The arrival of COVID-19 in 2020 after a horrific bushfire season was the last thing Australian companies needed. Social distancing restrictions forced many businesses to temporarily close, but many have also sought to innovate wherever possible, adapting their business model to survive, in true Aussie battler form.
However, with a change in business model and activities also comes a change in business risks. It is essential to tell your business insurance broker or insurer what has changed, and the business activities you are now performing. Neglect to do so, and you could risk being without cover in the event of a claim.
How can a change in business activities impact my insurance?
Your premium or policy conditions can change
When accepting to insure your business risk, an insurer advises and accepts a certain premium amount in accordance with the level of risk your business activities present. If your business activities change during the period of insurance, you would need to advise them of this to enable the insurer to reassess the premium and increase / reduce the amount charged, based on whether the changes present a higher or lower risk than had previously been advised to them. The insurer may also need to impose additional policy conditions or excesses based on the differing business activities and corresponding level of risk.
If you fail to notify the insurer of changes in your business activities, there are two possible scenarios…
1. You may not have insurance cover in the event of a claim
An insurance policy is a contract between the insurer and the ‘insured’, meaning your business entity. When insurance is purchased initially, the insurer accepts your business risk and agrees to enter into a contract of insurance based on the information presented to them by you at the time. If this risk (i.e. your business activities) change or are varied during the policy period and the insurer is not notified, they are then unaware of any additional risk. Don’t presume that you will still be adequately covered or assume that the insurance company would automatically cover the additional risk without you telling them. Any change or variation to your business activities could fall outside your existing contract of insurance and this may see you left without cover when making a claim.
2. Your policy can be voided
If your changed business risk is not one an insurer would have ever covered in the first place (i.e. it is outside of their Underwriting Guidelines or a Treaty Exclusion), they are, in certain circumstances able to void your policy due to your failure to notify them (this can be considered a breach in your Duty of Disclosure to the Insurer under the Insurance Contracts Act 1984).
Why can a change in business activities impact my insurance coverage?
1. Your insurance policies don’t align with your risks
You may not have the right insurance policies to cover the new / different business activities. If there is a claim, it’s likely you won’t have any coverage to claim against.
- A restaurant now delivers food to people’s homes; however their business insurance policy does not include commercial motor insurance. Without this policy, it’s likely the restaurant business would not be covered in a claim if there was an incident, and the owner of the vehicle would not be covered under their own personal motor insurance policy as they are using their private vehicle for a business activity.
- A beauty therapy business commences production of their own skincare products for sale. This initiative is designed to account for some of the lost income during the pandemic as a result of beauty treatments being banned. They do not advise their insurance broker of this change in business activity, and therefore do not have products liability insurance within their business insurance program to protect them against claims of negligence causing bodily injury to a third party. Should there be a claim for injury as a result of using the new skin care products, the beauty business does not have insurance in place to cover legal expenses, or damages ordered payable for third party injury as a result of negligence (alleged or actual).
In both of these examples, the business insurance taken out does not protect against the new business risks, which changed as a result of each business modifying their activities.
2. You breach your Duty of Disclosure
Your insurance may not adequately cover a claim if you change your business activities and neglect to tell the insurer. Why? Under the Insurance Contracts Act 1984, it is your duty to disclose to your insurance company or broker, a change in your circumstances (even a mid-policy variation) that may affect an insurer’s decision on whether to accept the insurance risk.
Duty of Disclosure explained…
Before you enter into a contract of general insurance with an insurer, you have a duty under the Insurance Contracts Act 1984, to disclose to the insurer every matter that you know, or would reasonably be expected to know, is relevant to the insurer’s decision whether to accept the insurance risk and, if so, on what terms. You also have the same duty to disclose those matters to the insurer before you renew, extend, vary or reinstate a contract of general insurance.
In essence, if your business activities change, notify your insurer or insurance broker. They can help ensure your policy(ies) accurately cover your business risks. Neglecting this step, could see you breach your Duty of Disclosure, potentially jeopardising coverage in a claim.
A winery changed their production line during the pandemic to produce hand sanitizer for sale to the general public. They have not amended their public and products liability policy to note the change / additional product they are producing. If there was a claim brought against the winery for negligence causing bodily injury as a result of a customer using the hand sanitizer, and the insurer never knew this product was being produced and sold, it could result in the winery being without cover should a claim be made. This could mean any legal expenses to defend the claim, and damages awarded to the customer would need to be paid by the winery itself if it were found to be liable.
How can I check what my current business activities are listed as on my policy?
Refer to your schedule of insurance provided to you by the insurance company. There should be a section called “business activities” or “occupation” which lists your current activities. If after checking this, you are unsure whether to notify your insurer of changes to your business activities, it’s always best to be safe than sorry. Pick up the phone or send an email. A small increase in premium or a simple change is better than no coverage in a claim.
For professional insurance advice, connect with a CBN Authorised Broker.
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