Business Interruption Insurance

Business Interruption Insurance Ontario  

When a business is running smoothly, everything seems great. Your customers are happy with what you’re giving them, your employees are doing great work, and you are profiting from your passion. It doesn’t matter if you’re selling products that people love, providing a service that helps out your clients, or doing something that acts as a combination of both; when business is good, life is good.   

Although you can take reasonable precautions to ensure that everything will run according to plan, there is always the possibility that something out of your control will cause your business to shut down. Every business is vulnerable to potential risks that could force them to shut down temporarily. Luckily, you can protect yourself financially from many risks with business interruption insurance in Ontario.   

What Is Business Interruption Insurance?  

Business interruption insurance is a form of business insurance and commercial property insurance that you need to get insurance compensation and avoid severe financial losses if your business is required to shut down for reasons beyond your control. This could happen for many reasons, most of which are due to physical damage to the location. Suppose your headquarters, storefront, or possibly another needed building is required to shut down temporarily due to an insured event such as a fire, natural disaster, or other physical damage loss. In that case, business interruption insurance will help your business make it through this rough stretch so you can get back to business as usual as soon as possible without suffering a significant financial impact.   

How Does Business Interruption Insurance Protect My Business?  

How business interruption insurance coverage protects your business will vary greatly depending on your situation, type of business, your specific policy, and the specifics of the claim made. In some situations, business interruption coverage will cover the operating expenses from a temporary location while your current one is repaired or rebuilt. In others, it will ensure that you make the same level of profit that you were expected to make had your operations not been interrupted by covering loss of income and preventing lost income. If you have questions about determining what your policy could cover or which options are available, it is recommended that you speak with your Morison Insurance broker, who will be happy to assist you.   

Who Needs Business Interruption Insurance in Ontario?  

Any business owner could use the coverage provided by business interruption insurance. Even a small, independent business run out of a single-desk office by a solo entrepreneur could easily be unable to operate normally due to damage to the business premises.   

It’s possible that a fire that started on a neighbour’s property outside of work hours could spread to the business location, rendering it temporarily unusable. Although the business owner is not at fault, this would be a significant inconvenience, and they would be required to cover many of the costs associated with their business being closed. This can help prevent financial losses if something happens.   

If you require assistance with your business interruption insurance policy or would like a business interruption insurance quote, please speak with your Morison Insurance broker.   

Is Business Interruption Insurance Mandatory?  

Like most types of commercial insurance, business interruption insurance is not legally mandatory. It is also not a stand-alone product, as it remains an optional part of a business insurance policy. However, it is a highly recommended coverage for any business owner. This is because needing to close your doors while continuing to pay ongoing business expenses at any time can be devastating for any company, especially a small business that has fewer financial resources. Remember that many businesses can never recover and reopen following a major business interruption because they simply don’t have the funds to keep paying expenses such as commercial rent and employee wages when there’s no way to bring in income. Business interruption insurance can help significantly soften this blow, as it can provide financial compensation if the unthinkable were to happen.   

What Does Business Interruption Insurance Cover?  

Business interruption insurance covers the costs of ongoing expenses and lost income if a business owner must close their doors due to physical harm to the business location, civil unrest, a natural catastrophe, or other insured reasons out of the control of anyone involved. The types of perils covered will vary based on your insurance provider and how your individual insurance policy is written. In the same sense, the types of expenses you can expect coverage for will also vary according to the terms of your specific policy.   

Depending on your business interruption insurance policy, this could include covering rental or lease costs of the building you operate out of, relocation costs, extra security measures, duplicate bills such as utilities, paying staff who are unable to work, and other ongoing costs that a business owner would likely need to pay regardless of the condition of the building after a claim. If you would like to know more details or would like a business interruption insurance quote, it is recommended that you speak with your Morison Insurance broker.   

How Much Business Interruption Insurance Does My Company Need?  

The amount of business interruption insurance coverage that any company needs will depend on several factors related to the business operations. These factors include the following:   

• The size of the company   
• Ongoing costs the company pays, such as rent, maintenance, energy, security and so forth   
• The number of staff and their salaries   
• Profit the company is expected to make   
• The location of the building and nearby risks   
• Any risks specific to the industry that may result in a shutdown   

Please note that these are not the only factors determining the level of business interruption insurance you may want to provide for your company. If you have any questions about which amount is right for you, your Morison Insurance broker will happily answer them.   

What Types Of Business Interruption Insurance Are Available?  

Since business interruption insurance is a type of insurance coverage that covers a wide variety of possible losses, it can offer multiple different types of protection. There is no one-size-fits-all option when it comes to commercial insurance, and that’s a good thing—after all, your business is unique, and that means your business interruption coverage needs to be tailored to meet your specific needs and address the perils you are most likely to encounter throughout your business operations. Many of the most common types of coverage are business income coverage, civil authority coverage, contingent business interruption insurance and extra expense coverage.   

