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Business Interruption Insurance and COVID-19

For businesses that have suffered economic impact due to COVID-19, the question often arises: how continual will operations be once the pandemic ends? The provisional protections under the Corporations Act, such as adjustments to the insolvency rules, have now come to an end, so businesses will soon have a better understanding as to whether they can recover from the current economic climate.

Some businesses with active insurance policies may have an added protection if the policy covers involuntary closures from government laws and/or pandemics. However, many small businesses are encountering difficulties in making claims due to exclusion clauses. These exclusion clauses attempt to prevent certain diseases from being covered by the policy but have not accounted for the change in law.

The dispute between insurers and the insureds has prompted the Australian Financial Complaints Authority (AFCA) to run a test case with the Insurance Council of Australia (ICA), the representative body of the general insurance industry in Australia. The court will address the issue, as to whether references to a repealed legislation in older policies be updated to mean the legislation currently in force.

Disputed Business Interruption Claims

Many insurance policies will not cover insureds for loss or damage arising from a pandemic. Prior to 2016, this was enforced by excluding any diseases listed in the Quarantine Act 1908 (Cth). In 2016, the Quarantine Act was repealed with the Biosecurity Act 2015 (Cth), and many insurers failed to update their policies to reflect the changes in legislation.

The issue is that COVID-19 was not listed in the Quarantine Act, however, it is listed in the Biosecurity Act. Insureds that still have policies that contain a reference to the Quarantine Act have an argument that COVID-19 is not in their policy’s exclusion clause, and that they can make claims for business interruptions as a result of the pandemic. Insurers maintain the view that any reference to the Quarantine Act should mean the Biosecurity Act and will not cover the pandemic in their policies.

The decisions from insurers to refuse business interruption claims has resulted in a copious amount of complaints being made to AFCA, which in turn has prompted the commencement of the test case. This test case will provide a binding decision that will guide parties in similar disputes, so they do not have to litigate their disputes to understand how a court will decide.


The outcome of this test case will be highly anticipated amongst the thousands of insurers and insureds delaying any action pending a final decision. We will provide further updates when the case commences and in respect of any appeal.

The catastrophes webpage of the Insurance Council of Australia indicated as follows:

  1. Most business interruption policies typically cover disruption to a business as a result of physical damage to assets that the business relies upon.
  2. Some business interruption policies will cover a closure of business by an authority due to several reasons including infectious disease.
  3. However, many of these policies are likely to contain exclusions relating to losses caused by a disease notifiable under the Quarantine Act 1908 or its successor, the Biosecurity Act 2015.
  4. This will need to be checked on a case-by-case basis.
  5. A small number of businesses may have specialist cover, specifically written for them. Cover may be provided for disruptions to critical supplies from overseas, or a sudden drop off in trade due to specific border closures.

Madison Marcus Law Firm is experienced in resolving claim disputes and can assist in any dispute with insurers. If it cannot be resolved commercially, subject to the circumstances of the case, it could be litigated in the Court’s Insurance List for short matters. The Insurance List aims to provide a prompt method that rapidly resolves disputes around policy interpretation which may eliminate excessive and unnecessary “process-driven” costs.

COVID-19 restrictions are now slowly being lifted, and a new normal is being glimpsed. The impacts of the pandemic however will, unfortunately, be with us for a while longer and will take time to resolve. We are of the view that disputes over the meaning and application of exclusion clauses in insurance policies will be part of the commercial disputes landscape.

It is worth reviewing the policy as soon as possible as there may be time limits on notification of potential damage.

Important Note

Due to variations in policies and circumstances, this article is not intended to be and cannot be relied upon as specific legal advice.

For enquiries or advice regarding commercial litigation matters, please contact our expert team today.


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