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Does Business Interruption Insurance Cover A Pandemic Shutdown?


According to the Canadian Federation of Independent Businesses, COVID-19 could cause 181,000 organizations across the nation to close their doors. In Alberta, the report shows 22 per cent of businesses may be forced into bankruptcy or closure. The pandemic was a huge interruption to companies of all sizes, but those with business interruption insurance were spared and reaped the benefit of their investment…right…?

Actually, it’s complicated.

Tom Castonguay, CFP, is the president of Shelter Bay Financial.

“Business interruption insurance,” explains Castonguay, “is based on the owner or key person and disability is the main reason for a claim. You can buy a policy as a disability product to cover the expenses of the business and fixed costs. It can cover salaries as well. Typically, this insurance is for companies with five or less full time employees.”

That means a shut down due to COVID-19 is not covered. However, if the lives insured contracted the virus and became seriously ill, became a long hauler, or were hospitalized, there may be grounds for a claim.

However, Castonguay points out, “While businesses are not covered for shutdowns under (disability overhead insurance) business interruption insurance, unforeseen events may be covered by general or casualty insurance. Again, this is nuanced and wholly dependent on the policy. For example, if a business burned down or flooded while in shut down and nobody was on the premises to notice or defray the risk, this could be covered under catastrophic damages – but if the policy required someone to check on the premise weekly while it was unoccupied, the insurer would need to establish that this condition was met.”

Doug Laird, president, Rogers McLean Shaw, also weighs in.

“There are typically two common business interruption coverage forms: gross profits and gross earnings. Another hybrid or modification of these two forms is the actual loss sustained (ALS), a coverage that is only applicable if there is an insured peril under the direct damage policy to which this endorsement is added. There are other qualifiers and worksheets to best evaluate the proper limits of insurance and these are best discussed with your broker and your accountant.”

What does that mean for Alberta companies that had to shut down? Laird explains, “Most general insurance policies in Canada had the provision that physical damage was required by an insured peril to trigger a business interruption loss. Therefore, the majority of policies with the coverage would have been denied. Despite this, many brokers across Canada would have submitted these claims to the respective insurance companies for review. I do not know of any specific policy that would have responded, other than those that had a small extensions with limits less than $10,000 for outbreak extra expense.

“Business interruption policy wordings can vary widely from client to client, however, most require some kind of physical damage to the insured premises to trigger a claim. We are seeing some coverage disputes with a few lawsuits occurring in Canada. These lawsuits have highlighted the potential for a gap between the insurer’s and the client’s understanding of what is covered by the insurance contract when policy wording isn’t clear. There are certain policies that may have this coverage included, such as special event cancellation insurance, but now with the past COVID-19 experience, some of these wordings are being rewritten as more is learned about loss exposure.”

The answer to, “can I make a claim if I have business interruption insurance and was shut down by COVID-19,” is “maybe but unlikely.” It is highly dependent on the details of the policy, physical damage sustained to the property, and the presence of a disability if a key person named in the policy became ill.

This, then, begs the question, if a successful claim is unlikely for what feels like a clear business interruption, what is the point of coverage? It still has a lot of value, as COVID-19 is far from the only risk businesses face.

Laird says, “Some of the most common deficiencies of a major insurable loss not being covering by business interruption include the following:


  • Unable to pay the salaries of key management/employees. This could result in losing some of your key employees to a competitor.


  • Not having the funds to pay business and realty taxes.


  • A building owner not having the ability to collect rents from tenants.


  • Not having the funds available to pay for advertising and promotion, and continuing office and administration.


  • Not having the funds available to advise your clients of your loss and what will happen to their order, if applicable.


  • Not having any funds available to provide the extra costs for a temporary facility, rent, telephone etc.


  • Not having the funds available for equipment rental including computers, generators, furniture etc.


“Business interruption coverage is a key coverage protecting an organization from not being able to reopen following a major loss and should be one of the items considered as part of the recovery plan. As high as 65 per cent of businesses never survive a major loss; 40 per cent never reopen and 25 per cent close within two years. It is for this reason business interruption should be considered as a main component of your commercial insurance program.”

If you are now convinced to get business interruption insurance, can you make a stipulation for COVID-19?

Castonguay points out, “That depends on each carrier. Now, some add COVID questionnaires to the underwriting process and some to the delivery requirements. From what I’ve seen from a disability standpoint, if you are insurable today COVID is just like anything else that can take you down, like cancer.”

Laird adds, “Business interruption varies depending on the type of coverage. The purchaser should spend the time with their broker and accountant to determine the best for the needs of the company.

Business interruption insurance is an important part of coverage for your company. Work with an insurance professional that will find the best policy to suit your needs, and will discuss the many aspects of the policy with you so there is a clear understanding of the product.