Pandemic business interruption insurance payout storm is brewing

At least three major insurers are exposed to significant business ­interruption insurance payouts.

The usually bustling Degraves Street is all but deserted as Melbourne during lockdown. Picture: NCA NewsWire / Andrew Henshaw

At least three major insurers are exposed to significant business ­interruption insurance payouts in what a leading class action legal expert has branded another pathway for those blocked by the findings of a test case.

Chubb, Swiss Re International and Suncorp subsidiary Vero are among underwriters identified by lawyers preparing the class action for Gordon Legal to take on insurers for business customers seeking payouts following the COVID-linked lockdowns.

There are potentially thousands of businesses with policies affected by the wording, which may extend to an even broader reading, according to Berrill & Watson lawyers, which could open claims on a whole new front.

Insurers are also looking at ballooning payouts as many policyholders have now waited so long they can make claims greater than their limits.

Berrill & Watson director John Berrill said the prevention-of-­access clauses would allow thousands more businesses to make claims against their insurers for losses suffered due to the coronavirus pandemic.

“There’s still a pathway for those with the Quarantine Act exclusion if they’ve got a pathway through prevention of access,” Mr Berrill said.

A recent judgment from the NSW Court of Appeal in a test case in Australia found insurers who had offered policies that referenced the defunct Quarantine Act were unable to block business ­interruption insurance claims.

However, the court also found those who held policies that referenced the current Biosecurity Act were unable to claim.

Prevention-of-access clauses are typically triggered by government action that seeks to protect the property, with some policies also referencing protecting people.

Mr Berrill argues government shutdowns that slammed Australian states and territories for much of 2020, worst of all in Victoria, created just such a scenario, which triggers those policies.

The Insurance Council of Australia has admitted the industry is concerned about claims relating to prevention of access, flagging it may seek a second test case to ­address the issue.

“This is why the ICA and its members are proposing a second test case to test the application of these further issues of pandemic coverage in business interruption policies,” a spokeswoman said.

“The intention is that the court will be asked in the second test case to interpret and determine the parameters of the cover available under this type of clause.”

Mr Berrill said the potential legal opening had only been highlighted by the findings of the recent business interruption in­surance test case in Britain that found in the favour of the insureds.

“This decision is significant. An Australian court is not bound by the UK decision but they will pay attention to it,” he said.

However, Mr Berrill said the point could also be argued more broadly to rope in more insurers and cover further scenarios where lockdowns caused damage.

“There’s an argument to say COVID can cause damage to property and some people can be within the vicinity of damage to property,” he said.

He also noted potential payouts across all claims was now growing in the face of intransigence from insurers

Mr Berrill said many insured had already hit their business interruption policy sub-limits ranging from $250,000 to $600,000.

“There are questions about calculations of loss if a business goes bust or they suffer loss of goodwill because they couldn’t reopen had they had the money, then they’ve got consequential loss claim,” he said. “These could be huge.”