COVID-19 Insurance Coverage: Are Our Business Losses Covered? If Not, is Your Broker Responsible?
We are certainly in unprecedented times. With schools closed, businesses shuttered, events cancelled, and “social distancing”, the impact of COVID-19 for some Canadian businesses has been devastating.
A common question asked by business owners, directors and officers, is whether their company has insurance to cover COVID-19 related losses? The short answer is: Perhaps, but probably not. The only way to find out is to review your policy, carefully.
While there is specialty coverage available for business interruption arising from pandemics, it is not always offered and rarely taken out. Many standard policies sold after the emergence of SARS and H1N1 exclude viral outbreak losses from coverage, and most business interruption insurance is intended to cover only losses from direct physical loss, damage or destruction of physical property.
While it is unlikely that your business will have coverage for COVID-19 related losses, it is worth taking a careful look at your policy documents to make sure. If you have contingent business interruption coverage, it may provide coverage for losses related to suppliers, vendors or partners, depending on the circumstances (although it is often tied to physical damage to the third party’s property). A review of your policy should include all policy documents, including riders and endorsements. As many commentators in this space have noted, there is no harm in making a claim to try and receive compensation for your company’s losses. Taking that a step further, receiving confirmation that your company is not insured for COVID-19 related losses might allow your company to recover from its broker.
Many companies will find themselves without coverage for COVID-19 related losses, which logically leads to the question: Should these companies have been offered pandemic related coverage by their brokers, or at least had the risk of not carrying coverage adequately explained to them by their brokers? Knowing what we know now, it might seem obvious – but could anyone have anticipated the impact of COVID-19? This is a question that may be answered soon given the scope of the anticipated COVID-19 related losses. It seems that insurance companies sufficiently recognized the risk of viral outbreaks following SARS and H1N1 to exclude viral outbreak related losses from coverage – so shouldn’t brokers have recognized the same risk and either recommended coverage for viral outbreak related losses, or communicated the risk of not having viral outbreak related coverage to policy holders?
Insurance brokers have specialized knowledge and qualifications for assessing your needs. This places an elevated duty on brokers to not simply hand you the menu of policy options, but rather to investigate your particular needs and risk factors, and find you coverage that fits your particular needs. This duty remains as policies are renewed. What about companies whose policies renewed after December 2019, when COVID-19 was emerging as a potential global threat? If a broker failed to present options to insure against the emerging COVID-19 threat, should the broker be liable for its customer’s losses?
Brokers have been found liable where they failed to ensure that a customer has suitable coverage, sold policies that were subject to exclusions for risks that should reasonably have been foreseen by the broker, or where the Broker failed to properly advise customers about the ramifications of opting into or out of additional elective coverage. In Mustapha v. Culligan of Canada Ltd., 2008 SCC 27, the Supreme Court of Canada concluded that the standard of reasonable foreseeability is that there must be a “real risk” that that harm or damage could occur.
It certainly seems possible that a broker could be found liable for failing to properly investigate a customer’s particular needs and risk factors as they relate to viral outbreak losses, or for failing to ensure that a customer had coverage to protect against viral outbreak losses, particularly as COVID-19 began emerging as a global threat and arguably became reasonably foreseeable. That being said, it would require the right circumstances between the broker and the customer and would depend on the nature of the customer’s business and how reasonable it would have been for the broker to have anticipated COVID-19’s impact on the customer’s business.
For more information on this topic, please feel free to reach out to the Commercial Litigation team at Mann Lawyers LLP.