The outbreak of the COVID-19 pandemic in Australia and overseas has had a hugely damaging economic effect on the business community.
Many of these businesses hold Business Interruption (BI) insurance and may have either had claims declined or not pursued them on advice that the policy did not respond. Alternatively, they may not have considered whether cover is available.
BI insurance is usually a feature of ISR (Industrial Special Risks) and Business Pack insurance. It provides cover for loss caused by material damage to insured property as a result of an insured event or peril. One aspect of BI insurance that is not well understood is that it can also include extended cover for losses that are triggered by events that do not amount to material damage to insured property in the ordinary sense.
One particular example of this type of cover are policies pursuant to which 'material damage' is deemed to include:
'The outbreak of a notifiable human infectious or contagious disease occurring within a 20 kilometre radius of the location.'
Not every policy includes this cover, nor is cover always triggered by a policy extension drafted in these terms. Many ISR and Business Pack policies which do have this cover will be triggered where there has been a direction by a public authority to close or to stop operations. Accordingly, the trigger for cover must be closely examined to determine whether cover is available to begin with.
Many of these policies also contain an exclusion that removed cover for 'diseases declared to be quarantinable diseases under the Australian Quarantine Act 1908 and subsequent amendments.' This is the exclusion that was considered by the Court of Appeal.
The problem for the insurers of those policies was that the Quarantine Act 1908 (Cth) was repealed and replaced by the Biosecurity Act 2015 (Cth), in this case four years before the policies were issued. The insurers simply did not keep their policy terms current and up to date with the legislation applying at the time of the COVID-19 pandemic. Nonetheless, they maintained that they were still able to decline cover for claims because it was to be inferred that the policy language either still picked up and applied the Biosecurity Act 2015 or it contained an obvious error which the Court ought to correct in order to give business efficacy and proper commercial meaning to the policy.
Both of these arguments were rejected by the Court of Appeal. It said that the meaning of the words in the extension of cover were clear: the Biosecurity Act was enacted after the repeal of the Quarantine Act and while they regulated similar subject matter, the former was not 'an amendment' of the latter. The declarations made under the Quarantine Act were not invalid and were still operative, but had simply not been updated.
Further, while it would have been desirable for the policies to have referred to the correct legislation, this was not an error which the Court was able to correct.
The short point is that the insurers should have kept their policy terms up to date or drafted them in such a way as to avoid them becoming redundant due to legislative change.
The Insurance Council of Australia which funded the test case is currently considering an appeal to the High Court. Appeals to the High Court require special leave to proceed and it is unclear whether leave will be granted. However, the decision is of significant importance to the business community.
For companies that do hold BI insurance, it is important to remember that the terms of cover can and do vary between policies. Policyholders must determine whether cover for COVID-19 related losses is contained in the policy, whether an entitlement to cover is triggered by events related to COVID-19 and whether there are any exclusions that should be examined.
Policyholders with BI insurance should act quickly to review their policies to determine whether there is any avenue by which they are eligible to recover COVID-19 related losses.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.