It’s fair to say that last Wednesday’s business interruption (BI) ruling in the New South Wales (NSW) Court of Appeal has sent shockwaves through certain sectors of the insurance industry. The Court rejected the insurance sector’s argument that policies should not cover COVID-19 pandemic-related losses. Perhaps most notable was the Insurance Australia Group’s (IAG) decision to immediately halt trading and later confirm that it is raising as much as $750 million in new equity capital to deal with the potential fallout of the verdict.
Meanwhile, Suncorp set aside an additional $125 million before the court’s ruling, totalling $195 million set aside for pandemic-related BI claims from the insurance company.
According to Alex Haslam (pictured), principal and an insurance, construction and insolvency dispute resolution specialist at the law firm Gilchrist Connell, the ruling may set a precedent for BI claims in Australia “if they have an identical Quarantine Act-based ‘infectious diseases’ exclusion and all other conditions of the policy are satisfied in relation to each particular claim.”
“Subject to any appeal, the Court of Appeal decision will certainly operate as a precedent for all relevant AFCA claims and undoubtedly for certain claims brought in other forums where the same or similar ‘infectious diseases’ exclusions are in question,” Haslam told Insurance Business.
“What needs to be made clear, though, is that this decision only relates to exclusion clauses, and then only exclusion clauses worded in a particular way,” he added. “The decision does not impact upon the requirement for any claim presented to an insurer to meet all the relevant conditions of the policy to trigger an entitlement to indemnity in the first place. For disease-related claims made under BI policies, this frequently comes down to other issues.”
In Haslam’s view, the decision won’t have an effect on the wording of policies concerning infectious disease exclusions because “that effect occurred probably before the test case was brought.”
“Neither of the insurers in this case intended for their policy wordings to cover BI caused by a pandemic,” he noted. “Most insurers across the world would have never contemplated coverage for pandemics – except on tailored, and more expensive, pandemic covers such as that reportedly taken out by the organisers of Wimbledon post the SARS outbreak – and would have not priced the risk or collected premiums for such risk.”