Business Interruption Insurance and COVID-19 – an update

Back in March 2020 following the nationwide lockdowns that saw businesses close across the nation at the request of the Government, I investigated the potential for coverage for business losses under common business interruption insurance policies in the marketplace.

Please find below a link to the article that I wrote in March 2020 concerning the issue:

As you will see from that article, I had identified at that time that relevant business interruption insurance policies that have coverage for losses occurring as a result of infectious disease outbreaks, commonly had an exclusion clause which excluded from coverage losses caused by any disease declared to be a “quarantinable disease under the Quarantine Act 1908 and subsequent amendments”. 

The issue for insurers was that the Quarantine Act 1908 was repealed and no longer in operation as from 2016. 

On 16 June 2016, the Quarantine Act 1908 was repealed and replaced by the Bio-Security Act 2015, which altered the manner in which biosecurity hazards including infectious disease outbreaks were handled and defined.

Of importance was that, as Covid-19 did not exist as at the repealing of the Quarantine Act 1908 in June 2016, it was not a disease declared to be a “quarantinable disease under the Quarantine Act 1908”.  The logical argument was that if an exclusion clause in a business interruption policy referred to a disease declared under the Quarantine Act 1908, that clause would not operate to exclude any losses caused by Covid-19.

As you can appreciate, the insurance companies did not consider that to be a desirable outcome for them.  As such, they commenced a PR campaign declaring that such exclusion clauses were effective and that claims on policies would be validly denied.

Due to the importance of the issue, a test case was run at the request of the Australian Financial Complaints Authority and in conjunction with the Insurance Council of Australia to determine the issue.  That test case was heard by the New South Wales Court of Appeal who handed down it’s decision on 18 November 2020 in the case of HDI Global Speciality SE v Wonkana No 3 Pty Ltd [2020] NSWCA 296.

In short, the New South Wales Court of Appeal by unanimous decision (5-0) determined that:

  1. Covid-19 is not a disease declared to be a quarantinable disease under the Quarantine Act 1908; and
  2. Exclusion clauses seeking to exclude from coverage infectious diseases that were declared as “quarantinable diseases under the Quarantine Act 1908” are not effective in excluding liability for business interruption losses occurring as a result of Covid-19.

This decision may have a profound economic impact upon businesses that held relevant policies, who were forced to close for periods as a result of Covid-19 and/or whose operations were significantly impacted by Covid restrictions and suffered a deterioration in turnover and profit as a result.

Any businesses holding insurance policies that include coverage for business interruption insurance need to immediately review their policies to determine whether they may have a valid claim under the policy.

It is important to note that not all business insurance policies include coverage for infectious diseases and not all had the type of exclusion clauses which have been found to be not effective.  In addition, there can be other qualifying conditions that must be met before a valid claim can be made.

What is important is that every business holding such an insurance policy obtains advice in respect of potential claim rights.

Crew Legal would be happy to assist any businesses needing advice in that regard.

How can Crew Legal help?

Crew Legal pride ourselves on providing quality advice at the right price. We will ensure that you receive the best advice for your situation and are committed to ensuring that everybody has access to that advice.

We provide a first consultation completely free and with no obligation. If the claim is undertaken, we will proceed with such claims on a ‘No Win/No Fee’ basis.

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