Business Interruption Insurance: An Overview

The COVID19 pandemic has amplified the requirement for businesses to hold insurance that adequately protects against a serious incident such as a major loss or financial collapse.

The COVID19 pandemic has amplified the requirement for businesses to hold insurance that adequately protects against a serious incident such as a major loss or financial collapse.

Affording this protection is business interruption insurance (BI insurance) and can mean the difference between survival and closure – or does it?

What is business interruption insurance?

BI insurance can be added to your Industrial Special Risks (ISR) or business pack (Biz Pack) policies. Subject to the terms and conditions of the policy, the intention is to restore the business to the same financial position had the loss not occurred.

Industrial Special Risks Insurance

An ISR insurance policy provides property damage, business interruption or consequential loss coverage. It is a flexible policy that can tailor specific coverage and is a popular policy choice for medium and larger sized businesses.

An ISR insurance policy protects the Declared Assets noted in the Policy Schedule. Declared Assets are separated into the two sections, being Material Loss or Damage and Consequential Loss (Business Interruption). Material loss or damage provides coverage for any physical loss or damage other than what is excluded or limited under your policy.

Triggered after a material damage loss, BI insurance covers the loss that results from the interruption to the business as a result of the material damage. This can include coverage for impacted gross revenue, profit and/or rent, as well as additional increased cost of working.

In the event of a serious incident, a business with BI insurance can ultimately be compensated for the loss of profits or income for the period following the damage until the business resumes pre-loss production. Further, the insurance can cover businesses for contingencies, which relate to those risks which may be considered remote to the insured business, yet detrimentally disrupt business operations.

Contingencies include:

Prevention of access: where the business is unable to gain access to its own premises.

Damage or destruction of property of a supplier or customer of the business: Cover may be available for financial loss suffered due to suppliers and/or customers being unable to supply their goods/services to the business.

Damage to public utilities: cover is available for loss caused by damage or disruption to publicly available utilities.

Business interruption insurance claims and COVID-19 – What to do?

The outcome of Australian test cases should clarify whether BI insurance will cover losses incurred as a result of the COVID-19 pandemic. You can read our article about the UK and Australian test cases here.  We have also prepared an article discussing the defeat of the first Australian test case in the High Court, here.

Insurers will generally wait for the results of the test case prior to issuing decisions on claims. Previous time limits for lodging claims set out in a policy will be void pending the results which are expected to take some months.

It is an appropriate time to seek legal advice about your existing insurance policy and whether it covers COVID-19 related losses. Elit Lawyers by McGirr & Snell can assist you with a review and assessment of your current insurance policy to ensure you have appropriate cover.

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