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 uncontrollable events. 

We are currently witnessing this on an unprecedented scale due to government restrictions imposed as a result of COVID-19. This is likely to worsen once the taxpayer-funded Jobkeeper program expires in September 2020 and the true economic fallout hits home.

Business Interruption Insurance is 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 COVID-19-related business interruptions. The culprits are some of 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It turns out that many of these claim denials are on shaky ground because they rely on an outdated exclusion clause.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The only problem is that the Quarantine Act 1908 was repealed and replaced by the Biosecurity Act 2015 which does not use the term 'quarantinable disease'.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 include superseding legislation as that is what the parties would have intended. It's an interesting position for an industry that usually argues for a precise reading of policy terms (which is unsurprising given it’s the insurers who write these terms).

The stage is now set for a legal showdown to resolve this fight over policy interpretation. Perhaps the Australian Financial Complaints Authority (AFCA) will indicate its position, perhaps not. A court will only make a precedent if a case if brought to trial and a judgement is published.

Until then, the uncertainty and disputes will do no favours for the insurance industry’s reputation after the battering taken in the recent financial services Royal Commission.

Will your policy be denied? 

We examined a number of insurance policies* 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.

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.

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Hayriye Uluca

Maurice Blackburn Melbourne
Hayriye Uluca is a Senior Associate 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 ...

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