26 February 2021
Business Interruption Insurance: A Potential Shining Light for Insureds Amidst a Year of Difficulty
The Covid-19 pandemic caused an array of difficulty for Australian business both small and large. One of these difficulties in the current pandemic landscape is the loss of earnings to a business as a result of temporary closure to their business premises. Often these business closures were unavoidable and/or forced upon traders by the Government. Nonetheless, Australian businesses may be able to lodge a review with their insurer and claim any loss which may have resulted from such closure.
What claim may Insureds have available?
Some insurers have left themselves open to reviews from insureds due to an oversight in insurance policies. Business Interruption Insurance (‘BII’) is often used to cover situations where business premises are closed due to a Human Biosecurity Declaration. The current legislation that deals with the ability to declare a disease quarantinable is the Biosecurity (Consequential Amendments and Transitional Provisions) Act 2015 (Cth) (“Biosecurity Act”) which repealed the former legislation, being the Quarantine Act 1908 (Cth) (“Quarantine Act”).
Where an insurance policy makes specific mention to the Quarantine Act rather than the Biosecurity Act, an insured of that policy may claim that the exclusion does not extend to the listed human diseases within the Biosecurity Act, more specifically and relevant to the current climate, does not extend to COVID-19.
Therefore, if an insurance policy reads something similar to the below passage, then an insured may have a claim for BII:
“….. Premises but specifically excluding losses arising from or in connection with highly Pathogenic Avian Influenza in Humans or any Diseases declared to be Quarantinable Disease under the Quarantine Act 1908 and subsequent amendments”
As can be seen within the above provision, it makes specific mention of the Quarantine Act and any subsequent amendments to the legislation. The issue with this is that as mentioned above, the Quarantine Act was repealed rather than amended. Therefore, this leaves room for insureds to successfully challenge an exclusion clause as being one that does not include COVID-19.
Recent developments in Business Interruption Insurance
There have been recent cases both in the UK and in Australia which have created a framework for insureds to work through before deciding whether they have a plausible case.
The UK test case, being The Financial Conduct Authority v Arch Insurances & Ors [2020] EWHC 2488 outlined that general exclusions for pollution cannot apply and that general public health information was sufficient to show that an outbreak of the pandemic either at or close to a business came under the banner of an exclusion.
A little closer to home, the Australian test case, being HDI Global Specialty SE v Wonkana No. 3 Pty Ltd trading as Austin Tourist Park [2020] stipulated that reference to the Quarantine Act did not have anything to do with the Biosecurity Act. Essentially, insurers who referred to the Quarantine Act, would not have successfully included Covid-19 as an exclusion.
The Framework (Questions Australian businesses should ask themselves before pursuing a claim):
- Was there a closure of all or part of your business premises?
- For a majority of businesses, the answer will be yes.
- Was this as a result of Government, Public or Statutory Authority?
- Yes, in accordance with the relevant State Act.
- Was he closure as a result of an infectious disease?
- Yes, likely due to coronavirus.
- Was the infectious disease (in this instance, Coronavirus) within 20km of your premises?
- Most businesses will be able to establish a case of Coronavirus within 20km of their business using public health records.
- Does the insured’s insurance policy refer to the Quarantine Act?
- If the insurer refers to the Quarantine Act in their insurance policy, and the insured has answered ‘yes’ to the above questions, they will likely have a plausible case for BII.
More to come in Business Interruption Insurance
Having already been appealed in the NSW Court of Appeal and being upheld, it is likely that the Insurance Council of Australia (‘ICA’) will again challenge the decision through an appeal in the High Court of Australia. In fact, the board of the ICA has agreed that an application for special leave is to be made to the High Court of Australia to appeal the NSW Court of Appeal decision.
The ICA claims that the insurance industry is sympathetic to Australian businesses throughout the pandemic but that it is of their view that Covid-19 was not contemplated for coverage under most Australian policies and that the Quarantine Act exclusion serves to exclude Covid-19 related claims. As such, it seems that there remains to be life and movement in the BII area.
There is still likely to be major developments in the area which will come as a result of the High Court Appeal which could alter the current landscape of the insurance industry. The position in Victoria at this point in time is most favourable for insureds. Where an insurance policy refers to the Quarantine Act and insureds can substantiate business loss in line with the above framework, they have a high likelihood of success in a BII claim.
Written by Rod Lindquist, Consultant