There has been a great deal of commentary in the news about the effects of Coronoavirus on businesses, and whether these disturbances (such as event cancellations, forced closures of premises, and impacts on suppliers’ premises located overseas) are covered by business insurance policies.
The usual avenue for making a claim following a business interruption event is via an Insurance Policy. The Business Interruption claim can only occur if it results from a claim for material (i.e. physical) damage. Physical damage may include closure or evacuation of a premises upon infectious or contagious disease manifested by any person whilst at the business premises. Where there is no material / physical damage and loss, a business interruption claim is not available.
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.
A common exclusion in business interruption policies is ‘any disease notifiable under the Quarantine Act’. Covid-19 has been listed under the Biosecurity Act 2015 since the end of January 2020. Some policy wording still refers to the Quarantine Act (rather than the Biosecurity Act), and there is some contention about whether exclusions referencing the Quarantine Act will exclude claims for Covid-19. This is a legal issue which is currently getting a lot of attention.
It is vital to understand the Policy. In the event a claim can be made, the insured business needs to ensure they:
- Document their loss and keep supporting records; and
- Take steps to mitigate the loss, including using due diligence and doing all things reasonably practicable to minimise any interruption of or interference with the business, to avoid or diminish the loss.
Coverage limits are detailed in the Policy schedule. These coverage amounts should be regularly reviewed, to ensure the business is adequately covered. Where a business in underinsured, the Insurer may reduce the amount they pay in the event of a claim. In the event a business owner makes a conscious decision to underinsure to save on insurance costs, it is important to understand the consequences and impacts on a claim.
Initially after the Damage Event
It can be easier to document your losses as they are occurring, when events are unfolding, rather than going back at a later time and trying to remember precisely what happened, or to find important documents.
Practically, it’s a very stressful time, following a damage event. However, starting to put this information together as soon as you can will make the claims process easier down the track.
The types of information that are useful to document, keep and collect in the time of a business disruption, that may become relevant if you subsequently make a claim, include
- Diary notes – document what happened, how you responded, how it affected the operations of the business, management time spent dealing with the Events (or the claim)
- Timeline of what has occurred – to assist the Insurer / claims preparer to understand what has happened
- Registers – about cancellations, refunds, turning customers away, or anything else that is key in your business
- Copies of quotes, invoices and receipts – for the purchase of replacement assets and additional costs incurred (eg. cleaning, security, new equipment tradespeople, hiring equipment, storage etc).
- Details of additional amounts paid to employees
- Details of lost opportunities (if any)
It is also useful to:
- Keep a separate account in MYOB / Xero / your accounting program, to easily group the additional costs incurred.
- Consider whether anything happened in the 12 months prior to the damage, that would mean those results are not reflective of how the business would have performed, but for the damage (e.g. new products or contracts, industry changes, new or ceased markets etc).
Further information to quantify and prepare a Claim
The following information will also be required, when you begin to prepare and quantify your claim:
- Financial statements (starting at least 2 years of results prior to the Event).
- Accounting data file (MYOB, Xero etc).
- Copy of the Policy.
- Copy of the Insurer’s Loss Adjustor’s Report.
- Budgets / cash flows (if any) prepared both pre and post Event
- Business plans (if any) prepared pre and post Event
- Copy of any existing contracts of work, especially long-term contracts (and any budgets / job costings done)
- List of all lost opportunities
- Payroll information/records pre and post Event
- Copy of lease agreement and terms of lease / rent of premises
- Details of all loans obtained (as a result of the Event) from Business owners or third parties
- Finance documentation, such as loan statements / bank statements
- Witness statements may be relevant (depending on the Event).
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.