A Business Interruption Test Case in Australia

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Following our previous article, the business interruption test case in the UK has concluded and the Insurance Council of Australia (‘ICA’) has commenced an Australian business interruption test case. Filed in the NSW Supreme Court, the test case will focus on claims made with two insurers, Hollard and HDI Global Specialty.i Similarly to the UK test case initiated by the Financial Conduct Authority (‘FCA’), the proceedings aim to clarify how infectious disease exclusions within business interruption policies are to apply in the context of the COVID-19 pandemic.

The CEO of the ICA, Rob Whelan, has stated that insurers believe that the intention of their policy exclusions is clear.ii Often, cover against pandemics is excluded from insurance policies, as the wide application of potential losses can cause difficulty for insurers.iii Despite this, Whelan has acknowledged that the test case will lead to “greater legal certainty” on the issue of business interruption claims.iv

Relevance of the Test Case

The outcome of this new test case will be significant, especially as it will inform the way in which the Australian Financial Complaints Authority will determine similar business interruption claims in the future. In particular, the test case will focus on references to a “quarantinable disease” under the Quarantine Act 1908 (Cth) and whether these can be applied to the new wording under the Biosecurity Act 2015 (Cth).v

Conclusions

Clearly, the Australian test case will have substantial financial implications, especially as the Insurance News has already predicted that the COVID-19 pandemic will cause approximately $500 million worth of losses from business interruption claims.vi

To the extent this is correct, the decision will be relevant to reinsurers as well as insurers and all other market participants including agents and brokers.

We will continue to watch this matter closely and will provide a further update on the FCA test case when a decision is handed down.

Authors

Corey Johnstone – Brockhill & Usherwood Lawyers

Blair McNamara – Brockhill & Usherwood Lawyers

This article is a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

i ‘Hollard, HDI Complaints Revealed as BI Test Case Basis’, Insurance News (Web Page, 13 August 2020) <https://www.insurancenews.com.au/daily/hollard-hdi-complaints-revealed-as-bi-test-case-basis> (‘Insurance News’).

ii ‘Insurance Council and AFCA Agree to Launch Business Interruption Test Case’ Australian Financial Complaints Authority (Web Page, 31 July 2020) <https://www.afca.org.au/news/media-releases/insurance-council-and-afca-agree-to-launch-business-interruption-test-case> (‘AFCA Media Release’).

iii Insurance News (n i).

iv AFCA Media Release (n ii).

v Ibid.

vi ‘Insurers ‘Heading for Half Billion BI Hit’’, Insurance News (Web Page, 22 July 2020) <https://www.insurancenews.com.au/daily/insurers-heading-for-half-billion-bi-hit>.

 

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