After a quarter like no other, businesses are now eager to understand their eligibility to claim for business interruption (BI) losses caused by COVID-19. For many organisations, the degree of financial loss incurred in recent months has been so significant, the outcome of such BI claims may mean the difference between survival and demise. So what do businesses need to know about BI claims, and where to from here?
Critical context: A hot debate
There is growing debate amongst insurance industry experts and law firms about whether business insurance policies could cover a COVID-19 related business interruption loss. General Insurers have typically denied COVID-19 claims for a number of reasons including the application of policy pandemic exclusions for notifiable, contagious and quarantinable diseases. As a result, the Australian Financial Complaints Authority (AFCA) has now received 1,070 COVID-19 General Insurance product related complaints from policyholders.
The latest: An unfolding UK test case
To provide legal clarity around COVID-19 related BI claims, UK regulator Financial Conduct Authority (FCA) has taken a test case to the UK Supreme Court. To understand and explore the challenge at hand, the FCA has selected 8 Insurers as defendants (including QBE), and is looking at 17 policy wordings. In Australia, regulators are closely monitoring the developments of the UK test case to learn how things may unfold locally.
While the AFCA has received a request to run its own test case in the Federal Court of Australia, confirmation of this is yet to surface. The role of the AFCA is to assess individual cases, however it also has jurisdiction to apply for a test case where a significant issue or point of law arises which includes testing issues of interpretation and the application of policies and exclusions. Whilst each claim must be considered on its merits, the outcome of such proceedings may guide future claims.
While details of an Australian test case are yet to be confirmed (as at 22 June, 2020), Honan industry leads anticipate a court to consider the following:
- Can a premises be considered “physically damaged” (the policy trigger for business interruption cover) if there is an outbreak of COVID-19 at the insured premises?
- What would constitute an “outbreak” for insurance purposes – is it a single positive case or multiple?
- Given the Biosecurity Act 2015 replaced the repealed Quarantine Act 1908, can a policy pandemic exclusion that only refers to diseases under the Quarantine Act 1908 apply? If the policy exclusion does not specifically refer to the Biosecurity Act 2015, can it be applied to exclude the loss?
- What is the commercial intention of the policy? Does clear commercial intention in the policy construction overcome the above language issue?
As always, we’re committed to keeping our clients and the community as informed as possible. Across the days and weeks ahead, we’ll be monitoring the FCA test case and AFCA announcements closely, and reporting on updates as they unfold. To ensure you’re across the latest, be sure to follow Honan Insurance Group on LinkedIn.
We’re with you all the way.