Australian and British BI test cases 'apples and oranges'?

Australian and British BI test cases 'apples and oranges'? | Insurance Business Australia

Australian and British BI test cases

It was in January when the UK business interruption (BI) test case appeal was wrapped up by the Supreme Court in London with a 112-page long verdict in favour of policyholders. Down Under, there are two cases still pending – one currently being appealed by the general insurance industry in the High Court, and a second one lodged earlier this year in the Federal Court of Australia.     

Certain camps have criticised the approach taken in terms of scope, with the first test case centred only on the Quarantine Act exclusion, as well as the speed at which the Australian test cases are progressing. Is it fair, though, to make the comparison, or is the UK-AU juxtaposition a case of ‘apples and oranges’?

The Insurance Council of Australia (ICA), which in 2020 agreed to take a coordinating role on behalf of insurers seeking clarity through the courts, is of the view that the position in the UK – where, according to information gathered by the Financial Conduct Authority (FCA) as of April 06, the aggregate value of the payments made for claims where final settlements have been agreed and paid is £352,101,391 – is very different to that in Australia in a number of ways.

“First, the policies in the UK generally did not contain a carve out to infectious disease cover such as the Quarantine Act or Biosecurity Act exclusionary language used in Australia,” an ICA spokesperson told Insurance Business. “Secondly, the court process is different in that the UK FCA was able to bring hypothetical claims which raise issues of general importance to financial markets, without the need for an actual specific dispute and agreement with the insureds.

“Here ASIC (Australian Securities & Investments Commission) does not have that power; rather AFCA (Australian Financial Complaints Authority) has the discretion to agree that a financial firm can treat a complaint as a test case, where there is an important question of law to be resolved. But a test case can only be brought where AFCA has such a complaint before it, and at the time of the first test case there were fewer than 20 BI complaints before AFCA.”

The spokesperson stressed that more complaints were needed to field the full range of policy wordings to be tested. The original test case filed in New South Wales consisted of two small business claims – involving The Hollard Insurance Company and HDI Global Specialty SE – that were lodged with AFCA as part of the not-for-profit company’s dispute resolution process.

Meanwhile, the ICA representative continued: “Thirdly, in contrast to the UK, it is well established that Australian courts cannot consider abstract questions of law without the right or duty of a person being involved. In Australia, any test case must ultimately be agreed to by AFCA, as it has sole discretion under the AFCA rules to treat a complaint as a test case, failing which it can reject the request and proceed to make a determination on that complaint.”

The High Court recently agreed to hear oral arguments – on a date to be determined in May or June, at the earliest – on the application for special leave to appeal the ruling of the New South Wales Court of Appeal.

Before the first test case was put forward, it was decided that it should be limited to the construction of the Quarantine Act exclusion issue, given that it was the so-called “threshold issue” in dispute impacting what the ICA described as the overwhelming majority of claims that had been advanced under infectious diseases clauses in Australian BI policies.    

With the AFCA complaints “eventually forthcoming,” the second test case was lodged with the Federal Court because of the range of jurisdictions represented, and is aimed at addressing other substantive issues such as the meaning of policy wordings as they relate to the definition of a disease, proximity of an outbreak to a business, and prevention of access to premises due to a government mandate.

“Although not a party to the proceedings, the ICA engaged closely with AFCA to get agreement on both test cases,” added the trade body’s spokesperson, “and its members are funding costs for policyholders.”

The ICA also reiterated its position that pandemics were not considered for coverage under most BI policies and that premiums were not collected to reflect the cost of cover for pandemics. Additionally, it was highlighted that reinsurance is not generally available for pandemic cover as well.

Meanwhile ASIC, which expects insurance companies to handle all claims in a manner that is consistent with their legal duty of utmost good faith, said insurers will generally wait until the test case outcomes are known before they decide on claims.

The regulator noted: “Insurers have agreed that, because of the passage of time associated with waiting for an outcome of the two test cases, they will not rely on any time limits to lodge a claim set out in a policy, or seek to avoid liability where the policyholder is insolvent.”

Confirming this, the ICA spokesperson told Insurance Business: “If a claim gives rise to one of the issues to be considered by the courts in the test cases, the insurer will inform the policyholder that it will not finalise the claim at that time but will do so once final test case determinations have been made. Insurers have waived insolvency and claim-lodgement time limits for BI claims related to the pandemic.”

It was stressed that the pertinent general insurers have plans and resourcing in place to move quickly on processing whatever claims then become eligible for payment as soon as the courts make their final determinations.

“As an industry,” said the spokesperson, “we are also considering possible options that would assist in the fast resolution of BI claims, for example a centralised database identifying where outbreaks of COVID-19 have occurred. In Australia, regulators regularly track claims management data of general insurers following significant events.

“Regulators also set out their clear expectations to insurers over claims management. Over and above legal requirements, insurers are committed to applying relevant principles in an efficient, transparent, fair, and consistent way when dealing with policyholders and assessing claims.”