Business interruption insurance

How BC law treats it

Business interruption insurance is a contract. Coverage depends on the exact policy wording, which BC courts read as a whole, giving words their ordinary meaning, construing coverage grants broadly and exclusions narrowly, and resolving true ambiguity against the insurer. Standard form policies are interpreted consistently across cases (Ledcor Construction Ltd v Northbridge Indemnity Insurance Co, 2016 SCC 37; Progressive Homes Ltd v Lombard General Insurance Co of Canada, 2010 SCC 33). Most policies are triggered only by direct physical loss of or damage to insured property from an insured peril, such as fire or flood. Pure economic disruption, for example a drop in customers or a supply problem with no physical damage, is usually not covered unless the policy adds an extension such as civil authority, contingent business interruption or utility interruption coverage. The insured bears the onus of bringing the loss within the coverage grant; the insurer then bears the onus of proving an exclusion applies. The Insurance Act, RSBC 2012, c 1 regulates property insurance contracts in BC, including statutory conditions that form part of property policies, and s. 23 sets a two year limitation period for suing the insurer, which for loss of or damage to insured property runs from when the insured knew or ought to have known the loss occurred. Insurers owe a duty of good faith in handling claims; a bad faith denial can attract punitive damages in serious cases (Whiten v Pilot Insurance Co, 2002 SCC 18). Disputes are commonly resolved by negotiation with the adjuster, appraisal of the amount of loss where the policy or the Insurance Act provides for it, or an action in the BC Supreme Court.

What it means for your business

A fire, flood or major equipment failure can close a business for months while rent, payroll and loan payments continue. Business interruption coverage is often what keeps the business solvent during the rebuild. Commercial landlords routinely require tenants to carry it, and failing to do so can be a lease default. Owners should check the indemnity period, waiting period and extensions before a loss, and keep clean financial records, because the claim is proved from historical revenue, expenses and profit. Example: A Kelowna restaurant closes for four months after a kitchen fire. Its business interruption coverage pays lost net profit and continuing wages and rent for the closure period, less a 72 hour waiting period.

Risks and common mistakes

Assuming the policy covers any loss of revenue, when most policies require direct physical loss or damage to insured property. Choosing an indemnity period that is shorter than the realistic time to rebuild, reopen and recover customers. Failing to give prompt notice and proof of loss in the form and time the policy and statutory conditions require. Keeping poor financial records, which makes it hard to prove the profit the business would have earned. Letting the limitation period run while negotiations with the adjuster drag on.