One year into the pandemic: Business interruption claims best practices

In March 2020, a wave of public health announcements swept across the country as governments and public health officials took significant actions to help prevent the spread of COVID-19. In the year since, many businesses have suffered considerable financial losses and operational disruptions.

The anniversary of COVID19 restrictions in Australia is a reminder for businesses to review their insurance coverage and explore whether they have a recoverable claim for the losses they suffered, if they have not done so already.

A number of policyholders have notified losses under their property and business interruption policies, with their claims for recovery at varying stages of advancement. Others appear to have adopted a wait-and-see approach, perhaps because they were unsure of the effects on their business or of how an initial round of legislative and litigation efforts would play out. Those policyholders in the latter category, which may still have losses to notify, should prioritise their review and notify their insurers, if appropriate.

The road to recovery for this unprecedented set of claims may be long and challenging. Still, following standard claims best practices — including diligently developing claims, providing insurers with supporting documentation, communicating clearly and regularly with stakeholders, and devising thoughtful recovery strategies — can position policyholders for better outcomes.

The current claims landscape

In Australia, a number of business interruption claims have been submitted in the last 12 months, with varying results:

• A relatively small number of claims — typically submitted by companies seeking recovery under specific covers i.e. event cancellation — have been adjusted and paid. 
• In other cases, insurers have denied claims, citing a variety of reasons. These include the asserted absence of a physical damage trigger and the invocation of pollution/contamination and virus exclusions and other policy language.
• A growing number of claims are now the subject of litigation. 

In response to the coverage uncertainty, the Australian Financial Complaints Authority (“AFCA”) and the Insurance Council of Australia (“ICA”) agreed to support a series of test cases to help determine coverage.

The first test case has been decided, albeit that this decision is subject to a special leave application that will be heard by the High Court of Australia on a date to be determined in May 2021 or June 2021 at the earliest.

The second test case consists of nine separate small business claims from a range of business sectors and locations lodged with AFCA as part of its dispute resolution process to allow for a comprehensive review of many of the outstanding policy issues. The Federal Court has proposed that the trial take place in September 2021 and any appeal be dealt with by the Full Court of the Federal Court in November 2021.

If you are interested to learn more about the potential implications of the appeal and second test case, watch the replay of our recent BI Test Case Update webinar.

While it may not be possible for all policyholders to present full claim details at this time, notifying a claim initially and as soon as possible is important to allow for possible coverage confirmation following the resolution of the test cases, even if insureds continue to reserve their rights to add to or amend claim details.

Time-sensitive policy provisions

Insureds should be aware that some insurance policies may specify the time period(s) in which the insured must provide notification and, potentially, a proof of loss.

We recommend that you review your insurance policy provisions with care and consideration, together with the advice of your lawyers, to determine what action you should take, if any. If time-sensitive policy provisions exist under a policy, and you elect not to take any action, your rights under your policy may be affected or impaired.

Best practices

Although aspects of COVID-19 claims may be unique, policyholders should be mindful of the fundamentals and recommended practices for presenting claims of any kind. As claims are developed and presented to insurers, businesses should focus on documentation related to:

• Potential coverage triggers, including the presence of COVID-19 on insured property and the prevention or impairment of access to insured property due to an act of civil authority. 
• The costs of efforts to ready insured property for use, including sanitisation and cleaning measures. 
• The operational effects on policyholders’ business, the specific cause(s) of those effects, and the ensuing financial impacts. 

Policyholders’ claims teams should ideally be multidisciplinary and include personnel with appropriate experience in advocacy, accounting, engineering, health and safety, and other relevant subject areas. As with any claim, ongoing and clear communication between a policyholder’s claims team and the insurer’s claims team is crucial.

Each insured should consider how best to proceed with respect to its specific claims and circumstances, potentially with advice on legal matters from counsel. Marsh stands ready to assist clients – whether it be through notification, advocacy or claims quantification – based on the extensive experience of our colleagues as claims professionals and insurance brokers.

For more details and guidance on property and business interruption insurance claims amid the pandemic, please reach out to your Marsh representative, or contact us here.

This website contains general information, does not take into account your individual objectives, financial situation or needs and may not suit your personal circumstances. For full details of the terms, conditions and limitations of the covers and before making any decision about whether to acquire a product, refer to the specific policy wordings and/or Product Disclosure Statements available from Marsh on request. LCPA No. 21/072.