Can your business claim on insurance for COVID-19 related losses?
COVID-19 is causing billions of dollars of losses to small, medium and large businesses, across all industries. ‘We are all in this together’, as our leaders say. Despite numerous government assistance packages, many businesses cannot afford to bear the financial brunt of the ‘social distancing’ measures that we all must endure. So will your business insurance respond to your COV-19 related losses?
Businesses are taking a hit
Even if your business isn’t subject to a mandatory shutdown; the home confinement measures across Australian States and Territories are like death by a thousand cuts for many business owners. Day after day less and less people are walking through the door and revenues fall.
And if your business is subject to a shutdown – what are you supposed to do? Put the business into ‘hibernation’? Innovate? Offer services virtually? How? How much will it cost to get those services off the ground? No one knows how much all of this will cost. But what we do know is that many businesses are required to take a hit. But for how long? How much of a hit?
And the holy grail of questions is: when will insurance companies cop some hits too? The Australian insurance industry is worth hundreds of billions of dollars. The majority of Australian insurers make extraordinary profits every year and yet, in these ‘unprecedented times’, surprisingly few Aussie businesses have started to ask – ‘WHAT DO WE PAY INSURANCE FOR??’
What is business interruption insurance and do you have it?
Business interruption insurance is a type of insurance cover that many businesses hold, along with other types of cover, like property damage and legal liability. The purpose of business interruption insurance is to provide cover for the loss of income and other losses suffered by a business, due to an insured event.
To find out whether you hold business interruption cover, you will need to consider your policy wording and your schedule of insurance. Your schedule of insurance talks to your policy wording and identifies how different parts of the policy wording operate. Together, the policy wording and schedule of insurance are your ‘policy’.
Insurance companies are about to take a hit in the US – are Australian insurers next?
Businesses across several US states have applied to the Courts for declaratory relief to confirm that their businesses should be covered for COVID-19 related business losses.
The cases include:
- A New Orleans restaurant subjected to operating restrictions suing certain underwriters at Lloyd’s of London – The restaurant, Oceana Grill, was the first US business to file a suit against an insurer for COVID-19 related losses on 16 March 2020. Before the outbreak, the business reportedly served up to 500 customers per day and was open from 8:00am to 1:00am, 365 days a year. Oceana Grill seeks an order from the Court that the Lloyd’s policy: 1) does not contain an exclusion for a viral pandemic; 2) it covers any future civil authority shutdowns due to COVID19; and, 3) it provides business income coverage, ‘in the event that the coronavirus has contaminated the insured premises’.
- A group of Chicago-based restaurants and movie theatres suing Society Insurance Co., with a specialty mutual insurer in Fond du Lac, Wisconsin on the basis that the continuous presence of the coronavirus ‘on or around’ the insured’s premises constitutes physical damage and triggers business interruption cover under the policy.
- A Napa Valley restaurant in California is suing Harford Financial Services Inc for loss of business income and the reasonable extra expenses incurred by the restaurant due to the government shutdown, with which the restaurant complied.
- An Oklahoma based Casino is suing Lloyds, XL Insurance Group (Axa) and AIG for the fact that its premises cannot be used for its intended purposes and the coronavirus is a type of ‘direct physical loss or damage’ that would require insurers to pay for lost revenue.
The gist of these cases is to the effect that coronavirus is a type of physical damage to their property or loss, which triggers cover and entitles the insureds to indemnity for:
- business interruption losses; and/or
- remediation to clean the surfaces of the establishment.
What about Australian businesses – when can they expect insurance companies to take a hit?
Similar litigation to that which is underway in the US may follow in other jurisdictions, like Australia and the UK.
The good news for insureds is that disputes about policy wording can generally be resolved relatively swiftly. Applications for declaratory relief like those in the US are usually disposed of by Australian Courts more easily because the Court is asked to consider a narrow issue: how particular wording in a policy of insurance should be interpreted.
In Australia, many policies exclude loss or damage caused by virus or bacteria and this has been widely discussed online. However, policy exclusions should always be carefully scrutinised, as they do not always operate to exclude cover for an insured.
For example, some Australian policies exclude cover for losses arising from quarantinable diseases under the Quarantine Act 1908 (Cth) (as amended). However, the Quarantine Act 1908 (Cth) was repealed in 2015 with the enactment of the Biosecurity Act 2015 (Cth) and so, it is questionable whether insurers could reasonably continue to rely upon such an exclusion to refuse cover. Instead of referring to ‘quarantinable diseases’, the Biosecurity Act 2015 (Cth) refers to ‘listed human disease’. COVID-19 is a listed human disease under the Biosecurity Act 2015 (Qld). The terms ‘quarantinable disease’ and ‘listed human disease’ have different meanings, with the latter being more prescriptive.
What should you do?
If your business is experiencing losses related to COVID-19 (irrespective of whether it has been subjected to a government shutdown), you should:
- Call your insurer/insurance broker or insurance agent and obtain a copy of your policy wording and policy schedule, together with all relevant endorsements.
- Read your policies to identify whether you have business interruption insurance and look for clauses that refer to ‘virus’, ‘bacteria’, a ‘civil authority’ or government decision.
- Document your losses. Gather all relevant business records over at least a period of 12 months prior to the period of loss.
- Seek independent advice from an insurance lawyer about your rights and interests.
How can we help?
The interpretation of insurance policies is a niche area of law and the general insurance industry in Australia is bespoke. As such, businesses should seek a legal interpretation of their insurance policies, to understand their rights and options.
Denning Insurance Law is one of a small number of Australian law firms that represents people and businesses – not insurers. We are interested in hearing from businesses with potential claims under their policies.
As independent insurance lawyers, we assist clients with:
- Claims preparation
- Internal Dispute Resolution
- Complaints to the Australian Financial Complaints Authority
- Applications to the Court for declaratory relief
- Civil litigation
For a consultation to discuss your COVID-19 losses and business insurance, contact (07) 3067 3025 or book an appointment. If you know a business operator who may find this information useful, please share.