Skip to main content

Companies beginning to reopen across the country may face premium rate hikes for third-party liability insurance as Canadian insurers weigh the risks of novel coronavirus contagion in industries with higher levels of personal contact.

Nearly two months after many non-essential businesses were forced to shutter their doors, provincial governments have begun to give the green light for companies to gradually reopen. But for some companies – particularly those that had to cancel their insurance policies during closings or are in an annual renewal period – resuming business will come at a higher cost.

Danish Yusuf, chief executive and founder of Zensurance, an insurance broker for small businesses across Canada, says in addition to the increase in premiums for liability policies, many insurance companies have stopped writing policies altogether for companies that are considered “high risk.” These would include businesses that require close contact with customers, such as nail salons, sports instructors, fitness gyms and daycares.

“We have also seen many companies put exclusions on policies for janitors and other businesses that are catering specifically to COVID-19 clean-up efforts,” Mr. Yusuf said in an interview.

Insurers are concerned about the liability that could arise if someone contracts COVID-19 while on the premises.

Business liability insurance protects companies and business owners against bodily injury or third-party property damage in the event that they face a formal lawsuit, including coverage for legal costs. Premiums can range from $450 annually for a small business and up to thousands for larger corporations.

Now, Mr. Yusuf says those costs could more than double for buyers as COVID-19 presents new risk exposures for commercial insurers.

Mr. Yusuf said underwriters at both Premier Group and ABEX Insurance – two commercial insurers who offer liability insurance – have told him the companies are reducing the number of policies they are writing for businesses deemed high risk, and have given no indication when they will restart providing coverage.

In a note sent to a broker looking to obtain coverage for a client, Premier Group underwriters stated that “unfortunately, we are still in a holding pattern and unable to offer new business for those program.”

ABEX did not respond to requests made by The Globe and Mail about their policy changes, while Premier Group declined to comment.

The Insurance Bureau of Canada (IBC) says liability insurance is typically offered for a minimum one-year term. If a company cancelled a policy mid-term and then had to reapply, the IBC says it’s “likely” rates would be recalculated and that could result in an increase in premiums.

Existing policyholders who did not cancel coverage during a closing will not see a change to premiums midyear unless a business has changed its operations – such as the size of the business, IBC said.

Bill Walker, a spokesman for Aviva Canada Inc., which provides liability insurance to companies, said businesses reopening during this time "should not see any rate increases as a result of COVID-19, but some businesses may see their rates change at renewal to reflect overall market conditions.”

While the cancellation of any type of insurance is not recommended during a temporary closing, certain professions – ranging from construction contractors to hair dressers – could not afford to continue coverage, particularly if their business model could not be conducted online.

Although the IBC recommended companies should not cancel coverage during the pandemic, some could not afford to continue paying for insurance and cancelled to save money.

Now, as they look to reopen, companies have little option to sidestep their soaring insurance costs by dropping their coverage .

While it is technically possible for some businesses to operate without liability insurance, very few can or will, says David Mackenzie, an insurance litigation partner at Blaney McMurtry LLP in Toronto.

“If not an actual statutory requirement, liability insurance is generally a contractual requirement placed on businesses through their commercial relationships – whether through landlords, suppliers, buyers or other commercial partners.”

In some cases, cash-strapped businesses may look to cut costs on insurance, by increasing their deductibles or payout limits or buying less comprehensive policies, says Dominic Clarke, also a partner at Blaney McMurtry.

“One would not be surprised to see that happening. On the other hand, it may be biggest penny-wise, pound-foolish decision that insureds make,” Mr. Clarke said. “There clearly are exposures with opening up … and cutting back on insurance could be the worst decision you could make.”

After months of closings and a lack of regular maintenance, many facilities could be in disrepair and there might be an increased risk of customers, suppliers or any other outside visitors getting hurt on a business’s premises – not only by the possibility of COVID-19 transmission, but by something such as a slip and fall.

When it comes to workers, however, companies must follow occupational health and safety rules but generally do not need additional liability insurance. Lawyers say provincial workers’ compensation regimes would cover most claims by employees who get sick or die owing to COVID-transmission in the workplace. Businesses must pay into these mandatory “no-fault” regimes, which in turn pay out compensation for injuries or illness without regard to negligence or fault.

Kathleen Chevalier, an employment law partner at Stikeman Elliott LLP, said workers’ compensation premiums could go up if a business or industry sector sees a high number of claims, but the system largely prevents individual lawsuits against employers over workplace injuries.

Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.