Business Income Coverage  

As the name suggests, business income coverage will cover income lost during the time a business is unfortunate enough to close as the result of an insured peril. This coverage will ensure that your company will not be hit by temporarily having to close its doors to its customers and clients. This type of coverage will cover costs for the time specified on the policy, known as the indemnity period.   

Civil Authority Coverage  

Physical damage to your building is not the only thing that could potentially cause your business to be temporarily out of commission. Sometimes, it’s due to a wide variety of potential government shutdowns, such as the aftermath of a natural disaster. For example, the government could issue an emergency order that prevents you, your employees, and your potential customers from reaching your business location as a result of damage to a neighbouring property. Even if your building is unharmed and would normally still be open for business, if it’s part of a block that’s under denied access, you still won’t be able to run your business. In this case, civil authority coverage would cover the costs associated with your business, as well as providing income, up to the duration of the indemnity period.   

Contingent Business Interruption Insurance  

Sometimes, the reason your company is unable to remain open isn’t due to a local problem. We live in a highly interconnected world, where it seems like every business is dependent on a series of other companies. This can have a drastic impact on a lot of stores, as they might depend on suppliers for their merchandise. If, for some reason, your supplier is shut down due to insured physical loss or damage, which in turn causes your business to shut down due to a lack of product, contingent business interruption insurance will be able to provide you with enough of a safety net that you will be able to breathe easily.   

Extra Expenses Coverage  

Sometimes, even though a company can’t operate in its normal location, it can find a temporary place to operate as a stopgap while its regular location is being repaired. Being able to continue your business will likely have you breathing a sigh of relief as a business owner. However, you might be concerned about needing to pay for things such as rent for your new location.   

Luckily, with extra expense insurance as part of your business interruption insurance policy, this is not the case. If your building is damaged in an event, making it no longer a suitable place to do business, you might have to worry about the cost of moving and setting up and paying additional expenses to rent out a new location. Extra expense insurance can pay for the increased cost of operations, allowing you to continue operating out of a temporary location as you look forward to returning to your standard place of business.   

What Does Business Interruption Insurance Not Cover?  

Sadly, business interruption insurance doesn’t cover everything. Firstly, if your property is damaged, it will not cover the cost of repairs or replacement of the property damage itself. Business interruption policies will only cover the expenses that relate to you not being able to run your business normally due to property damage. Coverage for the damaged property and the contents of the building, such as furniture and electronics, would fall under commercial property insurance as long as the damage was incurred due to an insured peril.   

It’s also important to understand that business interruption insurance will not offer you any financial support to handle the cost of legal defence, litigation and settlements should you be subjected to a lawsuit for any reason, including because you’re accused of causing third-party property damage. Liability claims and legal costs of covered lawsuits would be covered by commercial general liability insurance or errors and omissions insurance. In some cases, you may also need additional types of liability coverage, such as cyber liability insurance or product liability insurance, to receive insurance compensation for liability costs, depending on the reason why legal action is being brought against you.  

Does Business Interruption Insurance Cover a Pandemic Similar To Covid-19?  

Anyone who lived through the chaotic events of 2020 remembers that plenty of businesses were shut down temporarily. Closures due to infectious diseases might seem like the exact situation business interruption insurance is designed to protect against, and this may have even been the first thing that came to mind for a lot of people when the COVID-19 pandemic hit. However, despite the business interruptions and government closures, this is not the case. In a 2023 case, the Ontario Superior Court of Justice ruled that standard business interruption coverage would not cover businesses that shut down due to COVID-19, as the virus did not cause a physical loss to damage or property. It’s important to remember that business interruption insurance generally applies to interruptions that result from damage to the business property and is not applicable to every scenario in which a business is required to temporarily shut down. 

Can Business Interruption Insurance Cover Non-Profits?  

Yes. You can include business interruption coverage as part of your non-profit insurance policy. This will allow you to continue contributing to the cause that you believe in by carrying on operations, even if your organization cannot operate for a brief time due to damage to the location where you carry out your non-profit work. 

What Are The Most Common Reasons For Filing A Business Interruption Insurance Claim?  

When it comes to business interruption insurance, Ontario policyholders aren’t always completely certain of the reasons why they may need to file a claim. Here are a few of the most common reasons why you may need to file a claim on your business interruption insurance policy:   

• Fire and Explosion: No matter how cautious you are, there’s no way to completely avoid the risk of a devastating fire. From faulty electrical wiring to lightning strikes and beyond, they can occur at any time, even to the most well-prepared business owner. You could even be forced to shut down your business for a period of time if flames never actually touched your building, just due to the severe damage that smoke from a fire in a neighbouring business can cause. If a fire or explosion occurs, there’s no doubt that your business will experience some downtime while fire mitigation is underway, and when that happens, you can file a business interruption claim.   

