Claim considerations for Business Interruption Insurance during COVID-19
Updated: 5 July 2021
In the year since the onset of COVID-19 across the globe, many businesses, from SMBs through to large organisations, have suffered considerable financial losses and operational disruptions.
Despite businesses now having experienced a year of COVID-19 restrictions in varying degrees, a large number of eligible SMBs are still yet to explore whether they have a recoverable claim for business interruption losses.
The current claims landscape
In Australia, a number of business interruption claims for small to medium businesses have been submitted in the last 12 months, with varying results:
- A relatively small number of claims — typically submitted by companies seeking recovery under specific covers i.e. event cancellation — have been adjusted and paid.
- In other cases, insurers have denied claims, citing a variety of reasons. These include the asserted absence of a physical damage trigger and the invocation of pollution/contamination and virus exclusions and other policy language.
- A growing number of claims are now the subject of litigation.
In response to the coverage uncertainty, the Australian Financial Complaints Authority (“AFCA”) and the Insurance Council of Australia (“ICA”) agreed to support two test cases to help determine coverage. The aim of these test cases is to provide greater clarity about whether insurance policies will cover business interruption losses from the COVID-19 pandemic.
The first test case has been decided. The second test case consists of nine separate small business claims across a range of industries and locations. These claims have been lodged with AFCA as part of its dispute resolution process to comprehensively review many of the outstanding policy issues. The Federal Court has proposed that the hearing take place in September 2021, and any appeal be heard by the Full Court of the Federal Court in November 2021.
What this means for your small business
As noted in the Australian Financial Review, less than 1 per cent of 330,000+ eligible small businesses have lodged business interruption insurance claims1.
It appears that the majority of Australian SMBs are taking on a wait-and-see approach. This is potentially due to their uncertainty around the overall impact COVID-19 will have on their business or how an initial round of legislative and litigation efforts would play out.
For those policyholders who may still have business interruption losses to notify, we recommend you prioritise a review of your position immediately.
Though it may be a long and challenging journey to deal with this unprecedented set of claims, the following steps will help businesses determine whether they are eligible to instigate a business interruption claim under the insured’s policy.
- Do you think your business has suffered a loss due to COVID-19? Has there been a downturn in your revenue or business?
- If ‘yes’, review your business interruption policy’s:
- Insuring clauses, particularly any extensions that may apply. If unsure, reach out to your insurance broker or advisor who will be able to provide further guidance and clarification;
- Exclusions; and
- Limits and sub-limits.
- Consider and collect information on relevant facts in respect of:
- Nearby outbreaks at business locations (if relevant);
- What official orders or decisions have been made that have impacted your business operations? When and how long were they in place?
- Details of financial losses.
- Consult with your insurance broker to:
- Notify insurers immediately if there is a possibility of a claim;
- Determine/clarify the value of the claim and guidance for next steps; and
- Conduct coverage assessment and seek external legal advice if necessary.
The way forward for Australian small businesses
Each business should consider how best to proceed with respect to their specific business interruption policy, claims and circumstances.
If you are unsure as to whether your business interruption policy covers COVID-19 related losses, please speak to your broker and seek legal counsel in regard to your specific circumstances and the relevant policy inclusions and exclusions.
Marsh can assist – whether it be through notification, advocacy or claims quantification – based on the extensive experience of our colleagues as claims professionals and insurance brokers.
For more details and guidance on property and business interruption insurance claims amid the pandemic, please reach out to your Marsh representative, or contact us here.
1 Source: Adele Ferguson (Australian Financial Review), ‘ASIC probing long wait for insurance payouts’, 19 April 2021
The information contained in this publication provides only a general overview of subjects covered, is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. Insureds should consult their insurance and legal advisors regarding specific coverage issues.
Statements concerning legal matters should be understood to be general observations based solely on our experience as insurance brokers and risk consultants and should not be relied upon as legal advice, which we are not authorized to provide. All such matters should be reviewed with your own qualified legal advisors. All insurance coverage is subject to the terms, conditions, and exclusions of the applicable individual policies. Marsh cannot provide any assurance that insurance can be obtained for any particular client or for any particular risk. LCPA 21/110.