Coronavirus (nCov) and Business Insurance for the SME

The biggest news story at the moment is the global rapid spread of the coronavirus and the effect it is starting to have on countries and more specifically individuals and businesses.

Whilst to date their has been only one confirmed unfortunate death from the coronavirus in Australia, Australian businesses are starting to feel the brunt in certain segments.

A recent article from Roy Morgan Research has found in mid-February around one in six Australian Businesses have already been affected by the novel coronavirus (Covid-19).

Industries affected include our travel industry with no direct flights from and to China and the likelihood of more countries being added to the banned countries list, resulting in travel agents, tour groups, hotels and airplane carriers feeling the brunt of the coronavirus as fewer tourists arrive.

The education industry has seen vast numbers of Chinese students unable to leave China. This has resulted in a large portion of Chinese students missing at least a term of studies in courses at universities, the flow on effect has been felt by local businesses.

The manufacturing, importing, exporting and wholesaling industries are starting to feel the pressure with factories in china closing down for an indefinite quarantine period and products leaving china being delayed resulting in some factories reducing staff numbers here at home.

Food and hospitality industries, especially in the Chinese communities are now suffering as a result of public fear of the coronavirus outbreak with many well-known establishments reporting a significant drop in patrons for almost 2 months.

Some businesses who have taken business insurance “business interruption cover” have turned to their insurance policies to work out whether they are covered by insurance for the downturn to their business.

Is your business covered?

The novel coronavirus is part of a family of viruses that cause illness ranging from the common cold to more severe respiratory diseases.
The insurance industry has had experience in the past with similar diseases, first with the Severe Acute Respiratory Syndrome (SARS) in February 2003 and then followed by the Middle East respiratory syndrome (MERS) in 2012.

Policy changes were made by insurers in the early 2000’s which has made it difficult to claim under traditional business insurance policies in the Australian market.

Historically, the trigger for business interruption claims under a business insurance policy is “physical loss or damage caused by an insured peril”. Virus and disease are not deemed to be insured perils and are unlikely to fit within the trigger framework. According to a recent white paper report on the coronavirus by Crawford’s Forensic Accounting Services, successful claims under business interruption coverage for infection are “not common”.

Whilst, the corporate market and certain endorsements provided by some insurers are available for certain business sectors where notifiable diseases are covered up to a specified amount, this is generally not the case with the majority of business package policies aimed at commercial and small businesses market.

Most business policies have an “infectious disease endorsement/benefit” under the business interruption section but exclude “Avian Influenza and any disease declared to be a quarantinable disease”.

Insurers wordings slightly vary but generally fall within the following:

AIG Steadfast business wording 09/00843.6, Allianz Steadfast SCTP business wording POL1113BA/SF 11/18 and Vero Steadfast business V0001 30/11/17 C are similar in design, the AIG Steadfast business insurance wording reads:

2.14 Infectious disease, etc.
We will also pay You for interruption to or interference with Your Business due to closure or evacuation of the whole or part of the Situation during the Period of Cover:

(a) by order of a Government Authority as a result of vermin or pests or defects in the drains or other sanitary arrangements, occurring at the situation.
(b) as a result of an outbreak of an infectious or contagious human disease occurring within a 20-kilometre radius of the Situation, however there is no cover for highly pathogenic Avian Influenza or any disease declared to be a quarantinable disease under the Biosecurity (Consequential Amendments and Transitional Provisions) Act 2015 (as amended) irrespective of whether discovered at the location of Your situation, or out -breaking elsewhere.

QBE insurance business wording QM485, CGU Business Steadfast wording CID0082 REV12 10/15, Hollard SCTP Business insurance wording 1 April,2019, Miramar Steadfast SCTP wording dated 14/6/19

The above insurers have a similar wording to AIG but rely on the earlier Quarantine Act 1908 (subsequently replaced by Biosecurity Act 2015).

The question from reading the above is whether the coronavirus is a quarantinable disease under Biosecurity Act 2015.

On 21 January 2020, Human coronavirus with pandemic potential was declared a Listed Human Disease under the Biosecurity Act 2015, enabling the use of enhanced border measures by the Minister for Health, Greg Hunt.

Hence, it is fair to assume claims are unlikely to be paid by insurers irrespective whether there is a slowdown in local business due to overseas suppliers closing production or an outbreak of the corona virus locally.