For small and medium-sized businesses operating in Ontario, the Canada–United States trade relationship is more than an economic headline. It can directly affect inventory costs, production schedules, customer commitments and profitability. As tariffs and trade tensions threaten established cross-border supply chains, business owners and managers need to ask an important question: If our inventory is damaged or destroyed, or our supply chain is disrupted, will our insurance adequately protect us against the resulting financial loss?
The answer depends on the circumstances of the loss, the wording of the insurance policy and whether the business has properly assessed the value of its inventory and its exposure to business interruption.
The hidden cost of replacing inventory
Many businesses insure inventory based on its recorded cost or an established valuation method. However, the amount recorded in the accounting system may not reflect what it would cost to replace those goods following a significant loss.
Consider an Ontario manufacturer that imports specialized components from the United States. The components are damaged in a warehouse fire, and the manufacturer must source replacements. In the meantime, tariffs have increased, the Canadian dollar has weakened, or the original supplier has raised prices. Replacement components may now cost substantially more than they did when the inventory was purchased.
Freight, customs brokerage, duties, expedited shipping and other expenses may further increase the cost of obtaining replacement goods.
This creates a potential gap between the value of the inventory before the loss and the amount required to restore the business to its previous operating position.
Commercial property insurance can provide coverage for insured inventory damaged by a covered peril, subject to the policy's terms, conditions, exclusions and limits. However, insurance does not automatically guarantee reimbursement of every expense associated with replacing lost goods at today's prices.
The policy's valuation provisions are particularly important. Inventory may be valued at actual cash value, cost, selling price or another basis specified in the wording. Some policies contain specific provisions addressing replacement cost, market value, seasonal inventory increases or fluctuations in values. These provisions can materially affect the settlement.
Businesses should therefore review their inventory valuation methods, policy limits, deductibles and any applicable coinsurance requirements with their insurance broker. They should also determine how increased replacement costs, duties and transportation expenses are treated under their particular policy.
When tariffs disrupt the supply chain without physical damage
A different challenge arises when tariffs, retaliatory trade measures or border restrictions prevent a business from obtaining goods at an economically viable price or within a reasonable timeframe.
A retailer may be unable to secure imported merchandise at its usual cost. A manufacturer may face delays in receiving essential components. A distributor may lose customers because it cannot deliver products on schedule.
The resulting loss of revenue can be significant, but a standard commercial property policy's business interruption coverage generally requires a qualifying interruption associated with insured physical loss or damage. The precise trigger depends on the policy wording.
A tariff increase, higher purchase price, reduced demand, customs delay or supplier's inability to deliver does not, by itself, ordinarily trigger standard business interruption insurance.
Even where a policy includes business interruption coverage, a supply chain problem affecting a supplier may not be covered unless the policy's requirements are satisfied. Contingent business interruption coverage, sometimes called dependent property coverage, may respond to qualifying physical damage at a specified supplier or customer location. Coverage depends on the wording, including any restrictions on covered locations, types of damage, waiting periods and limits.
A tariff imposed on goods that remain available for purchase, but at a higher price, is fundamentally different from physical damage to a supplier's facility that prevents production. Businesses must understand this distinction before assuming their insurance will compensate them for trade-related losses.
Business interruption: protecting the ability to operate
Business interruption insurance is designed to help replace lost income and cover certain continuing operating expenses when an insured event interrupts normal business operations. Depending on the policy, coverage may include lost gross profit or gross earnings, continuing expenses and certain additional costs incurred to reduce the interruption.
However, the distinction between a physical loss and a commercial or economic disruption remains critical.
Suppose an Ontario distributor experiences a fire that destroys its inventory. If the loss is covered, its property insurance may respond to the damaged stock, while its business interruption coverage may help address lost income during the resulting shutdown. But if the distributor simply cannot obtain replacement products because tariffs have made them prohibitively expensive, or its American supplier has stopped shipping due to trade uncertainty, the situation may fall outside standard coverage.
Businesses should ask their broker whether contingent business interruption, supply chain extensions or other specialized coverage is available and appropriate. These products can have narrowly defined triggers and sublimits, and they should not be assumed to cover tariffs, political decisions or trade restrictions themselves.
Practical steps every business should take
Trade uncertainty makes it especially important for business owners to review their insurance before a loss occurs.
Start by identifying which products, components and raw materials are essential to operations, where they originate and how quickly alternative suppliers could deliver them. Calculate the current cost of replacing inventory, including applicable duties, freight and other expenses. Compare that amount with the inventory values and limits declared to the insurer.
Next, review business interruption coverage. Determine the period of indemnity, waiting periods, applicable limits and the assumptions used to calculate anticipated income. Consider whether a prolonged shortage of essential components could prevent the business from operating even after physical damage has been repaired.
Finally, discuss supply chain exposure with an insurance broker. Ask specifically what would happen if inventory were destroyed, a key supplier suffered physical damage, a border restriction delayed shipments or a tariff increase made a product commercially unviable. These scenarios may produce similar financial consequences, but they do not necessarily receive the same insurance treatment.
Preparation is better than assumption
The Canada–United States trade dispute continues to create uncertainty for businesses dependent on cross-border commerce. The Parliamentary Budget Officer's October 2026 assessment identifies higher trade costs and potential pressure on Canadian exports, investment and business profits as consequences of the measures introduced by both countries. Source: Parliamentary Budget Officer.
Commercial insurance remains an essential component of risk management, but it is not a substitute for supply chain planning, accurate inventory valuation or financial contingency planning.
Business owners who understand the difference between insured physical damage and uninsured economic disruption are better positioned to make informed decisions about coverage, supplier diversification, inventory levels and available working capital.
The most important question is not simply whether a business has insurance. It is whether the coverage it has purchased will respond to the losses it could realistically face—and whether the business can survive the losses that it will have to absorb itself.
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