August 5, 2015
If the nature of your business has changed over time, it pays to check your insurance coverage. When you apply for commercial insurance, you tell the insurer the general nature of the business, and that is an important factor in setting the premiums. Because of this, if your business changes, you might find that the insurer does not want to pay for your property damage, or to cover you for a liability claim.
This was highlighted by a recent Ontario case where Mr. Borthwick operated a business supplying wood shavings used for farm animals. He decided one day, with a friend, to undertake a one-time operation in tree cutting. That got my attention, because though not many Thunder Bay clients manufacture wood shavings for farm animals, I bet quite a few would cut some trees if their main line of work was a bit slow.
The tree cutting went badly, and Borthwick’s friend was injured. It seems WSIB did not apply, likely because the worker was in a “joint venture” to split the profits from this job. The injured worker of course sued Borthwick – the need for compensation often outweighs friendship. Imagine Borthwick’s surprise when his insurer refused to cover him.
Ultimately, Borthwick did get coverage – the particular wording of that policy extended coverage to a “new business”, and a judge determined that the tree cutting was a “new business”.
Policies however vary, and led to a different result in an earlier case involving a lampshade manufacturer who also owned a separate industrial equipment business. When someone was injured at the lampshade factory while offloading a lathe for the industrial machine business, the court agreed with the insurer that it was a different risk, and a different business. Under that policy, there was no coverage, even though it was the lampshade company being sued for an incident on its own property.
These two cases illustrate how each coverage dispute turns on its own facts. More importantly, they remind us of the importance of making sure that your insurer is fully aware of the true nature of your business operations to avoid coverage disputes in the first place. It would have been easy for the owner of the lampshade company to also insure his industrial machine business, but he did not do so, and paid the price.
When we buy insurance, we are paying for peace of mind, and the uncertainty of a dispute can be avoided with a little extra care, both at the time of application and as your situation changes.