Are your commercial clients properly covered?

Ultimately, claims tell the story of how well a business is covered.

Supply chain disruptions stemming from trade disputes, shipping barriers created by global military conflicts and even manufacturing slowdowns leftover from the COVID-19 pandemic, can spark business interruption claims.

Likewise, rising incidents of cyber threats, property damage and lawsuits can lead commercial insurance clients who thought they were protected to learn about coverage gaps the hard way — when an incident leads the company to file a claim.

“There’s often a false sense of security when it comes to business insurance,” says Maz Moini, a commercial insurance expert at aggregator Rates.ca.

“People assume they’re covered for everything, but the reality is most policies have exclusions, conditions and coverage limits that can catch them off guard.” 

She notes commercial clients can make several incorrect assumptions, often at their own expense.

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First is a belief that everything is covered. Moini notes a lot of business owners think policies cover any type of damage even though standard commercial property policies tend to “exclude flood, mold and earthquake damage unless those risks are specifically added by endorsement.”

She adds: “If the loss isn’t caused by a covered peril, the claim is likely to be denied.”

Plus, not everything at a business’ physical premises is covered. Things like a contractor’s tools, equipment that’s been leased or property belonging to customers must be specifically declared in a policy. And mobile business property needs its own marine insurance coverage.

“After recent events like the Jasper wildfire, it became clear just how many businesses are underinsured — but these gaps aren’t limited to natural disasters,” says Moini. “Everyday claims for things like equipment damage, liability disputes or cyber incidents can expose the same issues. That’s why it’s important to ask the right questions, understand your policy exclusions, and make sure your coverage reflects the real risks your business faces.”

There’s also the belief that business interruption (BI) will always have your back, when the reality is the coverage doesn’t apply unless there is a physical loss. And BI typically has a waiting period before coverage kicks in.

“It often doesn’t cover losses from power outages, pandemics, or supply chain disruptions,” says Moini. “Even when the claim is valid, most policies cap BI coverage at 12 months — which may not be enough time for a full recovery. Businesses can extend this period, but it must be arranged in advance and often comes at an added cost.”

Commercial clients also make the mistake of assuming full replacement is a given under their policies. In reality, she points out, a lot of policies offer cash value and deduct for depreciation of the covered asset. If a business undervalues its property, there’s also a possibility they will encounter a co-insurance penalty when making a claim.

Further, says Moini, some clients assume commercial general liability (CGL) policies cover data breaches. They’re not designed to, and she notes covering that risk requires a separate cyber liability policy. On the bright side, after several years of hard market conditions, cyber lines pricing is softening, sources tell CU.

CGL also doesn’t automatically cover a lawsuit, unless that suit stems from what’s called a ‘covered cause of loss.’

Moini notes “claims related to contractual disputes, fines, or intentional acts are commonly excluded.” 

Phil Porado

Phil, an award-winning journalist with over 30 years of experience in financial topics, has been managing editor of Canadian Underwriter for more than three years.