Coronavirus business insurance tested by Star Entertainment as jobs go

Casino group Star is the first ASX-listed company to lodge a COVID-19 business interruption insurance claim, making the move as it stands down 95 per cent of its workforce.

Star is standing down 90 per cent of its employees as a result of coronavirus restrictions. Picture: Glenn Hampson

Casino group Star Entertainment is the first listed company to lodge a business interruption insurance claim as a result of government-enforced shutdowns of non-essential businesses such as gaming venues, theatres and clubs in an effort to halt the coronavirus pandemic.

Star’s claim, which comes as it stands down about 8500 employees – or 95 per cent of its workforce – will be a major test case for business interruption insurance, particularly as most policies exclude shutdowns as a result of pandemics or infectious diseases.

Rival Crown Resorts meanwhile has stood down 95 per cent of its workforce, or 11,500 employees and has borrowed an extra $560m.

Star has borrowed an additional $200m and deferred payment of its first half dividend as it seeks to conserve liquidity. The company has also applied to access the federal government $130bn JobKeeper wage subsidy program, which will provide workers with $1500 a fortnight.

It has estimated operating expenses from April will be about $10m, which comprises payments to workers who have not been stood down and does not include any potential insurance payments.

“The Star has lodged a claim under its business interruption insurance policy in relation to the shutdown of its properties and is working through the claim process,” chairman John O’Neill said.

“The cost and cashflow expectations … do not assume any insurance proceeds.”

While the Insurance Council of Australia has declared the COVID-19 outbreak a catastrophe pandemics and infectious disease-related claims are excluded from most business interruption insurance policies.

“The majority of policies may exclude claims relating to COVID-19,” the Insurance Council’s head of risk and operations Karl Sullivan said last month, adding most business insurance claims covered revenue lost following physical damage to insured assets.

“While specific business policies may differ, the majority of business policies are likely to contain some exclusions relating to losses caused by infectious diseases or similar.”

Mr O’Neill said Star was implementing other mitigation measures to minimise the financial damage from coronavirus-led shutdowns.

Other initiatives include slashing capital expenditure and cutting non-executive director fees by 50 per cent. Meanwhile chief executive Matt Bekier’s salary has been reduced by 40 per cent.

“These unprecedented challenges have had a considerable human impact.

“To temporarily stand down more than 90 per cent of our dedicated workforce will be the most painful decision our senior management is ever likely to encounter. As a board, and as a management team, there was no hesitation in reducing directors’ fees and senior executive salaries.”

Star’s first half dividend has been deferred, with the company the dividend reinvestment plan maintained but with a 1.5 per cent discount.

Star has borrowed an extra $200m and secured a full waiver of its gearing and interest cover covenants at the next covenant testing on June 30. Including the extra $200m, the company has available cash and undrawn debt facilities of about $700m.

“This provides sufficient liquidity for an extended period of shutdown of the Group’s properties,” Mr O’Neill said.