Brisbane, 8 April 2020: Businesses that intend to claim under business interruption (BI) insurance as a result of the COVID-19 pandemic should check their policy terms carefully, as they may be covered despite the policy containing a "quarantinable disease" exclusion.
Clayton Utz partner Mark Waller says he has been advising some clients on BI policies that contain exclusions for “quarantinable diseases under the Quarantine Act 1908 and subsequent amendments” – which in his view does not include COVID-19.
BI insurance is usually complementary to property insurance and covers the cost of re-instating or repairing damaged property and the business interruption losses caused by that damage. While BI policies are generally triggered by property damage, policies may also contain extensions for business interruption losses caused by human infectious disease.
Mark says these policies usually respond where there is an outbreak of the disease either at the business premises or within a specified radius – 20 kilometres, for example – or where a public authority (ie. Government) has ordered the premises to be closed or evacuated as a direct response to there being infectious disease at the premises or within the specified radius.
"Where the policies simply require that the outbreak occur within a specified radius of the premises, the insurance policy should respond, as it is likely that the business will be able to establish that the outbreak is present within that area," he says.
However, special counsel Chris Erfurt says some businesses are being mistakenly led to believe that their policies will not cover them for COVID-19 because it falls within the "quarantinable disease" exclusion, which applies to "quarantinable diseases under the Quarantine Act 1908 and subsequent amendments".
"Our view is that it is not correct to interpret the exclusion as applying to COVID-19," says Chris. "For one thing, the Quarantine Act was repealed nearly five years ago, so it does not apply to COVID-19. While some of the subject matter the repealed Act covered is now contained in the Biosecurity Act 2015 (Cth), that Act is not a "subsequent amendment" to the Quarantine Act. In any event, a listed human disease under that Act – which does include COVID-19 – does not fit within the description "quarantinable disease" under the exclusion, as that is a distinct concept under the repealed legislation."
Mark says this is an important matter of policy interpretation given that businesses that have been impacted by COVID-19 will need to carefully consider recovering BI losses under their insurance cover to help support their financial recovery. "Many businesses are suffering major losses, particularly where they have been designated non-essential businesses and have been forced to close. If there is any scope for these businesses to recoup some of those losses through their BI insurance, they should be able to do that," he says.
Another issue which Mark says is already being litigated in the United States is whether the presence of COVID-19 on property that is insured under property/BI insurance is "physical damage to property" and so triggers BI cover without the need for an infectious disease extension. "This is a novel issue and businesses insured under these policies will be watching these developments very closely," he says.