COVID-19 and property/business interruption insurance un-occupancy exclusions? Be proactive and don't wait

Businesses seeking to recover business interruption loss suffered as a result of the global COVID-19 pandemic should carefully check the terms of their business interruption (BI) insurance and seek advice as to whether they should make a claim under their BI policy.

As we discussed in an article published in Lawyers Weekly earlier this month, it is possible that businesses may be covered for their loss under their BI insurance policy under an infectious disease extension or under an extension for restriction to access to the insured premises. That may be so even if the insurance policy contains a "quarantinable disease" exclusion.

Watch out for the un-occupancy exclusion – act now!

Aside from common insurance policy obligations for insureds to promptly notify insurers of any material change in the risk, it is also important to bear in mind that Property and BI insurance policies often exclude loss or damage to premises that have been unoccupied for more than a specified period of time; eg. between 30 and 90 consecutive days (un-occupancy exclusion). The effect of this exclusion is that, if damage occurs after the un-occupancy period expires, the insurer may seek to rely on the exclusion to deny cover, even if the damage has no connection to the fact that the premises were unoccupied.

The scope of the un-occupancy exclusion varies from policy to policy (including what "unoccupied" means for the purposes of the exclusion) and arguments may be open to the insured that the insurer is only able to rely upon the exclusion if the fact that the premises were unoccupied caused or contributed to the damage to the premises, but it is best to be proactive and manage this issue with your insurer to avoid a dispute down the track.

If a business has been forced to close as a result of COVID-19 it will be important that they take into account the un-occupancy exclusion and proactively engage with their insurance broker and insurer to obtain written confirmation that the un-occupancy exclusion will not apply if they are unable to return to normal occupation and operations within the un-occupancy period specified in the exclusion.

It is likely that, if you proactively engage with your insurer and inform the insurer of your circumstances, the insurer will agree not to rely upon the un-occupancy exclusion given the impact COVID-19 has had on Australian businesses. In doing so, insurers may seek to impose certain conditions such as requiring that the insured business:

• maintains security and substantially the same contents and fittings that would be required for the ordinary operation of the business;
• ensures that the premises remains connected to utilities; and
• agrees that the business will re-open the premises when the COVID-19 restrictions have been lifted.

It is clearly important that insurers exercise flexibility regarding the un-occupancy exclusion given the unusual circumstances created by COVID-19.

That said, businesses should proactively engage with their insurer to avoid the application of the un-occupancy exclusion.