In November 2020, the NSW Supreme Court of Appeal determined that insurers could not deny business interruption insurance claims based on an exclusion clause in certain policies that made specific reference to a repealed Quarantine Act of 1908 (the first test case). You can read more about this article here.
High Court decision
Following on from the first test case, on Friday, 25 June 2021, the High Court rejected the insurers special leave application to appeal the Court of Appeal’s judgment regarding the interpretation of pandemic exclusions in some business interruption policies, in turn delivering businesses with some welcomed certainty in these unprecedented times. In this first test case, the Court of Appeal found that references in insurance policies to a superseded legislation did not allow insurers the ability to deny business interruption claims because of the COVID-19 pandemic.
Consequently, there are now insurance policies where insurers are unable to decline claims based upon the exclusion clause with the repealed Quarantine Act of 1908.
Second test case
A second test case has commenced in the Federal Court of Australia and is expected to be heard in late August 2021. It will be made up of nine small business claims from a range of business sectors and locations that were lodged with AFCA as part of its dispute resolution process.
The second test case has been commenced to provide further clarity in regard to business interruption policies in response to COVID-19, and in particular, interpretations of aspects of these policies that need to be resolved to establish whether policyholders will ultimately be covered, such as:
- The meaning of policy wordings in relation to:
- The definition of a disease;
- Proximity of an outbreak to a business;
- Prevention of access to premises due to a government mandate;
- Hybrid policies of these types of wordings.
- How Government support, like JobKeeper, should be treated.
What this means is that the vast majority of business interruption claims cannot be finalised until further clarity is provided by the outcome of the second test case.
What steps I take now?
Businesses that are impacted by the COVID-19 pandemic should review the wording of their business interruption policies and obtain advice to determine whether they should make a claim. Further, any businesses that have made prior business interruption claims in light of the COVID-19 pandemic that have been declined should undertake a review of the declinature and assess their position following the outcome of the first test case.
In making a claim, you will need to consider the circumstances of any loss and then organise and keep evidence and necessary documents, such as profit and loss statements, to support a claim under a business interruption policy.
What can I do if I am unsure about my business interruption policy?
Until the outcome of the second test case is known, there remains uncertainty regarding what is covered in terms of recoverable COVID-19 business interruption losses. Most Australian insurers are currently holding their position on policy coverage in response to COVID-19 related business interruption claims until such time further clarity is provided by the second test case.
In the meantime, steps you can take include the following:
- Review your business interruption policy to determine whether a claim should be lodged;
- Have an understanding in relation to whether there are any filing requirements and deadlines in relation to making a claim. It all depends on what your policy states, however, policies generally require claims to be lodged within certain timeframes;
- Collect all relevant financial documents and evidence in order to substantiate the amount of loss your business has experienced as a result of the business interruption. When collating business records, this should occur at the time of, or during the period of time when the business is experiencing the loss, while the memories and documentation are clear in mind.
Key takeaway
If your business has experienced some sort of business interruption due to the COVID-19 pandemic, you should consider your business interruption insurance policy and/or any claim previously lodged with your insurer (if it has been declined).
At Hunt & Hunt we are here to help. If you require any assistance in reviewing your business interruption policy or making a claim, please do not hesitate to contact us.
