurance policy. It's purpose is to protect your business from the loss of income that could result from property damage to your place of business. The defining factor with this coverage is that the loss of income must be due to physical damage to the property (or nearby properties).
Business Interruption requires the following conditions for a loss to be recoverable:
- Direct physical damage, to the insured property
- Caused by the peril(s) it is insured against
- Resulting in quantifiable business interruption loss during the period of time it takes to restore the damaged property.
Business Interruption responds to:
- "Interruption of business income due to physical damage to insured property by an insured peril that prevents the business from operating."
- "Interruption of business income due to Civil Authority preventing or restricting access to the insured business due to physical damage to neighboring property resulting from a peril this is covered under the Insured’s policy, but then only for a limited period (ie. Up to 14 days) (example: fire to premises next door results in leaking gas pipe so local municipality orders ‘no access’ to businesses on that block until gas leak from the fire is sealed)."
Quarantine or ordered closure of businesses as a preventative precaution due to COVID-19 doesn't fall into these scenarios as it does not involve physical damage to the building. Restricted business access must still be due to physical damage to the property (or nearby properties). For a Business Interruption claim to trigger there will be a property (premises) damage claim first, damage to premises because of insurable peril like fire, flood, sewer back up, vandalism or theft.
