Often overlooked business interruption coverage gaps

Canadian business owners are starting to question whether the standard 12-month limit on business interruption (BI) coverage provides enough time for recovery, says Maz Moini, commercial insurance expert at Rates.ca.

“Many business owners believe that if their business shuts down due to an extreme weather event such as a wildfire or flooding, insurance will automatically cover their lost income,” Moini says. “But that’s not always the case. Business interruption coverage only applies if the underlying damage is caused by a covered peril.

“Even then, standard policies often cap coverage at 12 months — which may not be long enough to rebuild, reopen, and recover, as we’ve seen with businesses affected by the Jasper wildfires,” she says. “The good news is that most insurers do offer extended indemnity periods of 18 to 24 months for an additional premium, but it’s something owners need to proactively request.” 

Even when a claim is approved, the payout may still fall short, Moini warns. Most BI policies have waiting periods of 48 to 72 hours before coverage begins, and “once the clock starts ticking, many businesses underestimate just how quickly 12 months can pass, especially if delays stall recovery.”

Rebuild woes

Further, rebuild timelines can stretch well beyond a year due to labour shortages, permit delays and supply chain issues.

“In places like Jasper, where the 2024 wildfire caused extensive property damage, recovery has been slow,” Moini says. “For many policyholders, the standard 12-month business interruption limit wasn’t enough to get back on their feet.” 

She recommends business owners review the following policy pitfalls:

• Which perils are actually covered under the property policy — Not all causes of damage are automatically included in standard commercial property insurance policies. While wildfires are typically covered, perils like flooding are often excluded unless added by endorsement. Issues like mould or gradual water damage, which can follow extreme weather events, are usually excluded as well. “If the original cause of loss isn’t covered, BI coverage won’t apply either,” Rates.ca cautions.
• How long business interruption coverage lasts and whether it’s enough to recover — Most policies limit BI protection to 12 months but rebuilding after a disaster can take much longer, especially if local infrastructure is damaged or permits are delayed. Without extended coverage, businesses may run out of financial support before they’re able to reopen. 
• Whether there’s a waiting period before coverage begins — BI coverage usually activates after a 48 to 72-hour waiting period. Losses incurred during that window aren’t reimbursed, which can be especially harmful during the early days of a business shutdown. 
• Whether optional endorsements are in place for added protection — Business owners should consider endorsements that extend BI coverage duration, include utility service interruption, or address supply chain disruptions. These are especially important during large-scale weather events when indirect impacts are common. 

According to Insurance Bureau of Canada, insured commercial losses caused by severe weather exceeded $1.7 billion in 2024, the second-highest total in Canadian history.

“These kinds of coverage decisions aren’t one-size-fits-all,” Moini says. “It’s always best to speak with a licensed insurance broker who can walk you through the fine print and help ensure your policy reflects the real risks your business could face.”