In brief - Business interruption cover creates a financial
buffer following catastrophic events
Businesses which do not have business interruption insurance
cover risk becoming unviable if they experience an unforeseen
catastrophic event. Conversely, the very process of buying business
interruption cover can lead a business to improve its risk
management, thereby reducing the impact and likelihood of any
Many businesses take great risks with their continued
Business interruption insurance cover has become a critical
feature of the risk management strategy of many small to medium
enterprises. However, many businesses continue to underestimate the
importance of having this cover and, in so doing, take great risks
with the continued viability of their business.
Professional development courses for insurance brokers almost
invariably warn brokers that most businesses cannot continue for
more than three months after the occurrence of an uninsured
catastrophic event which interrupts the operation of that
As the example below demonstrates, small businesses which do not
hold any business interruption cover can suffer severe and
long-term damage as a result of an unforeseeable and uninsured
Medical practice building destroyed by catastrophic event
Mr and Mrs X conducted a medical practice in an exclusive
inner-city suburb through a corporation. The practice was located
in a building which housed a number of professional suites. The
building was completely destroyed by a catastrophic event. The
corporation did not have business interruption cover.
Landlord refuses to reinstate premises to previous
Shortly after the event, there was a dispute between the
corporation and the landlord of the premises, who refused to
reinstate the premises to their previous condition.
The alterations to the floorplan drafted by the landlord
effectively meant that certain important medical equipment could
not be housed at the premises upon their reinstatement. The
corporation's only option was to pursue a protracted
court/tribunal dispute over the landlord's obligations under
the lease, which likely would have taken several months to
Medical practice forced to find new premises and pay for
As a result, Mr and Mrs X were forced to source new premises at
a time when the property market was booming, and then to fit out
those premises at their own cost.
Even worse, they could not find suitable and affordable
alternative premises within a 10 kilometre radius of their
practice's former premises. Consequently, several patients of
the practice transferred their medical care to competing
No off-site electronic back-ups of patient records
Even worse, the corporation did not have any disaster recovery
or risk mitigation strategy. At the time the practice's
premises were destroyed, Mr and Mrs X (who were not technologically
savvy) had not made off-site electronic back-ups of their
patients' records. As a result, embarrassingly, the corporation
had to call many of its patients and ask them to attend the
premises so that their patient history could be reconstructed.
Several patients were so appalled that their records had not been
adequately protected that they transferred their care to other
Adverse effect on financial position of business
In the result, the corporation lost approximately 50% of its
patient base. Due to the substantial overheads in continuing the
business after the catastrophe, the corporation operated at
approximately 30% of its pre-catastrophe profit for three years and
at the time of this article is still only trading at between 60 and
65% of its pre-catastrophe profit.
Improvement in risk management a possible side effect of
purchasing business interruption cover
Creating a buffer against the financial effects of the
catastrophic event on Mr and Mrs X's business through the use
of business interruption cover could have eased the financial
pressure on the business and reduced the substantial overheads they
had to contend with. In this instance, business interruption
coverage would typically have restored the loss of gross profit, a
key component of a sustainable business, and left Mr and Mrs X with
a more manageable and continuous operating environment.
As an added benefit, risk management and disaster recovery
advice are often provided by insurers and brokers free of charge to
mitigate the cost of the insured experiencing a catastrophic event.
This is because the insured and the insurer have an aligned
interest in minimising the financial burden of a catastrophic event
- or preventing it altogether if at all possible.
The failure of a party to call a witness does not necessarily give rise to an adverse inference being drawn in accordance with Jones v Dunkel (1959) 101 CLR 298. An unfavourable inference is drawn only if evidence otherwise provides a basis on which that unfavourable inference can be drawn.
The recent decision of the New South Wales Court of Appeal in Stapley v Towing Masters Pty Ltd (trading as Dynamic Towing)  NSWCA 382, the Court considered what it means to be a ‘common carrier’.
Whereas most insurance policies exclude liability arising under contract, insurers can
positively benefit where an insured has limited or excluded its liability under contract.
This usually arises where the insured's contract has a limitation or exclusion of liability clause in the insured's favour.
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