COVID-19 and Small Business Interruption Insurance Claims


Right to Claim?

As we enter the 13th month since lockdowns in NSW were first introduced, the COVID-19 pandemic continues to impact the way small businesses operate. Specifically, many business owners are still experiencing loss of trade and profit due to business closures, operating at a reduced capacity, and impacts on supply caused by reduced interstate travel.

Now would be a good time for small business owners to check their business interruption insurance policies, as there may be an opportunity to make a business interruption claim due to COVID-19.

The question of whether small business owners can successfully claim in this way is being tested in two cases currently being heard in the Courts. These cases will:

  1. allow the Courts to more specifically determine consumer rights during the ongoing pandemic;
  2. provide a precedent for insurers on how to treat these claims; and
  3. give claimants an insight into the damages they might reasonably expect to recover when they lodge a claim.

Preparing for a potential claim

In the meantime, small business owners that are considering a claim should monitor their revenue and start collating evidence of their financial losses for any period they intend to claim for (the “Impacted Period”). Depending on the terms of the insurance policy, such evidence required by the insurer might include trading statements, profit and loss account statements, payroll documents and receipts of any additional costs.

When the insurer is calculating losses, it will likely compare the claimant’s financial situation (namely its revenue) during the period claimed for versus the claimant’s financial situation over the 12 months prior to that or the claimant’s performance over previous years under ‘normal’ circumstances.

Your accountant may be able to assist with quantifying your financial loss due to COVID-19.

Timeframes for lodging claims

It could take months for these test cases to be decided, and insurers are likely to wait for the cases to be decided before responding to claims for business interruption.

In light of this, insurers have advised they will act in good faith and refrain from:

  1. relying on time limits set out in their policies for a business interruption claim to be lodged, and
  2. avoiding liability on the basis the claimant is insolvent.

To be certain whether your insurer will disregard any time or liability limitations, it is best to get into contact with your insurer or your broker now to clarify how to best conduct your claim.

If you are considering making a business interruption claim and you are unsure about your rights  under your existing insurance policy, and the requirements set by your insurer, Keystone can review your insurance policy and advise you on the best way forward in making a claim.

Look out for further Keystone updates on the outcome of the two test cases heard in the Courts.