In a win for businesses, the NSW Court of Appeal has rejected the insurance industry’s case that business interruption insurance should not cover losses incurred due to COVID-19. It’s safe to say this decision will have enormous ramifications for the industry with the floodgates set to open with claims.
If you’ve suffered loss of business due to the pandemic, consider getting advice on your insurance policy to clarify whether you’re eligible to make a claim.
Given the potential to recover losses in light of the Court decision discussed below, it would be prudent to revisit any pre-existing decision by your insurer to decline a claim for loss suffered during the pandemic.
What led to this case?
Much has been written, including by me, about the impact of the coronavirus pandemic on businesses around Australia. These impacts have been unprecedented and unforeseen with many businesses incurring substantial financial losses. Enter, business interruption insurance.
Business interruption insurance is designed to assist businesses to meet ongoing expenses (such as wages, etc) in the case of an extenuating disruption to their operations – such as damages to premises following a natural disaster. It also provides for one-off expenses related to the interruption such as temporary relocation or closure of a business due to a government mandate – for instance, a short-term street closure for an infrastructure project.
When COVID-19 struck, a key question from many insurers – and those businesses holding business interruption policies – is what obligations do insurance companies have to assist businesses experiencing business interruption due to the pandemic? A determining factor in answering this question will be whether your insurer has updated its policy wording to refer to the Biosecurity Act 2015, or whether your policy still refers to the Quarantine Act 1908. The Quarantine Act 1908 was repealed by the Biosecurity Act 2015. This means that if the policy of business interruption insurance you wish to make a claim under refers to and excludes “quarantinable disease” under the Quarantine Act, that wording is not effective to exclude COVID-19 because COVID-19 has never been declared as a “quarantinable disease”; the Quarantine Act was not current law when the pandemic started and hence COVID-19 could never be declared a “quarantinable disease” under that Act. COVID-19 is a “listed human disease” under the Biosecurity Act, but many insurers have not updated their policies to exclude cover for “listed human disease” under the Biosecurity Act since the Act came into existence in 2015.
The test case
In August, 2020, the Insurance Council of Australia launched a test case in the NSW Supreme Court in order to provide much needed clarity regarding the application of certain infectious diseases exclusions in business interruption policies – specifically whether references to a quarantinable disease under the now repealed Quarantine Act should be interpreted as a reference to a listed human disease under the current Biosecurity Act in business interruption policies.
The test case featured two separate small business claims that were lodged with the Australian Financial Complaints Authority (the Authority) as part of its dispute resolution process. The Authority intended to use the outcome to determine the appropriate course of action moving in its dispute resolution role.
In September, Justice David Hammerschlag of the NSW Supreme Court granted a joint motion to move the case to the NSW Court of Appeal.
The decision
On 18 November the NSW Court of Appeal unanimously ruled that COVID-19 was not excluded from the Disease Benefit clauses on the basis that it has not been “declared to be a quarantinable disease under the Quarantine Act 1908 (Cth) and subsequent amendments.” Pending any further appeals (see below), this decision means that insurers will need to honour business insurance policies that invalidate cover for quarantinable diseases (subject to other eligibility criteria pertinent to the particular policy). In other words, good news for businesses and a potentially costly nightmare for insurers. Read more about this decision: HDI Global Specialty SE v Wonkana No. 3 Pty Ltd [2020] NSWCA 296.
What’s next?
As of December, the Insurance Council of Australia has stated that it will apply for special leave to appeal against the decision in the High Court of Australia.
The Council has said that “it remains of the view that pandemics were not contemplated for coverage under most business interruption policies and that the Quarantine Act exclusion excludes COVID-19 related claims” and that where “appropriately priced business interruption policies were designed to cover pandemics…claims have already been paid out.”
Further to this, the Council has announced its intent to launch a second test case to achieve clarification in areas not dealt with in this one. It is working with its stakeholders to determine the scope of this case.
The merit of any claim by an insured will depend on the wording of the particular insurance policy relied upon. It is prudent to obtain advice before commencing any court proceedings.
If your business has experienced losses due to COVID-19 and you’d like to discuss the implications of this case, contact me on 0402 136 083.
