What you need to know about business interruption insurance

Successful businesses take years of tireless planning and effort, yet they can be brought to their knees in an instant by unforeseeable or controllable events.

We are currently witnessing this on an unprecedented scale due to government restrictions imposed as a result of COVID19, and this is likely to worsen once the Taxpayer funded Jobkeeper program expiry in September 2020 and the true economic fallout hits home.

Business Interruption Insurance policies are purchased to indemnify against such events, yet many small businesses including beauty clinics, gyms, cafes and restaurants are being denied insurance claims for losses caused by COVID19-related business interruptions – and some of the culprits are Australia’s biggest insurers.

'Quarantinable' diseases

It turns out that many of these claim denials are on shaky ground because they rely on an outdated exclusion clause.

Specifically, most policies on the market exclude business interruption claims caused by ‘quarantinable diseases’ as defined in the Quarantine Act 1908. The only problem is that the Quarantine Act 1908 was repealed and replaced by the Biosecurity Act 2015 which does not use the term ‘quarantinable disease’.

So, on its face, the exclusion has no application. Of course, given the ramifications of this major oversight, many insurers are arguing the clause should be interpreted as including superseding legislation as that is what the parties would have intended, however that’s a difficult position for an industry known for usually preferring the narrow interpretation of precise policy wording when it suits them.

The stage is now set for a legal showdown to resolve this fight over policy interpretation.

In June, the Australian Financial Complaints Authority (AFCA) confirmed it will seek an urgent Federal Court ruling on the insurance industry’s ability to exclude pandemics such as COVID-19 from business interruption policies.

AFCA is in discussions with the industry to identify at least one test case to take to the Federal Court, which it would be able to invoke in future determinations. It is understood that whilst AFCA has only received a small number of complaints regarding rejected claims due to COVID-19 exclusions so far, the insurance industry has indicated that there are large numbers of business interruption claims on hold because of the likelihood of a test case. AFCA has reported that a number of worthy test cases have been identified and it is expected that a case will be selected by August.

Until a Federal Court ruling though, the uncertainty and disputes will do no favours for the insurance industry’s already damaged reputations.

Although insurers might intend not to cover claims relating to pandemics, loose wording and failure to update their policies to reflect current legislation could leave them liable to pay in many cases.

Will your policy be denied? 

We examined a number of insurance policies (below) where the exclusion clauses refer to the redundant Quarantine Act 1908, which we think may be inapplicable to COVID-19 related business interruption

We've included the specific definitions in each policy. If your policy isn't listed, or the wording is different, please contact us and our team will review your insurance policy for free. 

It's important to remember that an insurer's decision is not final, and there are remedies available if your claim is unfairly denied. We've previously discussed the steps you should take if your insurance policy is denied, and you should seek legal advice early. 

CGU Business Insurance

We will not cover interruption or interference to the Business under Additional Benefits (d)(iii) and (d)(iv) (A) in respect of Highly Pathogenic Avian Influenza in Humans or any other diseases declared to be quarantinable diseases under the Quarantine Act 1908 and subsequent amendments.

GIO Business Protect

We will not pay any claim that is directly or indirectly caused by or arises from, or is in

  1. Consequence of or contributed by:
  2. Cleaning, repairing or checking your premises; or
  3. Any Quarantinable Disease (as the term is defined in the Quarantine Act 1908 (Cth) and any subsequent amendments) or Highly Pathogenic Avian influenza.

Vero Business Insurance

  1. Murder, Suicide and Infectious Disease

We will pay for loss of income that results from an interruption of your business that is caused by:

  • Any legal authority closing or evacuating all or part of the premises as a result of:
  • The outbreak of an infectious or contagious human disease occurring within a 20-kilometre radius of your premises, however there is no cover for highly pathogenic Avian Influenza or any disease declared to be a quarantinable disease under the Quarantine Act 1908 (as amended) irrespective of whether discovered at the location of your premises, or out-breaking elsewhere;
  1. Prevention of access by a public authority

We will pay for loss of income that results from an interruption of your business that is causes by any legal authority preventing or restricting access to your premises or ordering the evacuation of the public as a result of damage to or threat of damage to property or persons within a 50 kilometre radius of your premises.

Provided that we will not pay for any loss of income that results from:

  • An act of terrorism; or
  • Any Quarantinable Disease (as the term is defined in the Quarantine Act 1908 (Cth) and any subsequent amendments) or Highly Pathogenic Avian influenza.

Zurich Business Insurance

  1. Murder, Suicide and Infectious disease

We will pay for loss of income that results from an interruption of your business that is caused by:

(a) any legal authority closing or evacuating all or part of the premises as a result of:

(i) the outbreak of an infectious or contagious human disease occurring within a 20-kilometre radius of your premises, however there is no cover for highly pathogenic Avian Influenza or any disease declared to be a quarantinable disease under the Quarantine Act 1908 (as amended) irrespective of whether discovered at the location of your premises, or out-breaking elsewhere;

Elders Business Commercial/Retail/Insurance Policy

However there is no cover for highly pathogenic Avian Influenza or any disease declared to be a quarantinable disease under the Quarantine Act 1908 (Cth) (as amended) irrespective of whether discovered at the location of your business premises, or out-breaking elsewhere…

 

Takeaway message

Many business interruption policies cover a closure of the business by an authority due to a number of reasons including infectious diseases, however most of these policies are likely to contain exclusion clauses relating to diseases notifiable under the Quarantine Act 1908 or its successor, The Biosecurity Act 2015. Some policies will only refer to the older Quarantine Act and have not updated the wording to reflect the incoming Biosecurity Act.

It is our view that these exclusions are inapplicable. If insurers have failed to update their policy wording with the new legislation then they are arguably on the hook for any COVID-19-related shutdowns.

Each policy will need to be considered on a case-by-case basis. Whilst there is no court authority on this point yet, the current expectation is that insurers will have a tough time relying on outdated and repealed legislation to deny claims.

We encourage anyone considering making a business interruption claim or requiring advice on whether an exclusion may impact their claim, to contact us. Our team provide free reviews of insurance policies and, if required, can help tackle your insurer so that you get everything you're entitled to.

Give our team a call today on 1800 196 050. It won't cost you anything to find out where you stand. 

*Policy terms cited may have since been updated and you should check your own policy details carefully or get advice.

Recover stolen investments

RELATED LEGAL SERVICES: Insurance claims

Share this article on:

Hayriye Uluca

Maurice Blackburn Melbourne

Hayriye Uluca is a Principal Lawyer and State Litigation Leader for Victoria practising in superannuation and insurance litigation at Maurice Blackburn.

Hayriye was admitted to practice in 2010 working in Workers’ Compensation and pursuing common law and statutory benefits for her clients.

Hayriye commenced working for Maurice Blackburn in 2011 and has practiced solely in superannuation and insur…

Read more

See all contributors