Throughout the world, cases are in front of courts to decide – do business interruption policies cover the global COVID-19 pandemic? Billions of dollars are at stake.
Here in Australia, a crucial case, led by the Insurance Council of Australia, is in front of the NSW Court of Appeal, and the industry is expecting a decision within weeks. And that decision may come down to the court’s interpretation of just two words.
The test case focuses on two small business claims that were denied by Hollard and HDI GlobaI Specialty. It was launched after multiple complaints to the AFCA by small businesses hoping to claim on their business interruption policies.
The HDI client was a Tamworth caravan park, while Hollard was insuring a food distribution business. Hollard chief executive Richard Enthoven told Reuters that the firm had volunteered to be part of the test case “so that the court system can clarify for our policyholders, Hollard and the industry how to handle this important issue.”
At the heart of the court’s deliberations are two words. Those words are subsequent and amendments.
To discover why those words have such importance, we have to look deeper into the policies issued by both of the insurance providers.
Both policies covered an “outbreak of an infectious or contagious human disease occurring within a 20km radius of the premises.”
The exclusion, however stated “there is no cover for highly pathogenic Avian influenza or any other diseases declared to be quarantinable diseases under the Quarantine Act 1908 and subsequent amendments irrespective of whether discovered at the premises, or outbreaking elsewhere.”
While that may seem a clear enough exclusion, the legal arguments have arisen because both policies’ exclusion clauses were out of date – they referred to the Quarantine Act – which was repealed in 2015. This is why those two words may have such significance.
Although the Quarantine Act was replaced with the Biosecurity Act, the fact that the policies’ exclusion clauses refer specifically to the former piece of legislation, gives rise to the argument that the exclusion clauses are now invalid.
We may never know whether the insurer’s legal teams were unaware of the changes in 2015, or whether they fully intended the policy’s and “subsequent amendments” terminology to catch the new Act. In court last week, however, the ICA’s legal team are certainly pointing towards a lack of attention being the reason for the policy’s reference to the old Act from 1908.
“It’s not a pretty sight not to know of what happened in terms of the public law of the country in a relevant respect,” Brett Walker S.C. told the court on behalf of the ICA.
“It’s not uncommon in insurance,” added one of the judges.
Having inferred that the policy was, in effect, out of date, Walker went on to make the ICA’s case that the key phrase “and subsequent amendments” made it clear that the exclusions still applied to any future replacements of the law.
The defendant’s argument, made by John Sheahan Q.C., is that the policy should be read literally – and that the phrase applied solely to the Quarantine Act.
So in the end, the industry’s liabilities may well come down to – does the court look at the intention of the policy (to exclude pandemics) or does it stick with the actual words on the paperwork, even if those words leave insurers across Australia shouldering a heavy burden that they never intended to be saddled with.