Will my business interruption insurance cover COVID-19 shutdowns?

With the current situation changing daily you’re probably concerned about how your business will be affected, and you might be wondering, will my business interruption insurance cover COVID-19 shutdowns?

At Insurance Web, we are monitoring the continually evolving situation around COVID-19 (Coronavirus) and informing our clients about how it may affect their business.

We’re going to use this blog to look at business interruption insurance and explain and warn that general insurance is unlikely to provide the protection that it does for traditional risks such as fire, storm damage or burglary.

If you have any further questions please get in touch with the Insurance Web team on 1300 800 091 or submit an online enquiry here.

Does business interruption insurance cover a shutdown from COVID-19?

The simple generalised answer is no. The outbreak of the SARS (Severe Acute Respiratory Syndrome) in 2013, prompted insurers and reinsurers to do modelling as to just how large claims could amount to in the event of a major pandemic.

As a result, the insurance industry introduced a clause which excludes any disease that is notifiable under the Quarantine Act 1908 (Cth), which has been updated by many insurers in line with changes in legislation to the Biosecurity Act 2015 (Cth).

Coronavirus is a listed disease. This means that there is no insurance protection for disruptions to business arising from Coronavirus.

Business Interruption policies generally respond to physical damage to an insured’s property. If there is no physical damage to the insured’s property caused by COVID-19, then no cover would be applied.

This means the only cover an insured can make a claim on, is if there is an extension for “Infectious or contagious diseases”. Once again however, generally speaking, this cover only operates when the infectious disease results in closure or evacuation of an insured premises.

At the time posting this Blog, we are not aware of any circumstances in which COVID-19 has resulted in closure or evacuation of an insured’s premises, which in turn triggered a Business Interruption claim. Even so, there may be other reasons, explained above, why the claim may not be covered.

We encourage all of our clients to stay up to date with relevant information as it is released by governing and reputable bodies. Below is some useful links:

Why doesn’t my insurance cover Coronavirus shutdown?

Most business interruption policies typically cover disruption to a business as a result of physical damage to assets that the business relies upon.
Some BI policies respond to the closure of a business by an authority for a number of risks, including infectious disease, for example Legionnaires.
In 2005/6 the global insurance industry began to introduce general exclusions for losses relating to quarantinable diseases.
Whilst some specific policies may differ, in Australia the majority of business policies are likely to contain exclusions relating to losses caused by any disease notifiable under the Quarantine Act or in some cases the Biosecurity Act.
A small number of businesses may have specialist cover, specifically written for them. Cover may be taken for disruptions to critical supplies from overseas, or a sudden drop-off in trade due to specific border closures.
As with any other threat, it is important to consider what risk management measures you can introduce to mitigate the risk to your staff, customers and business.
If you do not understand how your policy may respond to COVID-19 triggered losses, speak to your broker or your insurer for more information.

Source.

What action can I take to protect my business?

Plan for the impact of a pandemic on your business and take action.
Plan for the impact of a pandemic on employees and customers and follow through where necessary.
Allocate resources to protect your employees and customers during a pandemic.
Establish policies to be implemented during a pandemic.
Communicate with and educate your employees.

View full checklist here.