The COVID-19 business interruption test case in Australia, initiated by the Australian Financial Complaints Authority (AFCA) and the Insurance Council of Australia (ICA), has finally concluded – with the New South Wales (NSW) Court of Appeal rejecting the industry’s argument that policies should not cover COVID-19 pandemic-related losses.
The NSW Court of Appeal’s decision comes after insurers – such as IAG, QBE, and Suncorp – repeatedly insisted that pandemic exclusions should stand. Now, the court’s decision could leave many insurers having to pay out thousands of pandemic-related business interruption claims.
HDI Global argued that the “Tourist Parks & Lifestyle Villages Insurance Policy” it issued to three of the defendants - Wonkana No. 3 Pty Ltd, trading as Austin Tourist Park, F. A. Edwards and C. H. Edwards - for the cover period of February 28, 2020 to February 28, 2021, was right to exclude COVID-19 business interruption losses.
According to court documents, the HDI policy contained provided cover for interruption or interference caused by outbreaks of certain infectious diseases within a 20 kilometre radius of the insured’s premises (the disease benefit clauses), but also contained an exclusion, which read: “The cover … does not apply to any circumstances involving ‘Highly Pathogenic Avian Influenza in Humans’ or other diseases declared to be quarantinable diseases under the Australian Quarantine Act 1908 and subsequent amendments.”
Hollard Insurance made the same argument for a “Business Insurance Policy” it issued to the fourth defendant - Key Holding and Investments Pty Ltd as The Trustee for Key Nutrition Unit Trust, trading as Thrive Health and Nutrition - for the cover period May 11, 2019 to May 11, 2020.
However, the court dismissed both insurers’ declarations, ruling: “COVID-19 is not a disease declared to be a quarantinable disease under the Quarantine Act 1908 (Cth), and the exclusion in the HDI Disease Benefit [and the Hollard Disease Cover are] not enlivened.”
For context, the court explained: “On June 16, 2016, well before the period of cover for either policy commenced, the Quarantine Act 1908 (Cth) was repealed and the Biosecurity Act 2015 (Cth) came into force. The Biosecurity Act did not provide for declarations of quarantinable diseases by the Governor-General. Instead, the Director of Human Biosecurity was able in certain circumstances to determine a disease to be a “listed human disease”. Before the repeal of the Quarantine Act, COVID-19 was not declared to be a quarantinable disease. On January 21, 2020, COVID-19 was determined to be a listed human disease under the Biosecurity Act.”
Both HDI and Hollard counter-argued that diseases declared to be quarantinable diseases under the Quarantine Act 1908 (Cth) and subsequent amendments should be construed as extending or referring to “diseases determined to be listed human diseases under the Biosecurity Act 2015,” but the court dismissed their summons, ruling that COVID-19 was not excluded from their respective disease benefit clauses.
The ICA is looking into its options to appeal the decision in the High Court of Australia.
“The Insurance Council of Australia notes [yesterday’s] judgement by the New South Wales Court of Appeal. The ICA, in consultation with its members and legal representatives, will urgently review the determination and specifically the grounds on which it could seek special leave to appeal against the decision to the High Court of Australia,” the ICA said.