How Does Business Interruption Insurance Work in Ontario?

Business owners in Ontario can make a claim when their businesses are affected by economic downturns, including when their businesses are not in operation. If you own a business in Ontario, having the policy can be your leverage to get back sooner than your business was affected.

In this blog post, you will find out what a business interruption in Ontario has to offer you as a business owner.

Business Interruption Insurance Definition

It is a type of insurance policy that protects a business from financial losses caused by a disaster. Wikipedia adds that the policy can be used as an add-on to the traditional Business Owner’s Policy (BOP).

Your business interruption insurance policy helps your business to claim after it has been hit by a disaster, such as a windstorm, hailstone, or earthquake.

The common claims to make are when the business is unable to generate income because its property is severely damaged by the disaster. You can also make a business interruption claim if your business establishment is under reconstruction or repair after the disaster.

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What is Ontario Business Interruption Insurance?

It is the type of business insurance exclusive to business owners operating in Ontario, Canada. We want to mention that some changes have been made in the business interruption insurance Canada policies.

The requirements for the insurance were updated by the Court of Appeal in the wake of the Coronavirus pandemic.

According to Milosevic Fiske LLP, the Ontario Court of Appeal ruled against the consideration of physical damage to property as a factor for making a claim.

The ruling cited that the economic loss may be caused by physical damage, but is not physical damage itself. Therefore, it may not be permissible for Ontario business owners to seek compensation for those economic losses under their current business interruption insurance policies.

What Does Business Interruption Insurance Cover in Ontario?

Generally, business interruption insurance in Ontario covers your business against loss of income. However, there is more to it than that.

Here are some of the coverage options for your Ontario business interruption insurance:

Estimated Profits

One of the coverage options is the profits your business could have made if it were in business. The business interruption company typically checks the previous revenue or profits of the business in the last couple of months.

That gives an idea of the estimated income the business makes monthly. It would be factored in when your claims are to be paid out.

Government-Mandated Coverage

Actions by the governments, which kept you out of business can also be made added to the claim. Here, the insurer considers whether the government-mandated closure of businesses affected your business’s potential to generate revenue.

Fixed Costs are Considered

Your business may not be operating, but its costs are still there. From the costs of renting the business premise, paying your employees, and overhead costs, including electricity and other utility bills.

These are fixed costs, meaning that they are crucial to business operations and are recurring. You will be able to make business interruption insurance in Ontario if you can provide proof of such expenses.

Additional Expenses

These are the extra costs of running the business beyond the fixed (operational) costs. Your Ontario business interruption insurance provider will be able to reimburse you so you can make these expenses while the plans are made for the business to restart.

Temporary Relocation

You will also get enough money to relocate your business to another location, pending when its former site is ready for use.

Your insurer may also provide you with living expenses, which is the cost of living in a hotel or some other lodging pending when the business is back up.

4 Common Types of Business Insurance Policies to Get in Ontario

You can protect your Ontario business with the right business interruption insurance policy. Here are the four (4) major types of business interruption insurance policies to go for:

1.    Actual Loss Sustained

Actual Loss Sustained or ALS is a type of business interruption insurance policy that covers the exact (dollar) amounts of losses sustained by the business.

Sometimes, the insurer may compare the Actual Loss Sustained vs profits to be sure of the calculation.

Note that the ALS only pays out the exact sum of money being the profit loss sustained by the business while it is not in operation.

If you are looking to add additional expenses, speak to your insurance provider.

2.    Business Interruption Profit Form

This type of Ontario business interruption insurance continues to pay out the claims until the business is back in operation.

The difference between the business interruption profit form and the ALS is that it continues to pay out provided the business is vulnerable to business interruption and depends on revenue from future sales. The Actual Loss Sustained (ALS) simply pays out the total amount lost over time because of the business operations’ limitations.

3.    Extra Expenses Insurance

As the name signifies, the extra expenses business insurance policy covers the business from additional expenses. The additional expenses considered here are relocation costs and marketing costs to keep the business operational regardless of the physical damages.

4.    Gross Earnings

The gross earnings business interruption insurance continues to pay out until the physical property of the business is replaced or rebuilt.

It stops paying out once the business reopens after the stock and property have been replaced or repaired.

What to Know About Business Interruption Indemnity in Ontario

Business interruption insurance indemnity is the period during which the business owner and the employees are barred from entering the business premises.

The common types of business interruption insurance indemnities are:

Limited Indemnity Period

The limited indemnity period continues to pay out the claims as long as the business is not in operation. Once the business’ premises reopens, the payout stops.

One of the reasons why business owners go for it is that it is affordable. However, its payout stops irrespective of whether your business has not started making as many profits as it made previously before the closure.

Extended Business Interruption Indemnity

You may be able to extend the claims’ payout with the extended indemnity period. This type of Period of Restoration keeps paying out until your business starts generating as much revenue as it did before the closure.

The downside is that it is costlier.

Conclusion

Before buying business interruption insurance in Ontario, speak to a professional insurance consultant. Also, consider important factors, such as the coverage limits, the size of your business, and the profits generated over time. Those factors will help you decide on the best Ontario business interruption insurance policy to purchase.

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