Last month, the NSW Court of Appeal ruled against insurers in the business interruption Test Case, potentially opening the door for thousands of businesses to make an insurance claim.
Covid-19 has caused significant disruption and losses of billions of dollars to businesses across many industries.
Business interruption insurance is designed to cover the loss of gross profit and other costs caused by the interruption to a business (by an insured event), to allow the business to continue running and recover.
Typical insured events are natural and unnatural disasters, such as fire, flood, storm, cyclone, equipment malfunction, burglary, theft, and accidental or malicious damage.
Each insurance policy details the definitions of specific coverage inclusions and exclusions, applicable to the insured business.
It is important to review individual policy details. However, a common exclusion in many business interruption policies (issued by a range of insurers) is “any disease notifiable under the Quarantine Act 1908 and subsequent amendments”. The Quarantine Act was repealed in 2016. However, many policies continued to mistakenly refer to this Act.
Insurers contend the intention of the policy was to exclude pandemics, despite not referring to the current Biosecurity Act 2015.
Accordingly, the key issue of the Test Case was whether the new Biosecurity Act 2015 was a subsequent amendment of the Quarantine Act, and whether an exclusion for COVID-19 applied.
The Court explained and found:
“On June 16, 2016, well before the period of cover for either policy commenced, the Quarantine Act 1908 (Cth) was repealed and the Biosecurity Act 2015 (Cth) came into force. The Biosecurity Act did not provide for declarations of quarantinable diseases by the GovernorGeneral. Instead, the Director of Human Biosecurity was able in certain circumstances to determine a disease to be a “listed human disease”. Before the repeal of the Quarantine Act, COVID-19 was not declared to be a quarantinable disease. On January 21, 2020, COVID19 was determined to be a listed human disease under the Biosecurity Act.”
Accordingly, the outcome of the Test Case was that the Biosecurity Act 2015 was not a subsequent amendment of the Quarantine Act 1908 and COVID-19 was never declared a quarantinable disease, and therefore was not excluded.While this decision overcomes the first hurdle, a Business Interruption claim can only occur if it results from material (i.e. physical) damage Physical damage may include outbreaks, closure, prevention of access or evacuation of a premises upon infectious or contagious disease manifested by any person whilst at the business premises (or within a certain proximity of the business premises).
We note in relation to the Test Case (and common to many policies) is a radius of 20 kilometres. Arguably, an outbreak of Covid-19 within 20 kilometres of a business premises could trigger a claim This has become the next contentious issue and hurdle for businesses.
Where there has not been this material / physical damage and loss, a business interruption claim is not available.
The insurance industry is now considering the grounds on which it could seek special leave to appeal against the decision to the High Court of Australia and a second test case which could explore proximity, prevention of access and other issues relating to the COVID-19 pandemic, that would further clarify which businesses are able to make a claim.
What should you do if your business has been interrupted by COVID-19:
- Read your insurance policy and the Policy Disclosure Statement (PDS) and discuss with your insurance broker
- Collate and document your losses (Accountant/Bookkeeper costs to prepare a Business Interruption claim may only be covered if the claim is accepted)
- Seek advice and expert assistance
- Consider adding Business Interruption cover to your business policy if you don’t currently hold this type of insurance.
If you have Business Interruption cover, experienced disruption to your daily operations due to COVID-19 and would like to discuss the potential to make a Business Interruption claim on your policy (even if you have previously discussed this with us), please contact our office on (07) 5482 7485.