Potential Insurance Coverage for Loss Caused by COVID-19

  • March 23, 2020
  • Hovsep Afarian, Aidan Cameron, Emmanuelle Poupart, and William G. Scott – McCarthy Tétrault LLP

I. Potential Business Interruption Coverage

In addition to the human wreckage caused by the novel coronavirus and COVID-19, the pandemic has inflicted great financial loss. Many entities have in place business interruption insurance which was purchased with the expectation that it would provide indemnification for loss arising from such unforeseen developments. This note addresses whether there is potential business interruption coverage for loss occasioned by COVID-19 and provides some practical tips to help policyholders maximize any such insurance coverage.

·        Has the Virus Caused “Physical” Damage?

Business interruption coverage is typically a component of property insurance policies. In order for business interruption coverage to be triggered, there must first be “property” damage. However, courts have interpreted property damage broadly. If a building is rendered uninhabitable or does not otherwise serve its purpose, it can potentially be regarded as experiencing “property” damage. However, it could be that the actual presence of the novel coronavirus in the property (as opposed to merely the threat of contamination) needs to be demonstrated.

Assuming this initial obstacle is overcome, it is necessary to also demonstrate that the novel coronavirus is a “peril” recognized by the property insurance policy. Property policies can be either “all peril” policies (which provide coverage for all perils that are not excluded) or “named peril” policies (which sets out a closed list of named perils for which coverage is provided). The broader, “all perils” type of policy will, be definition, include the novel coronavirus. However, the policy may contain an exclusion for viruses (sometimes, the exclusion may be a part of the “pollution” exclusion). The narrower “named peril” type of insurance policy is unlikely to refer specifically to the novel coronavirus given its novelty (despite its kinship with SARS). However, the novel coronavirus may be encompassed in a “basket clause” (although this is unlikely).