Yesterday, the Australian Government included H1N1 influenza (“swine flu”) as a quarantinable human disease as per the Quarantine Act 1908 (Cth). This has implications under many insurance policies.

This Government action was taken on the advice of the Chief Medical Officer, Professor Jim Bishop.

Making swine flu a quarantinable disease ensures that the federal government has the power to take appropriate emergency actions to prevent or control the spread of disease.

The vast majority of business interruption insurance policies that provide cover for disruption to the business arising from infectious diseases, also contain an exclusion for losses arising from a disease that is notifiable under the Quarantine Act 1908 (Cth). A sample of such an endorsement is reproduced below:

"Infectious or Contagious Diseases; Vermin, Pests or Defective Sanitary Arrangements; Food or Drink Poisoning; Murder, Suicide (A)

Loss as insured by the Policy resulting from interruption of or interference with the Business arising from closure or evacuation of the whole or part of the Premises by order of a competent public authority consequent upon:
 
(a)    infectious or contagious disease manifested by any person whilst at the Premises;
(b)    vermin or pests or defects in the drains or other sanitary arrangements at the premises;
(c)    injury, illness or disease directly caused by the consumption of food or drink provided on the premises;
(d)    murder or suicide occurring in or at the Premises,
 
shall be deemed to be loss resulting from Damage to Property used by the Insured at the Premises.
 
Provided that paragraph (a) will not indemnify loss resulting from interruption of or interference with the Business directly arising from or in connection with Highly Pathogenic Avian Influenza in Humans or any other diseases declared to be quarantinable diseases under the Quarantine Act 1908 and subsequent amendments.
 
Indemnity under this endorsement shall not exceed the Sub Limit of Liability per event and in the annual aggregate expressed in the Schedule."

(Emphasis mine, source LMI PolicyCoach)
While it is hoped that the outbreaks will be contained and no interruption losses arise, it is likely that the topic will come up in conversation and insurance advisers need to explain the situation to their clients.

The issue is, a serious outbreak could affect the already weakened Australian economy to the point that the accumulated losses are so great, the insurance industry does not have the funds to pay the claims.

Insurance is only one form of risk management and business owners are encouraged to consider their own risk management plans and review their Business Continuity Plans. Tools such as LMI ContinuityCoach are available for insurance brokers and business owners to develop and keep their Business Continuity Plans up to date.

LMI Group’s Dr Allan Manning has prepared a white paper on the issues surrounding pandemics and a copy can be obtained by emailing allan.manning@lmigroup.com.