Insurers lose test case denying COVID-19 business interruption coverage

Australian insurers are facing a tsunami of pandemic-related business interruption claims in the wake of a New South Wales Court of Appeal ruling rejecting insurance industry claims that policies did not cover coronavirus-related losses.

The test case was brought by the Insurance Council of Australia (ICA) to determine if pandemic exclusions that referenced the Quarantine Act 1908 (Cth), which was replaced by the Biosecurity Act 2015 (Cth) in 2015, could be used to reject claims.

The NSW Court of Appeal, in its decision on HDI Global Speciality SE v Wonkana No.3 Pty Ltd [2020] NSWCA 296, handed down on Wednesday, found COVID-19 was not declared a quarantined disease under the Act referenced in current policies, and therefore insurers could not reject the claims.

The decision could expose insurers to multiple-millions of dollars in payouts.

Lawyers for the insurers argued that business interruption policies, including those provided by Suncorp, IAG and QBE, reference the expired Quarantine Act, but relied on the argument that “quarantinable diseases” exclusions were relevant for the pandemic.

The ICA, in a statement in response to the decision, yesterday said it was now in discussions with insurers, the Australian Financial Complaints Authority and other stakeholders to consider a further test case.

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“(That case would explore) outstanding policy matters, including proximity and prevention of access, relating to the pandemic and business interruption insurance,” the ICA statement said.

“The industry’s intention is that it would again meet the costs of both the policyholders and the insurers in any legal process, in the same fashion as the first test case regarding the Quarantine Act.

“The industry seeks to progress a court resolution of these matters quickly, and regardless of any decision around an appeal on the first test case.

“The Insurance Council will continue to work with all stakeholders and government to provide clarity for all parties and the industry.

“It will provide an update on these matters as soon as they are settled in coming weeks.”

Read the NSW Court of Appeal decision.

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Read the Insurance Council of Australia statement.

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