Businesses crippled by COVID-19 lockdowns could join class action to fight denied insurance claims

As owners face the collapse of their businesses, they are banding together to take on insurance firms to receive compensation for the impact of the pandemic.

An iconic Brisbane bar and restaurant has lost millions due to ongoing lockdowns caused by the COVID-19 pandemic, but its insurer is refusing to pay out its claim for business interruption.

The COVID-19 crisis had been financially devastating, said Phil Hogan, co-owner of Jade Buddha Bar, which includes a restaurant and bar overlooking the Brisbane river, a cocktail lounge, dance floor and event space.

Turnover for 2020 had dropped by 54 per cent, he revealed to news.com.au.

“When COVID hit we were initially shut for more than six weeks – all of April and some of May. When we resumed trading with restrictions we were initially only trading at 4 per cent of May for the prior year, but gradually fought our way back to 80 per cent by December,” he said.

“We also had to spend a ton restarting the business because by that time all of our creditors wanted to be paid up to date before extending credit to restock and start again. As a rough estimate it takes about $500,000 to restart a business like Jade Buddha after such a long lockdown.”

Phil Hogan, co-owner of Jade Buddha Bar, is devastated by the financial losses and is looking for relief from his insurer. Source: Supplied

In early January, Brisbane entered another lockdown after a cleaner at a quarantine hotel tested positive for the UK’s mutant strain.

“Unfortunately, the recent three-day lockdown has killed the Brisbane CBD trade again so we’re currently back to approximately 15 per cent of turnover compared to the previous year,” said Mr Hogan.

Having renewed their insurance in February 2020, Mr Hogan was confident they would be covered for the killer financial losses. But he was shocked to learn their insurer Zurich didn’t even have a claim form for business interruption.

He submitted a claim but it was denied because the insurer said the COVID-19 virus, fell under the list of excluded diseases, said Mr Hogan.

Now Mr Hogan is one of tens of thousands of business owners looking to join a class action against insurers after being crippled by financial losses caused by COVID-19 lockdowns, including restaurants, bars, gyms, cinemas retailers and tourism operators.

Before COVID-19, Jade Buddha Bar was a heaving, popular hangout in Brisbane. Picture: Instagram.

Leading litigation funder ICP has announced plans to back the class action. In November, the NSW Court of Appeal ruled in a test case that insurers could not use standard quarantinable disease exclusions to knock back business interruption claims for losses caused by COVID-19. But the Insurance Council of Australia has appealed the decision to the High Court.

Top tier law firm Clayton Utz has been hired by ICP to advise individual businesses.

“COVID-19 cut a swath through the livelihoods of thousands of business owners who, through no fault of their own, were forced to close for extended periods. If they have valid claims for business-interruption losses, then insurers need to step up, not deny and delay payment,” said ICP managing director, John Walker.

“Our message to business owners is do not take your insurer at its word when it says you’re not covered for BI losses – check your policies closely and get independent advice.”

But waiting for the court appeal could be too long for many small businesses, who will be gone for good without financial relief soon, said Mr Hogan.

“It takes money to fight big insurance corporations with in-house lawyers, and how many struggling bars can do that? That’s why my brother Gary and I made a public plea to the Federal Government to step in and do something about it,” he said.

John Walker, manager director of leading litigation fund ICP, which is backing a potential class action against insurers who have denied business interruption claims. Source: Supplied

The payout could mean the difference between a business continuing or collapsing, added Mr Walker.

“Insurers have an important role to play in Australia’s recovery from COVID and the public expects them to meet, and not shirk, their legal obligations,” he said.

“They should be actively assessing claims and communicating with policyholders, even while their application to appeal to the High Court is considered.”

While insurance company Zurich said it could not comment on individual cases, it supported the decision to appeal the test case to the High Court.

“Zurich acknowledges that it is a challenging time for the Australian business community as a result of COVID-19 restrictions, however, we remain of the view that pandemics were never contemplated for coverage under our business interruption insurance policies,” a spokeswoman said.