Hope for Brewpubs with Business Interruption insurance
When the Victorian Government closed venues as part of Covid-19 minimisation measures, many Brewpubs wrongly assumed that their business interruption insurance would cover their losses. Being informed by brokers that pandemics were not covered, and losses would be their own responsibility, may have come as an unwelcome surprise.
Insurers caught off guard
Insurers never intended to provide cover for a global infectious disease. From a commercial perspective, covering losses for such an unpredictable, widespread event is not financially viable. Terrorism risk is similarly assessed as so unpredictable, and potentially financially catastrophic, that the mechanism to fund recovery from such an event is not via insurance companies, but via government through levies.
Insurers are constantly updating their policy wordings in response to loss trends and changes in legislation. Many have not been so adept in updating their infectious disease exclusion, given the last truly global pandemic (the Spanish Flu) was 100 years’ ago. Now it appears a large number of them have been caught off guard, failing to update their policy wording to reflect current legislation.
Insurers look to exclude cover for global pandemics by reference to diseases declared
A recent Australian test case addressing business interruption due to the pandemic has ruled in favour of the insured, meaning that many businesses can potentially claim for losses suffered due to Covid-19 closures and restrictions.
In essence, the NSW Supreme Court addressed a specific issue on whether insurers could rely on their policy exclusions that reference the now defunct Quarantine Act 1908, which was replaced in 2016 by the Biosecurity Act. The judges unanimously found against insurers and held that Covid-19 is not a disease ‘declared to be a quarantinable disease under the Quarantine Act 1908 and subsequent amendments’ and as such, were not excluded from the disease benefit clauses.
What does this mean for Brewpubs or Taphouses?
This result is not a blanket confirmation that all claims for business interruption losses will now be covered. It relates only to policies which look to exclude cover by specific referencing of the Quarantine Act of 1908 and subsequent amendments. We estimate up to 50% of commercial policy reference the obsolete Quarantine Act.
The outcome will have a very significant impact on insurers large and small with one major Australian insurer, IAG raising new capital on the ASX as a direct consequence of this decision. Whilst insurers have the right to appeal this decision, we expect there will be further cases addressing other aspects of business interruption cover arising from COVID-19 and that in the long term, the claims paid by insurance companies will ultimately be reflected in the future premiums of policy holders.
Your insurance broker should have engaged with you following this significant test case as most drinking places do have business interruption cover. Your broker will be able to advise you on your specific policy coverage and then the appropriate course of action with regard to lodging claims. In what has been a very bleak year for the industry, there may at last be a silver lining.
Susan Scollon is an insurance broker at PNOinsurance who specialises in protecting hospitality businesses. For futher information or advice, please contact Susan at email@example.com