ICA, AFCA to seek clarity via business interruption test case

"Judicial determination will provide… greater legal certainty"

ICA, AFCA to seek clarity via business interruption test case

Insurance News

By Terry Gangcuangco

Australia is following in the footsteps of the UK – where a coronavirus-related business interruption (BI) test case was heard at the High Court of Justice in London from July 20-23 and July 27-30 – and will file its own test case to seek a decision from a superior court on whether references to a quarantinable disease should be construed as a reference to a listed human disease under the Biosecurity Act 2015 in various policies with business interruption coverage.

It’s been announced that the Insurance Council of Australia (ICA) and the Australian Financial Complaints Authority (AFCA) are filing an ICA-funded test case, the outcomes of which will be used by AFCA in determining relevant complaints arising in respect of BI claims. ICA said it will seek leave to have the test case heard as an expedited matter.

“The Insurance Council of Australia has prepared this test case on behalf of the general insurance industry,” stated ICA chief executive Rob Whelan. “A decision from a superior court will assist insurers, AFCA, and customers in developing a better understanding of how exclusions in policy documents respond to the unique circumstances of the COVID-19 pandemic.

“Insurers believe the intention of pandemic and communicable human disease exclusions are clear. However, a judicial determination will provide insureds and AFCA with greater legal certainty on this issue.”

No details as to whose policies will be used in the joint test case were provided. 

In the UK, the test case filed by the country’s Financial Conduct Authority’s was against Arch Insurance (UK) Limited, Argenta Syndicate Management Limited, Ecclesiastical Insurance Office Plc, Hiscox Insurance Company Limited, MS Amlin Underwriting Limited, QBE UK Limited, Royal & Sun Alliance Insurance Plc, and Zurich Insurance Plc.

Lifting the lid on their decision, AFCA’s lead ombudsman, insurance, John Price noted: “Following discussion with the insurance industry, ASIC (Australian Securities & Investments Commission), APRA (Australian Prudential Regulation Authority) and Treasury, AFCA has agreed that a test case before a superior court should proceed to allow for a determination of this threshold issue.”

Price’s camp believes resolution of the issue is crucial in the regulator’s dispute resolution role.

He added: “I am pleased the Insurance Council of Australia and its members have engaged with AFCA in identifying claims that will form the combined test case. I am also appreciative of the complainants for agreeing to have their cases heard in this manner.

“The outcome of the case will provide some clarity for all stakeholders, in particular small businesses and insurers.”

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