Insurance industry to elevate business interruption case to High Court

A further test case also in the works

Insurance industry to elevate business interruption case to High Court

Insurance News

By Terry Gangcuangco

“While the insurance industry is sympathetic to businesses, particularly small and medium enterprises, that have experienced hardship as a result of COVID-19 restrictions, 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.”

Those were the words of the Insurance Council of Australia (ICA) when the representative body announced that its board has agreed that an application for special leave will be made to the High Court of Australia to appeal the New South Wales Court of Appeal judgement regarding the application of the Quarantine Act exclusion to business interruption policies.

The ICA said it would seek for the matter to be heard as quickly as possible if it is granted special leave to appeal.

Reiterating its stand, the trade body explained: “Premiums were not collected to reflect the cost of cover for pandemics and reinsurance was not generally available for pandemic cover, nor were reserves established for pandemic-related claims. Where appropriately priced business interruption policies were designed to cover pandemics, claims have already been paid out.

“While it is unfortunate that some policies were not updated to refer to the legislation that replaced the Quarantine Act, the decision of the Court of Appeal, if implemented, would mean policyholders with an updated and correct legislative reference would not be eligible to claim under their business interruption policies for COVID-19 related claims, while those whose policy incorrectly referenced the Quarantine Act would.”

The ICA maintained that the general insurance industry cannot pay claims for events that policyholders have not actually paid premiums to be protected against. It believes doing so would be neither fair nor sustainable.

“Business interruption insurance plays a crucial role in providing protection for businesses and enabling them to function with assurance, and APRA (Australian Prudential Regulation Authority) data shows that this category of insurance already costs more to the industry than it recovers,” stated ICA chief executive Andrew Hall.

“Those business insurance policies that were intended to cover pandemics, predominantly in the entertainment and health sectors, have paid out. However, if the industry is forced to pay out for risks it has not collected premiums for, or sought reinsurance for, it would compromise our ability to provide the Australian business market with protection against other risks.”

Meanwhile the ICA also expressed its intention to file a further test case, the goal of which is to explore other policy issues foreshadowed with insureds but not dealt with in the first test case. The parameters of the second test case are currently being finalised.

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