It's called business interruption insurance, and business across the world has most certainly been interrupted, write Howard Rapke and Jessica Tsiakis.
As Australia responds to government announcements on further easing of COVID-19 restrictions, it's clear that, despite a slow transition to business as usual underway, the unsettling effects of the pandemic will remain long after restrictions are eased.
With disruption reigning, businesses may look to their insurers for certainty. However, most insurers learned the lessons of the 2003 SARS outbreak and have exclusion clauses for communicable diseases and epidemics/pandemics in non-life products such as business interruption insurance.
Accordingly, the arguments over insurance coverage already playing out overseas are likely to hit Australian shores with similar ferocity. In the UK, insureds are demanding to be paid out for the losses they've suffered from being unable to operate their businesses during the British lockdown that began on 24 March.
Large-scale class actions have been commenced against various UK-based insurance giants, reportedly including QBE, by groups of British businesses including hotels, pubs and dentists.
Of little comfort to insureds, business interruption policies usually only pay out if physical damage occurs to an organization's assets or operations – so COVID-19-related claims may not be covered. However, as we are seeing overseas, there is potential for future disputes on this issue, all of which will involve an interpretation or argument about precise policy wording.
In London this very point is soon to play out in the courts with the Financial Conduct Authority (FCA) seeking to run test cases on the application of business interruption cover to COVID-19-related insurance claims. The FCA has recognised the anticipated volume of contested insurance claims and the consequent pressure this will put on insureds, the court system and the recovering economy.
There's impetus on regulators to establish clear principles about what is, and perhaps more importantly what is not, covered under standard business interruption policies. And, there's a role for insurers to communicate with clarity and operate with transparency.
Interestingly the FCA is seeking to work with insurers by reportedly inviting the main players – QBE, AXA, Zurich, Hiscox and RSA – to be involved. They have been asked to inform the FCA by 15 May whether they intend to deny business interruption claims. Depending on the responses received, the FCA will decide which insurers it will ask to join the court proceedings.
Australian business interruption policies are written along similar lines, contain similar wording, and in some cases are underwritten out of the UK. Accordingly, any principles established from the UK test cases will provide guidance here in determining COVID-19 coverage disputes.
Australian insurers will no doubt be watching their UK counterparts closely as they navigate the FCA-driven proceedings.
Whether Australian regulators will take similar steps remains to be seen. However, it is clear that post-COVID-19, Australia will likely also see a steep rise in coverage disputes.
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