Commercial real estate has become increasingly dependent on technology. Power systems, utilities, data networks, and digital infrastructure now play a direct role in whether a building can operate, tenants can remain open, and rent continues to flow.
Yet many insurance programs and lease provisions were built around a more traditional risk model, one focused on physical damage to property. For Canadian owners, investors, and tenants with assets or operations in the United States, this distinction is particularly important, as U.S. insurance is typically only effective for physical loss or damage.
As a result, owners and tenants are sometimes surprised to learn that a technology‑related failure does not trigger the coverage they expected.
Understanding how business interruption, rental loss, utility service interruption, and cyber insurance work together is now an important part of managing commercial real estate risk.
Business Interruption Insurance and Real Estate Operations:
Business interruption insurance is intended to replace lost income and cover certain expenses when operations shut down after a covered event. In the commercial real estate context, this coverage is often tied to physical damage at the insured location. This requirement is particularly significant in the United States, where courts and insurers often interpret “physical damage” narrowly in determining coverage.
This limitation matters. A power outage, system failure, or disruption caused by off‑site infrastructure may not qualify as “physical damage” under the policy, even though tenants cannot operate and revenue is lost. Similarly, damage to utilities or equipment located away from the property may fall outside coverage if the insured premises themselves are not damaged.
From a real estate perspective, this creates a disconnect. A building can be functionally unusable while insurance coverage remains uncertain. Owners and tenants should review policies carefully and consider endorsements that better align coverage with how modern properties actually function.
Rental Loss Coverage and Lease Terms:
Many commercial leases allow tenants to reduce or suspend rent payments following a casualty or certain service interruptions. When this occurs, landlords may still be responsible for repairing the property even though rental income has paused.
Standard commercial property policies typically cover physical damage to the building, but they often do not replace lost rent when a tenant is legally excused from paying rent under the lease.
Rental loss coverage, also referred to as loss of rents or rental interruption insurance, is designed to address this gap. To be effective, however, it must be coordinated with lease provisions addressing casualty events, utility interruptions, and continuous operations. Reviewing insurance coverage alongside lease terms helps ensure that risk and financial responsibility are allocated as intended, particularly where lease structures and insurance expectations may differ between jurisdictions.
Utility Service Interruption Coverage:
Not all disruptions originate at the property itself. Power, water, gas, and other utility failures often occur off-site, yet they can still shut down buildings and tenant operations.
Utility service interruption coverage is designed to address losses caused by these types of off‑site utility failures. Typically available as an endorsement to a commercial property policy, this coverage may apply to both landlords and tenants.
Depending on the policy, utility service interruption coverage may reimburse property damage, lost business income, or extra expenses incurred to keep operations running. For example, if a power outage forces tenant shutdowns or results in damaged inventory, this coverage may respond where standard business interruption insurance does not.
From a drafting standpoint, these policies require careful review. Covered utilities, affected locations, and restoration period should be clearly defined to ensure the coverage aligns with how the property and its tenants actually operate.
Cyber Insurance:
Cyber risks are no longer confined to technology companies. Modern commercial properties rely on interconnected systems, including building controls, access and security platforms, tenant networks, and property management software. A failure or breach in any of these systems can disrupt operations and expose the organization to liability.
Cyber insurance is designed to address losses arising from cyber incidents, including network failures, data breaches, and certain forms of business interruption. Coverage may include costs associated with data restoration, required notifications, and third‑party liabilities to tenants, customers, or employees.
Policy terms vary significantly, and some losses, particularly those caused by human error or social engineering, may be limited or excluded. In practice, responding to a cyber incident often requires coordination among legal, technical, and insurance professionals. Many insurers rely on pre‑approved “breach coach” counsel to guide that response, particularly those recognized by NetDiligence, a leading provider of cyber risk management resources and breach response services. Hodgson Russ has been designated as an authorized breach coach law firm within that network, placing it in an elite group of firms nationwide entrusted to guide clients through data breaches and complex cybersecurity incidents.
Owners and tenants that depend heavily on digital infrastructure should evaluate whether cyber insurance fits within their overall risk management strategy and whether policy terms align with how their properties and operations function.
Coordinating Insurance and Real Estate Documents:
As the business landscape evolves, landlords, tenants, and other commercial stakeholders must adapt how they protect their interests. While physical damage to a building was once the primary threat to operations, today’s risks are far more complex and often originate from less visible, remote sources.
Addressing these issues proactively can help avoid disputes and uncovered losses when a disruption occurs. A careful review of insurance coverage and lease provisions is increasingly important for protecting property value, cash flow, and operations in today’s commercial real estate environment. For Canadian businesses operating in the United States, aligning insurance coverage with U.S. lease terms and risk allocation provisions is a critical step in avoiding unexpected gaps when a loss occurs.
This article was originally published in Law360 Canada on May 19, 2026.
Disclaimer:
This blog is a form of attorney advertising. Hodgson Russ LLP provides this information as a service to its clients and other readers for educational purposes only. Nothing in this blog should be construed as, or relied upon, as legal advice or as creating a lawyer-client relationship.
