Australia's ICA plans second COVID-19 business interruption test case

The Insurance Council of Australia (ICA) is looking to file a second test case to deal with the COVID-19 business interruption policy issues that were not addressed in the  first test case. ICA has also agreed to appeal the decision of the NSW Supreme Court which ruled in favour of the impacted businesses and against the insurers.

The option for an appeal by either the insurers or the insured was agreed to in the original decision to seek an outcome from the courts and if special leave to appeal is granted, the ICA would seek for the matter to be heard in the High Court as quickly as possible.

The ICA said that 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.

Furthermore, it argues that the 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. Adding that, where appropriately priced BI policies were designed to cover pandemics (predominantly in the entertainment and health sectors) claims have already been paid out.

ICA noted that for the industry to remain fair and sustainable over the long term, it cannot pay claims for events that customers have not actually paid premiums to cover.

In order to seek further clarity on the interpretation of business interruption policies, the ICA intends to file a further test case. The council is working with stakeholders and policyholders to finalise the parameters of its second test case, including policy issues such as proximity and prevention of access.

"The industry understands that this is a challenging time for many small and medium businesses and is doing what it can to ensure a fair and sustainable resolution that provides clarity," said Andrew Hall, CEO of Insurance Council of Australia. "Business interruption insurance plays a crucial role in providing protection for businesses and enabling them to function with assurance, and APRA data shows that this category of insurance already costs more to the industry than it recovers.

"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.