Business Disruption Insurance And COVID-19

Experts have been telling us for many years that a worldwide pandemic was long overdue. But when the ball dropped on New Year’s Eve 2019, right around the time the world was hearing the first rumblings about a cluster of suspicious cases of pneumonia in Wuhan, China, did any of us think: “This is it! This is the year!” Probably not.

Still, while COVID-19’s speed and efficacy in spreading around the world and the extent of the lockdowns needed to control it may have surprised us, during the past 20 years we’ve had a few close calls that have helped us prepare. Most notably, when SARS took a foothold in Canada, and more specifically, the Greater Toronto Area, we saw the type of damage a novel virus could cause as it began to spread in a community.

The Financial Impact of a Viral Outbreak

Some business owners who experienced financial hardship due to the chilling effects that SARS had on tourism and social gatherings in 2003, likely made calls to their insurers to inquire whether they could claim under their business interruption policies.

Business interruption insurance is an add-on to an existing business insurance policy. According to the Insurance Bureau of Canada (IBC), these add-ons cover continuing expenses and/or replace lost profits if a business temporarily needs to shut down. The IBC notes that there are three types of such policies:

– A gross earnings policy pays until property or damage is replaced or repaired, or stock is replaced

– A profits form policy pays until a business can resume normal, pre-interruption levels (subject to policy limits)

– An extra expense policy allows businesses to remain operational during periods affected by loss and/or damage.

Does Business Insurance Cover Losses From Pandemics/Disease Outbreaks?

According to the IBC, most commercial insurance policies or traditional business interruption policies do not cover damages or losses due to pandemics such as COVID-19. After SARS struck, some insurers quickly added specific exceptions to comprehensive policies to explicitly prevent such claims. Interestingly, these exceptions were more frequently introduced into American policies and fewer Canadian policies adopted this change.1

Following SARS, some insurers did begin offering pandemic coverage through endorsements. However, unless a business previously experienced losses or damages due to a disruption caused by such an outbreak, policyholders may not have opted to pay the additional premium to be covered for such a rare and thus relatively unlikely event.

Words Matter In Insurance

If your business suffered damages or losses due to a COVID-related disruption, and a pandemic/outbreak endorsement was purchased, you may be able to claim losses through your insurer. However, even without such an endorsement, it is well worth examining your policy’s language to determine whether you might have some recourse with an insurer.

Barring a carefully-worded and explicit exclusion for a pandemic/outbreak, how a policy defines direct physical loss or damage may be the key to the success of a potential claim. Canadian case law has not settled on a clear definition of such terms, and arguments could be advanced that the coronavirus causes physical damage and could trigger a coverable loss. For example, if regular business was disrupted in order to deep-clean the premises due to COVID-exposure, it could be considered physical damage.

Actions by governments or health authorities that restricted access or closed business or its supply chain (contingent business interruption) could also be used as grounds to claim under various business insurance policies.


Even with emergency government funding and support for affected businesses and industries, the initial and lingering effects of COVID-19 have put a considerable strain on commerce in Canada. If your business has suffered significant losses during this pandemic and you believe you may be eligible to make an insurance claim, consider reviewing your policy with a legal professional to determine whether such a claim may be viable.