In the wake of a fourth Victorian COVID-19 lockdown, insurers and policy-holders alike will be eager to see the resolution of various Australian court proceedings concerning whether business can recover their losses under their business interruption insurance policies.
Some clarity has been found in the High Court’s rejection of a test case appeal on 25 June 2021. However, disputes are still ongoing in other arenas, with various matters set to be heard in the Federal Court later this year.
The Australian Financial Complaints Authority (AFCA), together with the financial backing of the Insurance Council of Australia (ICA), agreed to bring two test cases to settle the coverage of business interruption exclusions in policies across the board. Alongside these test cases, insurers and policy-holders have filed their own applications in the Federal Court.
First test case dismissed
HDI Global Speciality SE v Wonkana No. 3 Pty Ltd [2020] NSWCA 296 concerned exclusion clauses referring to “quarantinable diseases” as described in the repealed Quarantine Act 1908 (Cth) instead of its replacement, the Biosecurity Act 2015 (Cth).
Policy-holders had a win in November 2020 when the New South Wales Court of Appeal dismissed the insurers’ appeal, not allowing for the insurer to interpret policy according to the new Biosecurity Act. For more information, refer to our case summary of the Court of Appeal’s judgment.
On 25 June 2021, the High Court heard oral submissions in an application for special leave to appeal the judgment.
The insurer submitted that it was ultimately the parties’ objective intention that the exclusion clause refer to whatever Commonwealth legislation was in force during the policy period, covering the same field as the Quarantine Act. The argument gained no traction with the court making it clear that it thought the Biosecurity Act had a completely different regulatory framework.
After the completion of submissions the High Court only took a minutes adjournment before deciding that the NSW Court of Appeal decision was not attended by sufficient doubt to warrant a grant of leave to appeal thereby bringing to a close the first chapter of this saga.
Second test case ongoing
The second test case brought by AFCA and ICA has been filed in the Federal Court of Australia. It involves nine separate claims from a range of businesses and insurers, including Allianz, IAG and Chubb.
Each of the claims deal with different forms and aspects of pandemic exclusion clauses, issues that were not tested in the first test case. These include determinations of, among many others, whether:
- the COVID-19 pandemic fits the definition of a “disease”;
- the disease was “proximate” to the business; and
- the disease caused an interruption in business.
The trial hearing is set for September 2021, with the prospect of an appeal already diarised for November in the Full Federal Court.
QBE Insurance’s case
QBE Insurance (Australia) Limited v David Coyne in his capacity as liquidator of Educational World Travel Pty Ltd (in liquidation) & Anor Proceeding No NSD 308/2021 is one of the separate proceedings on foot in the Federal Court. The matter is set to be heard in July 2021.
The QBE Insurance exclusion clause similarly refers to the redundant Quarantine Act, but the insurer brings its case based on the interpretation of Victorian property legislation.
In the first test case, the insurers submitted that section 10(b) of the Acts Interpretation Act 1901 (Cth) supported their position, stating that references to repealed legislation should be construed as a reference to the re-enacted Act. The Court of Appeal dismissed this argument on the basis that the provision concerns statutory, not contractual construction.
Conversely, QBE Insurance refers to section 61A of the Property Law Act 1958 (Vic) which states:
Where an Act or a provision of an Act is repealed and re-enacted (with or without modification) then, unless the contrary intention expressly appears, any reference in any deed, contract, will, order or other instrument to the repealed Act or provision shall be construed as a reference to the re-enacted Act or provision.
QBE Insurance contends that the reference to the repealed Act in policy contracts should be constructed as a reference to the current Biosecurity Act.
It is unclear whether this interpretation section would assist insurers outside the property law realm. It is further noted that any success would be limited to insurance claims in Victoria, albeit probably one of the largest claim bases in Australia.
So what does this mean for policy-holders?
Some policy-holders can expect their claims to be honoured after the dismissal of the first test case appeal. AFCA and insurers have agreed to apply the final judgment when dealing with complaints based on the same Quarantine Act exclusions. It is estimated that 60 per cent of business interruption policies on the market before the pandemic referred to the redundant Act.
Policy-holders are also able to continue making business interruption claims while the other court proceedings remain ongoing. However, if an insurance policy gives rise to any of the issues currently before Australian courts, the application will be put on hold. This will similarly occur if the policy-holder makes a complaint to AFCA, although it is unclear whether this will apply for the proceedings running outside of the test bundles.
And for insurers?
For insurers, these cases will be determinative of the amount of claims and the size of the payout in Australia. This will be of even greater interest to insurers who have already made sizeable payouts in other jurisdictions, like the United Kingdom, after similar cases came before its courts.
In January 2021, the UK Supreme Court handed down a decision in its own test case, The Financial Conduct Authority v Arch Insurance (UK) Ltd and others [2021] UKSC 1, dismissing the appeal by insurers and finding that policy-holders were eligible to receive payouts under their business interruption policies.
As of 14 June 2021 and since the test decision, UK insurers have paid out a total of £756,846,662 to policy-holders on business interruption claims.
However, insurers’ exposure to claims in the Australian market are unlikely to be as grim given the stark differences between the impact of the pandemic on the UK compared to much of Australia.
In oral submissions in the first test case appeal, it was indicated that the claims at stake were worth in the order of $10 billion.
If you have any queries on how your business may be impacted in this interim period, please contact our Insurance Team at Hunt & Hunt.
~ with Alexandra Culshaw, Graduate at Law