• Floods: Not every business interruption insurance policy covers perils such as flooding, so if your business is located in an area that is prone to overland flooding from a river or lake that has burst its banks or just from sudden bursts of extreme rainfall, it’s important to speak with your experienced broker at Morison Insurance and ensure you have the right type of business interruption insurance to protect you against financial losses caused by having to shut down your business in the aftermath of a flood. You may also need an endorsement specifically for business interruptions that are due to floods caused by faulty plumbing, such as a burst pipe.  

• Natural Disasters: Much like a fire, there’s no stopping a natural disaster, and it can have a massive impact on your ability to keep your business operations up and running. Your business insurance interruption policy may specify which natural disasters are covered, or it may exclude certain types of natural disasters and provide coverage for any that aren’t specifically excluded.   

• Supply Chain Issues: Most modern businesses don’t operate in an isolated bubble, meaning you may rely on third-party suppliers to keep your business model going. For example, you may manufacture products that require parts fabricated by another company, or you may produce food with ingredients that come from one or multiple third-party suppliers. So what happens if disaster strikes a business that precedes you in the supply chain and they’re unable to provide you with the crucial items you need to fulfill your business obligations? Depending on the circumstances, you may be eligible to file a claim on your contingent business interruption insurance so you can pause production until your supply partner is back on their feet and able to resume their normal position in the supply chain.  

How Long Does Business Interruption Insurance Last?  

There are two possible ways in which this question can be answered. One way to look at this question is to ask how long business interruption insurance will reimburse an insured for when the insured is not currently working out of their primary business location. This is also usually one year, although once again, it changes based on the specific points within your policy.  

The other is to answer how long the contract is before you must renew. In this case, it will last as long as your business insurance policy that it is part of, which usually is one year, but it might change based on the details of your particular policy. When it is time for you to renew your business insurance, your business interruption insurance will be renewed alongside it.  

If you have questions as to how long your policy will cover you or if you would like to know more about the estimated time a policy could last, we recommend that you speak with your Morison Insurance broker.  

How Are Business Interruption Insurance Claims Calculated?  

If you suffer a business interruption and need to file a claim, you’ll need to calculate your losses to get the right amount of compensation from your insurer. There are two different methods of calculating business income losses: gross receipts and net income. For the gross receipts method, you subtract your actual sales from your projected sales to find the number of lost sales and then subtract your saved expenses from your lost sales to find the amount of your business income losses.  

With the net income method, you subtract your actual net income from your projected net income to find the amount of lost net income and then add your lost net income to the number of operating expenses you have incurred to find the amount of your business income losses. It’s well worth noting that one of the big benefits of working with a qualified insurance broker is that they will support you in making these calculations to ensure you are able to access the compensation you’re entitled to, so don’t hesitate to contact your Morison Insurance broker with questions about calculating business interruption insurance claim amounts.  

How Much Does Business Interruption Insurance Cost?  

There is no set amount for every business’s business interruption insurance premium quote. This is because every business is different, as they are each exposed to varying perils and levels of risk. Also, there are various forms and options of business interruption coverage, and some have different approaches to weighing the various risk factors. Some of the factors involved in determining your business interruption insurance quote are:   

• The size of your business   
• The industry your business is in and the risks associated with it   
• Your business’ location   
• Your claims history of the policyholder   
• The number of employees you have   
• The level of coverage desired   
• Your experience in your field   

Please note that these are not the only factors involved in giving you your business interruption insurance quote. 

Can I Lower My Business Interruption Insurance Quote?  

Yes. There are plenty of ways you can reduce your business interruption insurance quote. Some of them are listed below:   

• Avoid making claims on small losses on your business insurance plan to keep a clean claims record.   
• Keep a good credit score.   
• Ensure that you are taking precautions so as not to get shut down. This includes following workplace safety guidelines.   

Please note that this is not the only way to keep your business interruption insurance quote low. To learn more, speak with your Morison Insurance broker. 

Where Can I Get a Business Interruption Insurance Quote in Ontario?  

You can get a business interruption insurance quote from Morison Insurance. Morison Insurance is a brokerage with over 100 years of history, helping our clients get the insurance coverage they deserve. Whether you need help with business interruption insurance, any other form of business insurance, or even personal insurance, we can get you options for what you desire. You can call us at 1-800-463-8074 or fill out the form on this page to help set up getting the insurance you deserve. You’ll be glad you did.