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How to exclude business interruption during pandemic


May 4, 2020   by Greg Meckbach


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If a commercial insurer does not want business interruption covering a pandemic-related exposure, how should the policy be worded?

One insurance defence lawyer would advise the carrier to add a section entitled ‘Pandemic/viral/bacterial infection’ to the list of exclusions.

“I would spell out scenarios in which each of those exclusions would apply,” said Ari Krajden, partner with law firm Kawaguchi Krajden LLP, in an interview.

“Explain exactly what is excluded in the case of the pandemic, and what would need to happen in order for the pandemic exclusion to apply,” Krajden said. “Does it need to be the World Health Organization declaring a pandemic? Or in the case of the virus exclusions, would it be enough if everyone in a restaurant caught the flu at one particular time or another? Being as specific as possible in the exclusion is the best chance an insurer has to have the exclusion hold up before a judge.”

Shortly after WHO declared COVID-19 a pandemic Mar. 11, several Canadian provinces declared states of emergency. Rules on which businesses can remain open vary by province and industry.

Canadian Press reported Monday that Ontario is allowing a few, mostly seasonal businesses to reopen — including garden centres with curbside pickups, lawn care and landscaping companies, and automatic car washes.

But many categories of events are still prohibited and restaurants in several provinces may serve for pickup and delivery only.

Several coverage dispute lawsuits are in the works on both sides of the border. Some say, in general, business interruption is an add-on to a property policy and does not get triggered unless an insured peril – like fire or flood – affects the property.

“In these scenarios, policy language is critical, and I have read many broad statements in the media about whether these claims are going to succeed or whether they are not going to succeed,” Krajden told Canadian Underwriter Friday. “Frankly I think these quotes that are being given are ill-advised if the individual giving them has not sat down and read the specific policy language.”

Policy wording is what the Supreme Court of Canada has said a judge should look at first, in a coverage dispute, Hollis Bromley, member at large of ARC Group Canada and partner at Alexander Holburn Beaudin + Lang LLP, one of ARC Group’s seven member law firms, told Canadian Underwriter earlier.

Kim Winter agrees.

“I would caution policyholders to thoroughly review their specific policy language before they assume that they don’t have coverage,” said Winter, Kansas City, Mo.-based partner and insurance recovery practice group leader with Lathrop GPM.

The question is on the minds of investors holding shares in commercial insurers.

A shareholder of Fairfax financial Holdings Ltd. asked about business interruption losses during the Toronto firm’s annual general meeting April 1.6

“A big headline issue I would say with the insurance industry today is how is business interruption is going to impact our losses. In general, it’s our view, and the view of the industry, that business interruption requires there to be physical damage to property in order to be triggered,” Fairfax Insurance group president Andrew Barnard said, suggesting there could be some exceptions for clients with customized wording.

Feature image via iStock.com/shaunl