As the COVID-19 pandemic continues to spread and intensify and businesses seek to mitigate financial prejudice, they will consider whether their insurance policies provide coverage that could lessen the blow. This bulletin addresses questions about insurance coverage and COVID-19.

SPECIAL COVERAGE FOR COVID-19 LOSSES

COVID-19 is unusual because, in most cases, the pandemic will not actually cause physical damage to insured property. This is problematic for policyholders because virtually all property insurance policies are triggered by physical damage to property.
 
Commercial property insurance insures business for physical loss of or damage to insured property. Most business interruption insurance is limited to losses sustained as a result of a property damage event. This is also true of Erection All Risk (EAR)/Construction All Risk (CAR) insurance policies, which cover physical damage to property, and Delay in Startup/Advanced Loss of Profit coverage, which indemnify for losses triggered by an EAR/CAR occurrence.
 
Although loss of profits is included in these types of policies, courts have generally held that the loss of profits must be tied to insured physical damage. An absence of physical damage to insured property will all but rule out the availability of insurance coverage.
 
Coverage may be available, pursuant to more typical property and/or business interruption insurance policies, if COVID-19 or the associated containment measures causes physical loss or damage to property. This could be the case where forced plant or construction site shutdowns lead to equipment fires, or inventory or equipment is stolen due to the absence of personnel.
 
A civil authority clause and/or endorsement in a policy may specifically contemplate losses sustained following a government order to evacuate. Most still require physical loss or damage to trigger coverage, but some civil authority clauses provide for coverage, even without physical loss or damage.
 
Policyholders should determine whether their policy excludes loss due to pandemics, epidemics and/or disease outbreaks. Such exclusions may be specific or may refer to “contaminants,” in which event the definition of contaminants should be carefully reviewed.
 
In the absence of property loss or damage, coverage may still be available pursuant to certain types of policies.
 
Specific outbreak insurance coverage is—or was—available from the Canadian insurance market and will likely cover losses flowing from COVID-19, subject to coverage limitations and exclusions. Other types of policies may also cover certain types of losses.
 
It is worthwhile for businesses to review their insurance policies to determine whether coverage is available.

PRESERVING INSURANCE COVERAGE

Regardless of whether coverage is available for COVID-19 losses, the pandemic may raise questions with respect to businesses’ overall insurance coverage.
 
Commercial property insurance policies impose a variety of duties upon policyholders which may be affected by COVID-19 and the containment measures that have been implemented. Although policy wordings differ, certain duties persist in light of COVID-19, including:

• The duty to pay premium

• The duty to regularly inspect and/or protect the insured property (and/or not to permit it to remain vacant for more than a specified number of days)

• The duty to give prompt notice of claims

• The duty to give notice of material change affecting the risk

• The duty to notify of a change in a business’s activities

Depending on policy wording and governing law, a failure to fulfil these duties may allow the insurer to cancel or void the entire policy or to deny or limit coverage for specific claims. However, the pandemic may render full compliance impossible for some policyholders and more difficult for others.
 
Some policyholders may be unable to pay their premiums because of insolvency. Premium payments may be delayed as a result of temporary liquidity problems, staff shortages and administrative issues. Containment measures may prevent policyholders from complying with duties to inspect property or giving prompt notice of claims.
 
As insurance policies do not typically include force majeure clauses, suspension of policy obligations will be unavailable except in Quebec, where a force majeure defense is available to all contracting parties who have not expressly excluded it. For more information and a detailed analysis of the Quebec force majeure regime, please see our March 2020 Blakes Bulletin: COVID-19 and Force Majeure: A Quebec Law Perspective.
 
As for notice of material changes affecting risk, the COVID-19 pandemic is not a change that must be brought to insurers’ attention, as it is general public knowledge. The confinement measures imposed by governments fall within the same exception. However, the specific way in which the insured property is affected may trigger a notification obligation, and policyholders should seek advice from brokers or insurers in order to ensure full compliance.
 
Finally, policyholders should consider whether their policies contain a clause requiring them to notify their insurer(s) of any change in their activities. To the extent the COVID-19 crisis has caused them to change their activities—such as manufacturing masks or respirators, or adding delivery or online transactions to their existing services—it will be necessary to ensure that proper notice has been given to insurers to preserve coverage.

KEY TAKEAWAY

The COVID-19 pandemic raises important questions relating to commercial insurance. Business owners and risk managers should conduct a thorough review of their insurance policies to identify potential areas of coverage for COVID-19 losses, and consider how to ensure their policy obligations are met in the current circumstances.