Australian courts will likely clarify the country’s business interruption insurance law shortly. While these cases progress through the court, practitioners are recommended to educate their clients about the court’s ruling. Here are some tips on claiming insurance for business interruption:
1. Know Your Policy
The Australian courts have clarified that under the current business interruption law, businesses have an independent obligation to mitigate the direct damages caused by the interruption of their operations. The court said that it is up to the insured to decide whether or not it is necessary to relocate its business operations to another location.
The court stressed that the decision to relocate is ultimately the insured’s call. The court also stated that while a decision to relocate is within the insured’s own judgment, a failure to exercise due care and skill in ensuring that the decision to relocate is the right one is not.
The court noted that policyholders could claim business interruption insurance without first deciding to relocate their business. The court also said that the decision to relocate a business is a decision that is best left to a professional business advisor.
2. Report Your Claim Immediately
The court held that the insured must promptly report the claim for business interruption to the insurer. The court said that the report could be made using whatever means the policyholder thinks is best. The court added that if there’s a reasonable excuse to delay the report of the claim, then the insured has to exercise due care and skill in ensuring that the proceedings are reported as soon as possible.
For example, one of the most common business interruption insurance policies obtained by businesses in Australia provides coverage for 12 months. If a business interruption occurs and the business reports the claim on the last day of the policy period, then the claim will not be covered by the policy.
3. Mitigate Damages
Earlier in the year, the Australian court ruled that policyholders can’t claim business interruption insurance if the policyholder failed to act with due care and skill in mitigating the damages caused by the interruption of its business operations. The court held that the insured’s obligation to mitigate damages is independent of any business interruption claim.
In this case, the court held that the insured didn’t exercise due care and skill in mitigating damages. The court pointed out that the insured kept its business operations going despite the disruption of its business. The court also said that the insured allowed its employees to work on a mobile unit located in the same premises as the insured’s damaged building to continue its operations. The court added that the insured made efforts to relocate the business to another location but failed to do so.
4. Do Not Rush the Claim
In Australia, the courts have made it clear that the insured must use due skill and care in deciding to relocate the business. The court noted that the decision to relocate a business is not easy, mainly since relocating a business can be risky. The court also said that the decision to relocate a business is not only a financial decision but also a personal one.
The court added that the ultimate decision to relocate a business should be made with expert advice. The court also made it clear that the decision to relocate is a personal decision that cannot be made lightly.
Conclusion
The Australian court’s decision to interpret the law in this way may mean that the insurance industry will have to change the business interruption insurance policies it issues to businesses. In the meantime, it is ideal not to overlook the obligation to mitigate damages by maintaining the business premises or taking other steps to reduce the cost of repairing the premises when claiming business interruption insurance.
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