COVID-19 BI Test Case: What's next?

Class actions may work in favour of insurers, says expert

COVID-19 BI Test Case: What's next?

Insurance News

By Daniel Wood

In October, the High Court of Australia refused applications for special leave to appeal in the second industry case involving business interruption insurance (BI) policies and the COVID-19 pandemic. 

The judgement means the High Court’s February ruling on four matters stands as final. In that judgement, Justice Jagot found that the insuring clauses did not apply and the BI policies were not triggered.

“It ends the uncertainty in relation to whether the relevant insuring clauses within the business interruption policies will respond or not,” said Faramarz Ostowari (pictured above), head of corporate insurance and risk solutions (CIRS) claims for Honan Insurance.

However, he said, there’s still work to do for claimants who do now have coverage. “What you'll find is that it's only certain insurers who have that wording who will have claims to deal with,” he said.

That being said, the Honan claims expert said the BI claims situation has settled down. Clients who were hoping for coverage but didn’t get it are “getting on with their lives and rebuilding their businesses,” he said.

He also said that some Honan clients would have qualified for insurance coverage under the latest court ruling if it wasn’t for a further clause in their policies that brought in the Biosecurity Act.

“They originally had the Quarantine Act [in their policies] but had an additional clause in there and that additional clause said that any replacement acts would be deemed as a replacement Act,” he said. “So, in the first instance, they had cover, but in the second instance, they have a clause that says, ‘No’, all your claims are going to be wiped out because the Biosecurity Act is going to provide an exclusion for us to rely on.”

Ostowari said, after the latest court ruling, less than 5% of Honan’s clients have claims that can be prosecuted. For the rest of the firm’s clients, the latest ruling probably doesn’t come as a surprise because it was more than two years in the making. During that time, Ostowari said Honan has been in constant contact with clients, managing their expectations.

“They are, of course, disappointed because that was a really tough period that a lot of businesses went through,” he said.

One of the next steps in this COVID-19 BI saga will be class actions, according to Ostowari.

“There are civil class actions and we have the usual suspects: the Slater & Gordons, Shine Lawyers, Maddens - all these guys have either already filed or are getting together a class to proceed with a filing and, of course, they're all funded by litigation funders,” he said.

However, Ostowari said, it could be very difficult to combine lots of contested BI policies into a class action.

“They have to actually prove that there was an outbreak within the 20 kilometres, for example, of the premises,” he said. “That's a difficult thing to do for a class of people because it’ll have to be done pretty much on an individual basis.”

Ostowari said he’s struggling to see how the courts will deal with these class actions. However, if they do proceed, Ostowari said it might end up being easier for the insurers to deal with their outstanding COVID-19 BI claims.

“For example, Slater & Gordon, funded by ICP funding are chasing CGU insurance because CGU was the only case that was found in favour of an insured, which is Meridian Travel,” he said. “Instead of the insurer having to review each individual case, they could have everybody in the one bucket and just deal with them all rather than having to assess individual claims.”

Even if the class actions are successful, he said they may not work in favour of the insureds because “a huge chunk of any settlement” goes to the law firms and litigation funders.

 “Will that mean that an insured will possibly get less than they would otherwise by doing that class action because they're going to lose part of that overall settlement?” he said.

In an earlier interview with Insurance Business, Gareth Horne, partner with Clyde & Co and faculty member with the Australian College of Insurance Studies (ACIS), said the Full Court judgement now stands as the leading authority on the range of [COVID-19 BI] issues considered.

“There are now no further avenues to appeal,” he said.

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