Earlier this week, 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The Quarantine Act was repealed in 2016 – prior to the issue of any policies which were in place when the Covid-19 outbreak began. 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“On June 16, 2016, well before the period of cover for either policy commenced, the Quarantine Act 1908 (Cth) was repealed and the Biosecurity Act 2015 (Cth) came into force.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 Governor-General. 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, COVID-19 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
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.
- 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:
- Obtain a copy of your insurance policy (contact your insurer or broker for a copy).
- Document your losses (refer to our checklists).
- Seek independent advice and expert assistance.
Vincents are happy to review all policies free of charge, to consider how the outcome of this Test Case applies to your business.
Further information and checklists about our Business Interruption insurance claims services can be found here:
Download your FREE copy of our Business interruption insurance checklists
Checklist for initially after the damage event
Checklist for further information to quantify and prepare a claim
An Important Message
While every effort has been made to provide valuable, useful information in this publication, this firm and any related suppliers or associated companies accept no responsibility or any form of liability from reliance upon or use of its contents. Any suggestions should be considered carefully within your own particular circumstances, as they are intended as general information only.