ASIC urges small businesses that suffered losses from COVID-19 closures to lodge insurance claims

Small businesses are being urged by the Australian Securities and Investment Commission (ASIC) to lodge insurance claims to try to recover losses resulting from pandemic restrictions.

ASIC and the Australian Financial Complaints Authority (AFCA) want to boost the number of business interruption claims, after only 3,000 businesses of those that may be eligible for coverage have lodged claims since the pandemic began last March.

Business interruption insurance covers losses to trading caused by events such as infectious diseases and natural disasters. However, many policies include pandemic exclusions that prevent businesses from recovering losses due to COVID-19-related shutdowns.

Peter Strong, chief executive of the Council of Small Business Organisations Australia (COSBOA), says it’s important that confusion over whether businesses are covered for losses resulting from government mandated lockdowns is resolved as soon as possible.

“We think they [businesses] should be paid, because basically businesses will end up bankrupt. This is the loss of people’s houses and it’s about people’s mental health,” Strong tells SmartCompany.

Two test cases are currently playing out in Australian courts, and their outcomes will significantly influence future claims.

The Insurance Council of Australia (ICA) initiated the first case in the NSW Court of Appeal last year, and has since sought leave to appeal the court’s decision in the High Court of Australia.

The ICA’s has so far argued that pandemics were not intended to be covered under most business interruption policies.

The NSW Court of Appeal, however, ruled that some policies referred to the now repealed Quarantine Act, which was replaced in 2015 with the Biosecurity Act.

The second test case was initiated as part of a dispute resolution process linked to nine small businesses claims lodged with AFCA. The insurers represented are Allianz, IAG, Chubb, Guild, and SwissRe Corporate Solutions.

This second case will see the Federal Court consider the unclear wording of business interruption policies to determine how they define a disease, the nearness of an outbreak to a business, and the blocked access to a business premises due to government restrictions.

Strong has been in discussions with the ICA and is planning a public round table to discuss business interruption and broader insurance issues facing small businesses.

“The reason we take insurance is to get paid out, and if they [insurers] don’t have the capacity to pay, well we need to talk about what we’re going to do about it,” Strong says.

Insurance has become a pressure point for small businesses in Australia, and not just because of losses resulting from COVID-19.

Liability insurance, and particularly the continuity of liability coverage is increasingly difficult for specialist businesses such as caravan parks and smaller-sized theme parks.