This article was written by Travis Toemoe, Peter Yeldham and Emma White
The present economic climate is challenging for all not-for-profits (NFPs).
NFPs suffering interruption and financial loss as a result of COVID-19, may have insurance recoveries available.
This note sets out some of the matters you might like to consider and some steps you may need to take where a loss has been suffered.
What to do if you have suffered a loss
Your organisation should:
- Identify the loss – what are the impacts of COVID-19 on your organisation? Consider what specific loss was suffered, what loss may be suffered in the future, and the degree to which your organisation may be liable for that loss.
- Act to mitigate loss – insurers will expect you to mitigate your loss. Your organisation is more likely to receive compensation if you can demonstrate that you acted responsibly and took positive actions to mitigate the loss.
- Keep a record – keep a specific and chronological record of your organisation's activities. This includes keeping note of the loss suffered, the circumstances in which it was sustained, what your organisation did to mitigate the loss, and how your organisation acted afterwards.
- Review your insurance policies (see Business Interruption Policies below) – what does your insurance policy cover? Consider the type of cover your organisation has and whether that scope extends to the loss suffered. Look beyond the general policy, as the terms and details are usually set out within the schedules.
It is also important to consider whether your organisations insurance policies contain exclusion clauses that may be triggered. For example, some policies may only cover losses suffered as a result of government restrictions and will not cover losses suffered as a result of voluntary or precautionary cancellation.
- Contact your insurance broker – if you believe that your insurance policy covers your loss, let your broker know that your organisation is considering a claim. Given the unpredictable and ongoing nature of the COVID-19 pandemic, avoid estimating the claim amount at this stage.
Business Interruption Policies
Do Business Interruption Policies afford cover for COVID-19-related interruptions?
Industrial Special Risks and similar policies (referred to as "Business Interruption Policies" in this note) provide cover in the event of loss, damage or destruction to property (often referred to as "Section 1 cover") and consequential loss, such as loss of revenue/profit arising from interruption to the business due to the property damage (often referred to as "Section 2 cover"). Whilst COVID-19 may be considered unlikely to cause property damage (and that is not certain), cover may still be available for business interruption losses.
Business Interruption Policies differ across clients, industries, insurers and jurisdictions, and are tailored based on the particular type of business insured. As a result, there is no "one size fits all" approach that can be taken when determining the responsiveness of Business Interruption Policies. Accordingly, if you have a policy in place and have been affected, we recommend that you speak with your broker and/or legal advisers to obtain further advice particularly where insurers have suggested that exclusions apply or cover is not available.
Business Interruptions Policies almost always require a "trigger" (such as property damage) in Section 1 to enliven Section 2 business interruption cover. As a result, one threshold issue will be whether or not the business interruption arises from loss, damage or destruction to property related to COVID-19. We consider it is worth exploring claims under Business Interruption Policies for the following reasons:
- Extensions to Section 1 cover: Some policies contain extensions that provide cover in the event of:
- infectious diseases;
- interruption or interference with suppliers' or customers' businesses;
- prevention of access to premises; and/or
- the intervention of government/authorities.
Not every policy includes these extensions, and policies that contain these extensions tend to differ between insurers and jurisdictions as to the precise wording. Each extension in a Business Interruption Policy therefore needs to be examined closely to determine whether it might be applicable.
- Construing the "damage" requirement: Depending on the precise manner by which your business has been affected by COVID-19, arguments may be available that COVID-19 constitutes "damage" to your organisation's property.
In those circumstances, subject to the precise policy wording, Business Interruption Policies may afford cover to NFPs impacted by COVID-19. The types of loss that may be covered as a result includes:
- loss of gross profits;
- payment of wages and other expenses;
- fines and/or penalties for non-completion or partial completion of contracts;
- expenses incurred in mitigating losses (i.e. incurring costs to take steps the NFP would not otherwise in order to reduce overall expected loss);
- additional or increased costs of operation;
- loss of any royalties receivable; and
- costs associated with preparing the claim (including professional and legal fees).
What to do if you have an existing Business Interruption Policy
If you have been impacted by COVID-19, you should:
- Check your insurance arrangements and, in particular, consider which policies might respond (ask your broker as a first step).
- If you have multiple policies across jurisdictions and/or entities in your corporate group, there may be multiple policies which are potentially responsive (although "double recovery" is not permitted if there is any overlap). To the extent one or more of those policies may respond, you will need to closely consider within which organisation the interruptions have been experienced and where the loss "sits".
- Keep a detailed record of all costs that have been occurred as a result of the impact.
- Make sure you have mitigation steps in place in order to minimise losses (as failure to do so may impact any insurance claim).
- Seek advice from your broker and/or legal advisers on the scope of cover potentially available.
What to do if you are looking to take out, or renew, a Business Interruption Policy
If you have been impacted by COVID-19, or expect to be impacted, you should speak to your broker and/or legal advisers about negotiating policy wording. Insurers are already developing exclusions to limit or exclude cover for COVID-19. As for all contractual terms, exclusions will need to be carefully drafted to ensure they do not have unintended operation.
What to do if your general insurance policy doesn't cover your loss
In the event that your general insurance policy doesn't cover your organisation's loss, the best way forward is to consider whether the type of loss can be covered by other specific policies, such as workers compensation schemes or independent contracts.
Employment and employee-related loss
Your organisation may be experiencing losses related to your people, including their health and/or finances. Key considerations include:
- Whether workers compensation schemes (which vary between states and territories) are relevant to your employees. These schemes may be applicable to employees who experience health issues as a result of the pandemic.
- Whether your organisation owes insurance obligations to other workers under your care, such as volunteers or independent contractors. Review your individual contracts with each party and consider how your organisation manages these relationships.
- Cyber-liability insurance may also protect organisations against cyber-risks such as hacking, data breaches, information theft, and/or privacy issues. Your organisation should consider whether these policies cover staff that are working from home or out of office.
Events and cancellations
If your organisation regularly hosts events (such as fundraisers), you may be covered by event insurance. As with general insurance policies, the key steps to take are to assess your loss and review your event insurance policy to check whether your loss is covered.