AuthorChute, Ryan

Executive Summary

The full scale of COVID-19's impact is not yet known, but it has already had devastating reverberating effects globally. All commercial enterprises, even those considered essential, are experiencing business interruptions as a result of the global pandemic. How commercial insurance policies respond to COVID-19 may determine whether certain businesses, and economies, weather the catastrophe. This article examines the anticipated commercial insurance response to policy claims stemming from the COVID-19 Pandemic. In particular, it examines four types of commercial insurance policies likely to be significantly impacted by COVID-19: liability, commercial property, cancellation, and business interruption insurance.

This article explores the ways in which commercial insurers and insurance policies have adapted in response to past pandemics and the impact that that evolution will have in responding to COVID-19. In general, policy amendments have taken the form of exclusionary provisions, stricter definitions, and higher evidentiary thresholds designed to reduce insurer exposure in a pandemic. Consequently, the more widespread the impacts of COVID-19, the narrower the circumstances in which commercial coverage will be sufficient. Speciality pandemic policies have emerged to fill the gap in coverage but remain uncommon in the Canadian insurance market.

Commercial liability and property insurance policies are not intended to cover the type of losses expected from an extended pandemic. Both policies include exclusionary provisions and require evidence of either bodily injury or physical property damage caused by an insured peril in order to trigger coverage. As COVID-19 becomes more pervasive, it will become difficult or impossible to demonstrate causality even if widespread disease is covered under the policy. Cases where both coverage and causality can be demonstrated will be exceedingly rare.

While claims under commercial event cancellation and dedicated business interruption policies are more likely to succeed, they will, at best, provide only partial compensation. Exclusionary provisions and precise evidentiary requirements also expose policy holders to a potential denial of coverage and claims under these policies will likely be decided on a case by case basis.

Only dedicated pandemic policies provide full coverage for losses sustained as a result of an extended pandemic. However, insurers warn that these policies are likely to contain fine print limiting or excluding coverage in certain circumstances. As with other forms of commercial insurance, recovery is not certain due to variations in policy language, coverage, and evidentiary requirements.

Recovering from COVID-19

This article will examine the anticipated commercial insurance response to policy claims stemming from the COVID-19 pandemic. While insurers of personal and health-related policies such as life and accident and sickness will be particularly hard hit, widespread illness and quarantine of the scale experienced in response to COVID-19 will permeate all areas of the industry. From supply chain disruption to mandatory closures, commercial policy holders will face a significant number of ordinarily covered losses complicated by the fact that COVID-19 is an exceptional peril. In the wake of the COVID-19 pandemic, policy holders will want to know whether they are covered; claimants will want to know whether they can sue; and insurers will want to know how much this is going to cost.

The good news for commercial insurers, and the bad news for the majority of policy holders, is that pandemics like COVID-19 are not unanticipated. The 20022003 severe acute respiratory syndrome (SARS) epidemic gave insurers a window into what could have been. (1) In the years that followed, policies of all kinds were drafted with pandemics in mind to include exclusions for known widespread illnesses. (2) Other policies, which I will refer to as pandemic policies, anticipate the risk of widespread illness and have adjusted premiums accordingly. (3) At the same time, policy holders are not likely to have opted for the remarkably more expensive pandemic policies leaving insurers significantly more prepared for this disaster. (4) This article will demonstrate that the more wide-spread the impacts of COVID-19, the narrower the circumstances in which coverage will be sufficient due to express exclusions and an insufficiency of evidence. In particular, this article will examine four types of commercial insurance policies likely to be significantly impacted by the COVID-19 pandemic: liability, commercial property, cancellation, and business interruption insurance.


The World Health Organization (WHO) has defined "pandemic" as the "worldwide spread of a new disease". (5) On March 12th, 2020, WHO declared COVID-19 a pandemic. Historically, flu pandemics of this scale are not uncommon. In 1918, an H1N1 virus referred to as Spanish Flu killed an estimated 50 million people worldwide. (6) Forty years later, a mutant strain of H2N2 spread across the globe causing at least 1.1 million deaths. (7) Only ten years later, Hong Kong flu (H3N2) killed nearly half a million people. (8) In 2009, an H1N1 virus commonly known as Swine Flu infected roughly 700 million people and may have contributed to the deaths of up to 500 thousand. While the human cost of flu pandemics has decreased over the last century, the continued uncontrollable spread of novel diseases demonstrates the vulnerability of our society to pandemic threats. As the world becomes more interconnected through globalization, these pandemics begin to have reverberating economic effects the likes of which have never before been seen. Until COVID-19, Swine Flu was considered the last modern pandemic. However, only 18 thousand deaths were confirmed as attributable to Swine Flu and attempts to contain the spread of the virus were limited in comparison to COVID-19 and SARS.

Categorized as an epidemic, the SARS outbreak of 2003 narrowly avoided classification as a pandemic due to its successful containment. Barrett Hubbard, an insurer with MINT Canadian Specialty has said that, "there is a difference between insuring a pandemic and a contagion outbreak". (9) He defines a contagion outbreak as "a random, localized event for which it is easier to price and write specific coverage". (10) In contrast, Hubbard says that a pandemic is an inevitable occurrence affecting an entire economy. (11) SARS, which was successfully contained to the initial communities of infection, is more properly categorized as a contagion outbreak, and as such, did not pose as significant a threat to commercial insurers.

In total, SARS infected approximately eight thousand people worldwide, killing just under 800 of those infected. (12) Its impacts, both financial and in terms of lives lost, pale in comparison to modern pandemics. However, the SARS outbreak provided the insurance industry with crucial insight into the potential costs of widespread illness. Although only twenty thousand Canadians were quarantined, Toronto Dominion Bank estimated the net cost of the SARS outbreak to the national economy at between $1.5 billion and $2.1 billion. (13) Many of those losses were sustained in the form of ordinarily covered perils such as event cancellations and business interruptions.

As settlement is common in the insurance industry, there are no concrete statistics as to the success of commercial insurance claims stemming from the 2003 SARS outbreak. In fact, no case law exists on the subject in Canada. While there were certainly claims made as a result of SARS, one can only speculate as to the nature of their settlement. However, we do know that insurers responded to the 2003 outbreak by adopting exclusionary policies and holding insureds to strict evidentiary demands...

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