Pub frontrunners Sand Hill Road are prominent in a posse of Australian businesses seeking the payment of interruption insurance over COVID-19, with battles already being fought in the High Court.
Sand Hill Road (SHR) owns and operates nine pubs in the Melbourne area, and has lodged a $26 million claim against insurers after being forced to close during pandemic shutdowns.
SHR director Matt Mullins declined to comment on the ongoing case, but has previously been vocal on the inadequate support for hospitality businesses throughout the pandemic. The group reports its workforce as down by two-thirds, largely due to the failings of JobKeeper.
He cites that the tight criteria allowed many industries to get full subsidies for all workers, while hospitality, which has been forced to close entirely or operate at reduced capacity, was granted support for only around a third of workers as eligible. This has created incentive for workers to leave the industry.
Victorian venues remain restricted on numbers, leaving SHR pubs at between 15 and 50 per cent capacity, while Melbourne in general is still far below pre-pandemic activity. Victorians working in service industries are receiving far from adequate support, and subsequent iterations of the scheme have not addressed the industry’s crisis.
The landmark case by SHR against insurers Arch Underwriting at Lloyds, AXA XL, Chubb Insurance, and Berkshire Hathaway Specialty Insurance seeks payment for the massive downturn in trade. The amount is a product of the shortfall in profit less costs saved from being shut.
The claim covers losses incurred through 2020 and early 2021, and alleges policies provided coverage in the event of an “outbreak of a notifiable human infectious or contagious disease” specified by a relevant public authority, occurring within 40 kilometres of the premises.
It is the largest claim to date through law firm Gadens, which has filed more than 20 separate cases on behalf of Melbourne businesses in the past few weeks.
Insurance companies around the world have found themselves in courtrooms in bids to block claims for business disruption insurance following COVID. Some have labelled it a “war of attrition” as the multinationals explore every possible legal option open to slow or avoid the settling of claims.
Business interruption insurance is an add-on usually covering the likes of floods, fires and power outages, and the insurance companies stress many policies specifically exclude pandemics, under Australia’s Quarantine Act.
But the Quarantine Act was repealed in 2016, replaced with the Biosecurity Act, and while some policies were amended, others were not.
COVID-19 was declared a pandemic by government under the Biosecurity Act, and insurers have been arguing the fine print should work in their favour, and an amendment to the relevant Act means the exclusion still applies. They also argue they aren’t set up to cover a global pandemic and insurance pools would likely be bankrupted.
“The nature of the risk means that it is, by most measures, uninsurable,” said a spokesperson for the Insurance Council of Australia (ICA). “The global reinsurance industry deliberately and clearly excluded pandemic-related losses from most policies on this basis.”
The debate brought a test case, launched last year, involving a Tamworth caravan park and a Melbourne health food shop, and a recent decision went against the insurance companies, stipulating the ‘the words were the words’ and the exclusion clause didn’t apply.
This opened the door for an estimated $10 billion in claims for losses suffered due to COVID-19, through an estimated 250,000+ policies. The outcome even prompted IAG into trading halt as it looked to raise $750 million in anticipation of claims.
The Insurance Council of Australia promptly appealed to the High Court to rule on the intention of the fine print in policies.
A similar test case in Britain by the corporate regulator has initially ruled mostly in favour of policyholders.
The appeal took place Friday, the High Court hearing arguments including how insurance companies enjoyed greatly reduced risk while businesses were shut, but continued to collect policy payments.
This afternoon the Court denied the appeal.
Unfortunately, the narrow scope of the test case means it only applies directly to a small number of claimants, and there is still some way to go for further cases and the thousands of businesses that have made a claim.
Gordon Legal is acting for a class action into the matter, and partner Andrew Grech recommends policyholders lodge claims immediately, to establish an obligation date on interest, regardless of what their brokers and insurers might tell them. Grech laments that the most efficient way to force insurers to “do the right thing” is through the strength of numbers.
The Australian Financial Complaints Authority reports complaints related to COVID have grown from 42 for FY20 to 120 business interruption insurance disputes currently on its books.
AFCA has developed a fact sheet to assist small businesses prepare relevant documents to support a claim for business interruption and the calculation of loss.
