As the fallout from the UK’s High Court business interruption (BI) ruling continues, Australian insurers are looking to see whether an upcoming test case will impact cover related to COVID-19 closer to home.
The judgement handed down by the Financial Conduct Authority on September 15 saw a largely favourable outcome for many UK companies that had taken out BI policies and incurred losses resulting from the pandemic. According to a report from the Australian Financial Review, similar challenges in Australia could see the insurance sector on the hook for as much as $1 billion if local firms start challenging their BI policies.
A test case was recently launched jointly by the Australian Financial Complaints Authority (AFCA) and the Insurance Council of Australia (ICA) with the aim of testing certain exclusions. Focused on Hollard Insurance, the case has been pushed forward owing to its urgent nature and will now be heard by the NSW Supreme Court on October 02.
“The pandemic and resulting uncertainty have had a devastating impact on Australia, so we are pleased the test case hearing is progressing as quickly as possible, and a judgement can be delivered that provides greater clarity to customers, insurers and regulators in the treatment of pandemic-related claims,” stated Andrew Hall, CEO of the ICA, in a note to the press earlier this month.
For Alex Haslam (pictured above), principal and an insurance, construction and insolvency dispute resolution specialist at the law firm Gilchrist Connell, the upcoming Australian test case is quite different to its UK antecedent.
“The Australian test case is concerned with a particular form of infectious disease exclusion that property insurance policies include, whereas the British one looked at the wording of a range of different policies,” Haslam noted. “As others have said, they’re a little bit like chalk and cheese, so I don’t think the outcome in the UK will really affect this particular case.”
Haslam added that he believes that, moving forward, there will be more cases in Australia that are similar to the UK one, and that Australian insurance companies will be wise to keep track of any appeals that take place on British shores.
“We’ve already seen that QBE is considering appealing parts of the decision, and it’s something that other insurers may be weighing up as well,” he said. “Regardless, one of the effects of this pandemic is that it will undoubtedly lead to adjustments in policy wording across many Australian insurance firms.”
Ken Keenan (pictured immediately above), CEO of Pen Underwriting, remarked that “Business interruption has been the hottest insurance topic since the pandemic started.”
“It is generally felt verdicts in other countries will have no impact on the unique test case here,” he added. “For Pen, we await the outcome as it may determine the direction for insureds arising from BI claims where an infectious disease exclusion has been applied. However, we never envisaged coverage for pandemic type events, and certainly never priced for them.”
When it comes to Australian brokers, not all of them are currently concerned about the knock-on effects of the UK’s BI ruling. Karen Hardy (pictured above), principal broker at ACME Insurance Brokers, told Insurance Business Australia that none of her clients have pursued a COVID-19-related BI claim—nor does she expect them to.
“Our clients understand that our general exclusions relating to infectious disease are intended to be all-encompassing blanket exclusions and not specific to any particular disease,” she said.