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The legalities of COVID-19
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Business Interruption Insurance Decided

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If your business was forced to close its doors as a result of COVID-19 and the government’s response to the pandemic, and your insurer has denied your Business Interruption Insurance claim or your insurance broker has told you that you don’t have a claim, you may still have options available to you. If you have insurance and have not considered making a claim, you may be entitled to compensation!

Business Interruption Insurance policies in question

Attwood Marshall Lawyers have kept a close eye on changes taking place within the business insurance landscape since the start of the COVID-19 pandemic. Most of our clients, friends, and family, have been devastated financially by the Government lockdowns which are becoming the ‘new normal’.

In times of crisis, insurance is supposed to be your saving grace, a means of protection against financial loss. Yet, insurers have a long-standing reputation for denying claims to save their own pockets and secure their profits year after year. Most insurers have kept to that form throughout one of the most devastating financial periods in modern history.

In December 2020, we reported on the first decision of the New South Wales Court of Appeal which determined that a business interruption insurance provider could not rely on a policy exclusion which stated that the insurer would not cover claims arising from a ‘quarantinable disease’ under the Quarantine Act 1908 “and subsequent amendments”, because the Quarantine Act 1908 is repealed and no longer in effect.

Insurers argued that irrespective of the act referenced, their business interruption policies would have been read to not cover pandemics and that the new Biosecurity Act 2015 was of substantially the same purpose. The Court ruled however that extending the exclusion to cover new legislation was a step too far and that it was not reasonable for businesses to know that their policy would extend to different legislation that was not included in their product disclosure statements. It was therefore decided that the dated exclusion would not apply to the COVID-19 pandemic and could not be relied upon by insurers to deny claims. 

The Insurance Council who has been funding the case decided to appeal the decision to the High Court of Australia and sought special leave to do so. On Friday 25 June 2021, the High Court dismissed the appeal with costs putting an end to the insurers bid to be able to rely on their dated exclusions.

Pandemics not considered in policies

The insurance industry has widely reported that their policies were not built or contemplated for pandemics. They have argued that premiums were not collected to reflect the risk of widespread financial loss as a result of the COVID-19 pandemic.

If this is the case, the negligence of the insurers in not updating their product disclosure statements to keep up to date legislation drafted in the policies, and the failure to accurately reflect what consumers are covered for, is now an estimated half a billion dollar problem.

Unfortunately, this is not a golden ticket for all businesses holding business interruption insurance to be paid out for their claims under their relevant policies. As we’d all be aware, policies are lengthy and complex, and for insurers, there are other matters of general interpretation and wording of the polices that the Court may still need to determine in order to solidify that businesses should be paid for their claims.

There will be further test cases to come for the Court to make determinations on:

  1. The definition of “disease”.
  2. Proximity of an outbreak to a business (i.e. a rural business being affected by the Government lockdown, but being hundreds of kilometres away from a COVID-19 case);
  3. Prevention of access to business because of the Government lockdowns.

These further test cases are currently moving through the Federal Court of Australia and we anticipate that there will be a decision on these matters imminently. However, like the first test case, we would expect that any decision will be appealed to the High Court to be ratified.

Insurers waiting for further clarification

In an ideal world, business interruption insurance policy holders would have been paid out months ago and would continue to be paid whilst the lockdowns and interruptions persist. Sadly, however, everyone must wait for our Court system to provide clarification around the dated policies whilst businesses continue to suffer.

It is our expectation that once the Court has finalised its decisions (and the insurers bend to their fate) that there will be an influx of claims to be quantified and that this is where the real issues will begin. Insurers will likely be trying to reduce the significant financial impact to its reserves and clutch at any straw to reduce what they will need to payout.

Something to consider: Will the money that businesses received from Government stimulus packages need to be paid back?

The Federal Government stimulus schemes which cost the Australian Government an estimated $300 billion  undoubtedly saved a majority of Australia’s small to medium sized businesses. Stimulus packages such as JobKeeper, instant asset write-offs, loan schemes and rental relief put money back into businesses pockets and considerably reduced their losses. This begs the question of how insurers will deal with these grants when assessing business interruption losses.

In other insurance matters (such as personal injury compensation claims) if the government has paid an injured person through a scheme such as Medicare, for all or part of the injured person’s medical fees, upon receiving a personal injury compensation payout, whether that be from a CTP insurer as part of a motor vehicle accident, or a WorkCover claim after sustaining an injury at work, these fees are then paid back to the government by the insurer who pays out the compensation claim.

If the same methodology is applied for Business Interruption Insurance, it may be the case the government will need to be paid back by insurance companies for some, or all, of the fund’s businesses received through stimulus schemes. Conversely, the government may try to save insurers by removing the requirement to be paid back and allowing the stimulus to be set-off against losses when quantifying a claim.

The government would just be one party to these matters though, because you must then consider third parties who were required by the government to assist businesses throughout the lockdowns. These parties could include landlords and banks, who were legislated and directed (respectively) to give businesses economic assistance.  If the insurance was to cover rental payments, will the landlord be required to be paid? Only time will tell how these issues may be handled.

Attwood Marshall Lawyers want to help you understand your rights

Attwood Marshall Lawyers have extensive experience in resolving disputes against insurance companies. We want to help you resolve your dispute and take away some of the stress in your life. If you have had an insurance claim denied, contact our dedicated Commercial Litigation team to obtain preliminary advice in relation to your rights. We will be able to advise you on your reasonable prospects of succeeding in your claim.

We offer a free initial consultation and will take on approved cases on a no-win no-fee basis. Please contact us for further information. What have you got to lose?

If you have any questions about your Business Interruption Insurance policy, or would like to see if the current test cases being determined by the Court apply to you, please contact Commercial Litigation Department Manager, Amanda Heather, on direct line 07 5506 8245, email aheather@attwoodmarshall.com.au or free call 1800 621 071 at any time.

To find out more about the test cases and upcoming dates related to the Business Interruption Insurance claims, click here to download our fact sheet.

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