Update on COVID-19 Paper

Back on 2nd March 2020, I posted an article setting out the way business interruption insurance was meant to operate in a pandemic situation and explained that many policies would not respond.

In the paper, I explained the long standing approach to business interruption coverage as a result of a pandemic and that historically such events were specifically excluded.

I went on to explain that that the Quarantine Act 1908 was repealed and replaced by the Biosecurity Act 2015 (Cth) in 2015. In the covering post I wrote:

Under the contingent business interruption extensions, there are a wide variety of wordings in use. In such challenging times, as we have at present, with both the bush fire prevention of access claims and Coronavirus, it is worthwhile for brokers and corporate risk managers to reach out to experts. Even well-versed insurance professionals can make the “wrong” interpretation in the complex world of business interruption. I and the team, are always here to help.

Many brokers and insured took me up on this and I know of none that have been accepted as a claim at the time of this post.

This is such a complex area and knowing that many policies would not respond and that insurers planned to strenuously resist claims for COVID-19 related claims for the reasons I outlined in the paper accompanying my March 2 post. At the time, I was trying to walk a middle ground as I felt that so many business owners, as they are still are, were extremely stressed at the effects that this pandemic was having on their business and that it would be cruel in the extreme to give them false hope or ask them to fund an action that could take years to resolve with no guarantee for success.

As many of you would be aware, a test case has been announced which will address the key issue of whether an exclusion referring to the Quarantine Act can be relied upon by insurers. This is a great initiative and everyone involved in this are to be applauded.

My position, however remains one of caution. Even if the exclusion is found not to be able to be relied upon by an insurer there are a myriad of other issues to consider such as the proximity of the outbreak to the insured premises. Many policies require that an outbreak has to occur at the premises.

Business Interruption policies typically contain an ‘adjustments’ clause which is designed to put the Insured back in the same financial position as they would have enjoyed, but for the loss. This means that adjustments may be sought based on a general down turn in the economy or other factors not related to the closure by a public authority as a result of the outbreak. Again, I am speaking in general terms as so there are so many variations of the trigger for coverage, the wording of exclusions and the basis of settlement.

Another but similar issue is the savings made by the business as a result of the closure. Savings in rent, utilities, wages, and the receipt of JobKeeper will all need to be factored into a claim calculation even if a valid claim is found to exist.

Last but not least there is a test for under insurance which could reduce a claim further. I have written many articles on this topic and developed a free app that explains this.

I say all of this as I remain of the strong view that it is wrong to give false hope that even with this test case, that may well be appealed by either side, that a win is going to be a silver bullet solution for every business out there.

As I said way back in early March, …even well-versed insurance professionals can make the “wrong” interpretation in the complex world of business interruption. Having said this. If any insured or insurance broker believes that a valid claim may exist, I remain of the strong view that it would be prudent to lodge the claim with insurers.

I am sure the test case will receive wide spread media coverage and like many of you I will be watching it with great interest.

If anyone would like any further information at this time, please do not hesitate to contact me.

In the meantime, I am still a strong believer in Business Interruption as a coverage that business owners should have to provide protection from perils that the insurance industry has a track record of pricing the risk and meeting claims.