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Utilities outages and insurance cover for business interruption losses
Time to read: 3 minutes
The Optus outage on 8 November 2023 led to widespread disruption to Australian businesses who might wish to consider their insurance position. Early indications, however, suggest that recourse to common forms of business insurance may be limited, at best.
Cover for utilities outages under business interruption insurance policies varies widely. The most common such policy in Australia is the NIBA Industrial Special Risks (ISR) policy which covers damage to property and the business interruption losses which flow from that damage.
The Mark IV Industrial Special Risks Policy is a commonly adopted wording. This wording was introduced in 1987 to provide an industry standard. That base wording has been revised, modified, butchered and tailored over time. Across the market now, there are Mark IV ISR, Modified Mark IV ISR, Mark V ISR and Modified Mark V wordings available to policyholders. There are also various other Frankenstein versions of those wordings which have been crafted by brokers, lawyers, and creative insurance managers over the years.
When claiming under an ISR policy, the Business Interruption cover in principle is engaged only when there has been covered physical damage to tangible insured property and the business interruption is a direct consequence of that damage. However, some ISR policies have extensions covering business interruption due to utilities outages even where there has been no physical damage to the Insured's own property. They may, or may not, require such damage to other property, such as that of the utility provider. These extensions are relevant when considering potential insurance cover for losses consequent upon the Optus outage.
Even where there is a utilities extension in your ISR policy, the coverage outcome will differ based on whether:
- the utilities outage will include telecommunications outages or will only apply to electricity, gas and water outages;
- a waiting period apply; and
- a sub-limit might apply.
One or more of the above factors could severely restrict the cover available to a business impacted by the Optus outage.
Below we road-test how some of the more common wordings will respond to the Optus outage. The below table is intended to be a non-exhaustive guide and summary only and, of course, there are various factors which will impact the insurance recovery for individual businesses.
Allianz Mark V ISR Policy [Policy reference POL566BA 11/21]
Comments on cover for utilities outages
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Optional cover can be purchased for business interruption to the business caused by Damage to land-based premises or property in Australia or any company supplying communication services to the Insured's Business or the Insured's direct suppliers or customers or the direct supplier of services to any of those parties.
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Optional cover can be purchased for business interruption to the business caused by Damage to property (at premises specified in the insurance Schedule) of any merchant (other than 1 above) supplying services to any direct supplier or customer of the Insured which results in interruption with their position as a supplier or customer of the Insured.
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Unspecified Suppliers' and/ or Customers' Premises – Worldwide. This extension covers Loss resulting from interruption with the Insured's business in consequence of Damage to property outside Australia of any direct supplier of the Insured. Sub-limit usually applies and no cover for natural catastrophe events.
- Other Contributing Properties. Covers Loss resulting from interruption to the Insured's business in consequence of Damage to property not owned or operated by the Insured but which wholly or partly prevents delivery of services to the Insured and/ or the Insured's customers.
Summary
"Damage" is usually defined to mean physical damage. Assuming that there has been some Damage to Optus' facilities or equipment, which caused the Outage, then there may be some cover available under this policy, subject to any sub-limit and/ or waiting period that may apply.
CGU Mark IV ISR Policy [Policy reference CV603REV2 03/20]
Comments on cover for utilities outages
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Public utilities extension is limited to electricity, gas and water so does not provide cover for loss arising from the Optus outage, unless that in turn had the effect of disrupting the supply of any of those commodities to the Insured.
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No cover for total or partial inability to receive, send, access or use Electronic Data and/ or Software for any time or at all. However there may be cover if the Optus outage was caused by a fault or defect in a communication mast, tower, antennae or satellite dish.
- No cover for business interruption caused by damage to public overhead transmission and distribution lines and the structures of power-generating authorities or companies and telecommunications companies.
Summary
Limited if any cover available.
Zurich Mark IV (Consolidated) ISR Policy [Policy reference ZU22471 – V4 10/23 – ITRN – 021442-2023]
Comments on cover for utilities outages
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Cover for business interruption losses caused by Damage to any electricity sub-station, gas or water pumping station of a public supply undertaking which is situation on or immediately adjacent to the Premises (the insured business premises).
- Cover for business interruption losses caused by Damage to computer installations, including ancillary equipment and data processing media utilised by the Insured anywhere in Australia.
Summary
Limited if any cover available.
The assessment of any insurance recovery is, of course, coloured by the ultimate cause of any utilities outage.
The consensus among the reported experts appears to be that "network technical issues" happen and cannot be completely avoided. That makes such risks, in principle, eminently insurable.
The obvious conclusion then to be drawn from the above wordings is that there is a business opportunity here, for the insurers who wish to explore it.
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Disclaimer
Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.