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Last updated: 19 March 2020

Insurance

Introduction

The World Health Organisation declaring COVID-19 a pandemic, and travel bans being imposed across the world, may impact upon the cover available under travel, event and business interruption insurance policies. In particular:

Travel insurance policies are generally more likely to respond where a trip has been cancelled due to official restrictions on travel, rather than as a precaution. However, policy wording should be carefully checked. In particular, some wordings may contain broad exclusions for loss arising from a government prohibition or restriction. Other key factors may include the date on which travel was prohibited / restricted (or warnings issued) and whether the policy expressly excludes pandemics.

Event insurance is also more likely to respond where events have been cancelled in accordance with the Federal Government's directive, rather than as a precaution. However, such policies may also expressly exclude pandemics.

Business interruption insurance will generally only respond where there has been damage to property, but some insurance policies may extend cover for human infectious disease. If so, the precise wording will be important, as:

  • some policies require closure or evacuation by order of a public authority (rather than precautionary measure). This may apply to closures forced by the directive against public gatherings of more than 500 people (though it may be arguable whether the directive itself is an "order");
  • some policies instead require outbreak of a disease, but may be limited to where the disease has been detected at the premises or within a specified radius of the premises;
  • bespoke insurance policies may be broader again; and
  • some policies may also extend to cover to interruption due to closure of supplier's premises due to infectious disease or access restrictions.

Further, some business interruption insurance policies exclude "quarantinable diseases under the Quarantine Act 1908 and subsequent amendments". That Act has been repealed and replaced by other legislation including the Biosecurity Act 2015 (Cth) (which refers to "listed human diseases", not "quarantinable diseases") and it is unlikely the new legislation qualifies as a "subsequent amendment". This form of exclusion is unlikely to apply to COVID-19. However, exclusions which apply to "listed human diseases" or pandemics, rather than referring to the repealed legislation, will still be relevant.

Businesses should consider whether there are any circumstances which may give rise to a claim against them under their liability insurance (eg. public and products liability, employer's liability, directors' and officers' liability), for example arising out of failure to supply or the exposure of employees or the public to the virus. If so, they should review their notification obligations under the relevant policies and for “claims made” insurance, ensure notifications are made before expiry.

Below are some practical steps insureds can take to review and engage their insurances.

Potential cover checklist

  • Operations: An organisation may be impacted by disruption in supply chains, employee absenteeism and operational impacts. This may result in loss of revenue. It is common to have business interruption cover as part of a property insurance policy. However, that is usually only available where there has been loss or damage to physical assets. It is possible that loss of revenue due to these impacts will not be covered under the business interruption insurance. It will be important to closely review policy wordings; there are sometimes extensions of cover which pick up closure of a property location on the order of a public authority due to infectious disease.
  • Events: If an event is cancelled, the organisation may have taken out event insurance. Those bespoke policies should be considered for cover in circumstances of this nature.
  • Travel: There may be impact on travel plans, including cancellation of intended travel and associated loss of bookings. While cancellation costs can be covered under travel insurance policies, care should be taken to understand whether there are exclusions that might be triggered by the impact of a virus. The policy is unlikely to provide cover where a trip has been cancelled voluntarily and out of precaution only, rather than due to official restrictions on travel. Furthermore, some insurers may already have given notice that they will not cover losses arising from travel impacted by the virus on the basis that it is a known risk.
  • Debts: The risk of non-payment of a debt may be covered under credit insurance. If supply chains are disrupted and payments not made, organisations with credit insurance policies may want to consider their insurance position. However the cover may not be available if the debtor is excused from payment by, for example, a force majeure clause.

Practical steps

The first step is to identify the impact on the business – in particular, what loss may be suffered or liability may arise from claims against the organisation – and review your insurance policies to understand whether they might cover those impacts.

If there may be cover available, you should notify the relevant insurers and, where appropriate, make formal claims. There may also be obligations in insurance policies to take steps to mitigate loss.

Policy terms and conditions should be carefully reviewed.

The six priorities for an insured are:

  • Review: Review your insurance policy to confirm your insurance cover and the policy conditions; your broker will be able to provide you with a copy of your policy if you do not have access to this document.
  • Notify: Inform your insurer (or broker) that you will be making a claim, although do not be pressured into estimating the amount of your claim at this stage rather ask your insurer to waive any requirement that the finalised claim be lodged within an allotted period of time, as claims with a business interruption element can be complicated and quantum figures often cannot be finalised for a number of months.
  • Record: Keep a diary with a chronology of events: what happened; what you did in respect of stabilising the impact and what you did to reopen your business. Keep a diary note of the time spent by you and any staff, as a consequence of the event showing hours spent, the date incurred along with a description of what was done.
  • Mitigate: You are entitled to obtain compensation for your loss in accordance with the terms of your insurance policy, although insurers will expect you to mitigate your loss were possible (act as the “prudent uninsured”).
  • Cash: Determine the amount of cash required to finance the business during any shutdown period. Consider negotiating an interim payment in respect of non-contentious items, ensuring you reserve the right to make further claims and / or adjust existing claims at a later date.
  • Costs: Consider how your operations have changed since the event and collate all costs as a consequence of the event (ie. open a separate general ledger code) and keep scanned copies of the relevant invoices.