Business Interruption Insurance and COVID-19: Is there an avenue for affected businesses?

When the seriousness of the COVID-19 outbreak in Australia became apparent, I spoke to a friend who is a Commercial Insurance Broker. 

He indicated to me that his phone was ringing off the hook with concerned business owners interested as to what insurance coverage they had for their business and how that might apply to the current situation.

My friend indicated that his dealer group had consulted with insurers who had all universally declared that their policies did not cover loss from interruption to businesses from the COVID-19 pandemic. 

Interested to take a look for myself and to provide some assistance to my friend who was very much under the pump with concerned clients, I had him send to me the Product Disclosure Statements of the Business Insurance Pack products he sold to his clients. 

In response, I received six PDS documents from various insurers including Allianz, Vero, QBE and CGU. 

Coverage for Infectious Disease Outbreaks

Interestingly, all six products contain provisions for business interruption cover (where taken) in situations where there had been a closure of the business premises (by order of a competent public authority), by virtue of “the outbreak of a notifiable human infectious or contagious disease”

Importantly, all policies had slightly different wording as to whether there had to be a closure by a “competent public authority” or merely an interruption, as well as whether the notifiable disease had to occur “at the premises” or within “20kms of the premises”.  Each policy had its own individual wording in that respect.

Exclusion Clause

Each and every policy contained an exclusion clause which may impact upon the coverage. 

Of the six policies, five had exclusion clauses with slightly different wording but essentially along the lines of:

“however, there is no cover due to highly pathogenic avian influenza in humans or any other disease declared to be a quarantinable disease under the Quarantine Act 1908 (including amendments)”.

Only one policy had an exclusion clause worded as follows:

“We will not pay any claim that is directly or indirectly caused by, arises from, or is in consequence of, or contributed by:

(b) highly pathogenic avian influenza or any biosecurity emergency or human biosecurity emergency declared under the Biosecurity Act 2015 (Cth), its subsequent amendments or successor, irrespective of whether discovered at the premises or outbreaking elsewhere.”

Quarantine Act 1908 (Cth)

The Quarantine Act 1908 was repealed on 16 June 2016 by the Biosecurity (Consequential Amendments and Transitional Provisions) Act 2015.  From that point, the Biosecurity Act 2015 was the legislation which would manage biosecurity risks associated with goods, people and vessels entering Australia. 

As at the date of its repeal, the “quarantinable diseases” which had been declared under the Quarantine Act 1908 were as follows:

  • Cholera;
  • Highly Pathogenic Avian Influenza in humans;
  • Middle East Respiratory Syndrome Coronavirus;
  • Plague;
  • Rabies;
  • Severe Acute Respiratory Syndrome;
  • Small Pox;
  • Viral Haemorrhagic Fever;
  • Yellow Fever.

The last “amendment” to the Quarantine Act 1908 to include a disease prior to its repeal was via the Quarantine Legislation Amendment (Quarantinable Diseases) Proclamation 2015, which entered “Middle Eastern Respiratory Syndrome” into the list of quarantinable diseases. 

Obviously, COVID-19 did not exist at that time and as such is not included in the list of “quarantinable diseases” pursuant to the Quarantine Act 1908 (including amendments). 

Biosecurity Act 2015 (Cth)

The Biosecurity Act 2015 received royal assent on 16 June 2015.  However, the substantive provisions of the Act commenced operation from 16 June 2016. 

The Act does not refer to “quarantinable diseases” but rather “listed human disease” that the Director of Human Biosecurity considers may:

  1. be communicable;
  2. cause significant harm to human health.

A declaration that a disease is a “listed human disease” empowers public authorities to take required biosecurity protection measures.

COVID-19 has been designated a “listed human disease” pursuant to the Biosecurity Act 2015.

What is the effect of the exclusion clauses referring to “Quarantine Act 1908 (including amendments)”?

The important interpretation of these clauses is the use of the words “including amendments”.

The Collins Dictionary gives the ordinary meaning of the word “amendment” to be:

“an amendment is a section that is added to a law or rule in order to change it”.

This accords with the meaning of the word when used within the legal profession. 

Importantly, the ordinary meaning of the word is not to convey a separate and new or successor piece of legislation. 

So, What Does This Mean?

An interpretation of the ordinary meaning of an exclusion clause referring to “disease declared to be a quarantinable disease under the Quarantine Act 1908 (including amendments)” would convey the meaning that only those diseases which had been listed under that Act as “quarantinable diseases” prior to its repeal in 2016 are the diseases which are excluded for coverage under the policies. 

As COVID-19 did not exist as at that time and had certainly not been declared a “quarantinable disease” under the Quarantine Act 1908, an ordinary interpretation of the meaning would not include COVID-19 within the class of diseases excluded for coverage.

The alternative wording of one of the policies as listed above, namely to exclude “highly pathogenic avian influenza or any biosecurity emergency or human biosecurity emergency declared under the Biosecurity Act 2015 (Cth), its subsequent amendments or successor” clearly indicates a clause which would exclude coverage to the current COVID-19 disease.  It would also exclude coverage to future diseases either declared under the Biosecurity Act 2015, or if there is successor legislation to that Act, whatever that may be. 

There is no argument as to there being any ambiguity as to what is defined as a “quarantinable disease” under the Quarantine Act 1908.  There are a specific class of diseases that fall within that definition.  For insurers to argue that such clauses are effective in excluding liability for COVID-19, they would need to be postulating that words that simply do not appear in the clause should be “read into it” for their benefit.  It may be interesting to see what outcome that argument receives.

Whilst I accept that judicial authority would dictate that the intent of the contract as a whole and the designated risk seeking to be excluded should be considered, so to do I suggest that the literal and ordinary meaning of words in a clause should be taken as read in the absence of ambiguity. 

In the matter of LMT Surgical v Allianz Australia Insurance Ltd [2014] 2 Qd R 118, a case concerning the operation of an exclusion clause in a flood damage scenario, His Honour Jackson J commented that the exclusion depends on the specific language deployed in the particular policy on the subject matter and is not determined by the meaning of other policies which deploy other language or by broad statements as to purpose or object (at 21).

I would suggest that business owners with insurance policies that may include business interruption cover carefully review the Product Disclosure Statements to determine:

  1. Whether there is coverage for interruption or closure caused by “infectious disease”; and
  2. Whether any exclusion clauses for such coverage are effective in excluding COVID-19.

Of course, all policies have different and varied wording within their Product Disclosure Statements.  There will be no “one size fits all” answer to the queries.  Business owners should seek appropriate advice relevant to their own policies.

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