‘It’s not our fault’: The business owners awaiting COVID-19 insurance payments

Running a zoo is not something that can be done remotely.

So when COVID-19 hit, the staff at Moonlit Sanctuary on Victoria’s Mornington Peninsula continued to care for the 400-odd animals, including endangered native species like the orange bellied parrot and koalas.

“Conservation is my lifelong passion,” says founder Michael Johnson.

JobKeeper and zoo-specific government payments helped, but Johnson says he was forced to run down savings to keep the place afloat.

Johnson is now one of thousands of small business owners awaiting the outcome of long-running legal process to determine whether insurers are liable to pay business interruption claims to cover COVID-19 losses.

The insurance industry launched a test case in 2020 to seek clarity over whether insurers were on the hook for potentially billions of dollars in claims after confusion over whether policy clauses that sought to exclude pandemics were valid.

The initial judgment sided with policyholders, after the court found these exclusions were invalid because they referenced outdated federal legislation.

The country’s largest insurers, through industry body Insurance Council of Australia (ICA), have since launched a series of appeals and new test cases to seek clarity on the extent of the liability.

The ongoing lawsuit has widely been considered a victory for insurers, as the number of those eligible for payment has become smaller and smaller.

However, insurance advocate Daniel Cohen says there remain thousands of business owners with particular policies that still have valid claims and blames the insurers for dragging out the case.

“Delay, deny, defend – it’s the insurance companies’ playbook,” Cohen says. “My goal is to see this through to the end.”

Cohen is now assisting policyholders around the country lodge claims on a no-win-no-fee basis, after witnessing insurers and brokers deny claims on what he says are false pretences.

“You think the royal commission was bad, this was worse,” he says. “I’ve documented 20 reasons why policyholders have been discouraged from making a claim. It’s impossible that it’s accidental. In my view, it’s been a deliberate ploy to try to reduce potential payouts to clients.”

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Small business owners do not have the funds nor the capacity to navigate complex legal arguments given by insurers turning away claims, Cohen says, who believes this is the reason so few have been lodged. “There is a perception in the public that no claims are valid,” he says. “But the average claim for a Melbourne-based business is $220,000, it could be the difference between a business surviving or not.”

An ICA spokeswoman says the group “understands there is frustration that the matter continues through the courts”.

“Given the complexities of this matter there is a need for both policyholders and insurers to obtain definitive guidance from the courts as to how relevant business interruption policy wordings are to be interpreted and applied,” she says.

“The Insurance Council has consistently been encouraging small businesses to lodge a business interruption claim at any time with their broker or insurer, if they believe they may have a claim.”

‘Not my error’

Melbourne Reiki Studio founder Deborah Dalziel bought business interruption insurance from QBE before opening a studio in Melbourne’s eastern suburb of Hawthorn around 2014.

She bought the insurance to protect her in the event her store was forcibly closed but two weeks before the nationwide lockdown was enforced, Dalziel received an email from her insurance broker telling her she would most likely not be covered.

The broker, Midland, explained that initially business interruption policies only covered property damage but over time the protection was widened to provide coverage for outbreaks of diseases, like measles, which results in the closure of one or two buildings.

The email said ultimately these policies “are not intended to cover disruption caused by an outbreak in a different state, let alone a different country”, leaving Dalziel feeling as though there was no point making a claim.

This line would come to be repeated by the country’s largest insurers, who later acknowledged that the policies had been incorrectly worded but stressed they had never intended to cover pandemics and therefore the appropriate premiums had not been charged.

But Dalziel says that’s not a good enough excuse. “Well that’s their error. That’s not my error. Why should I be suffering for their error?”

Reiki is a type of therapy that involves physical contact, making it impossible to fully transfer services online. Dalziel’s income dried up during the lockdowns and she was forced to empty her savings before eventually giving up the studio. While an insurance payment has the potential to get her back to where she started, for now, the financial impact has been immense.

“If you’re in a caring profession, as a woman who’s nearly 50, you can end up homeless. This is how it happens. I could be one of those statistics,” she says.

The case has now been appealed to the High Court of Australia, which, if it proceeds, could push any final decision back by at least another 12 months.

Like many, 12Round Boxing Studios owner Joel Woodward’s business was forcibly shut due to the lockdowns. While he was given some rental relief, other bills kept piling up.

“Upwards of 95 per cent of our revenue overnight went out the door,” he says. “But body corporate fees didn’t stop, electricity, rates, insurance didn’t stop.”

Woodward has had many sleepless nights, but his anguish is now turning to anger, after realising his policy meant he might be eligible for a claim. “The money they quite happily take, and then not pay up when it’s time to pay up,” he says. “They’re going to the nth degree to fight every single thing. A lot of small businesses have just been hammered.

“They have hundreds of thousands of dollars worth of lawyers fine-tooth combing policies.”

It’s a sentiment shared by Johnson. The patronage to his zoo is nowhere near pre-pandemic levels, with the bulk of his visitors coming from overseas. He says the insurance pay-out would go a long way to getting back on track and has little sympathy for an industry known to be sticklers for detail.

“Maybe I never meant to renew my policy but I forgot, I don’t think the insurance company would be very sympathetic in that situation,” he says. “It’s not our fault they didn’t update their documents.”

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