As the world continues to be affected by the COVID-19 pandemic, Australian businesses are finding different ways to both survive in the market and recoup any losses directly associated with the coronavirus.
One way businesses are working to recoup losses is through their Business Interruption Insurance claims.
At this point in time, insurers are holding back. They believe they do not have the financial strength and resources to cover the catastrophic losses a pandemic can cause. They claim that whether the policy contains an exclusion relating to the Quarantine Act 1908 or Biosecurity Act 2015, the intention is clear: Business Interruption Insurance was not designed to cover the loss of income arising from a pandemic disease that is listed under either Acts of Parliament.
However, the tides seem to be changing in favour of policyholders. We recently reported that Britain’s court ruled QBE liable for COVID-19 claims, and that the NSW Court ruled against insurers.
Now, Australian small businesses who have been denied insurance payouts for COVID losses have taken two class actions against QBE and Lloyds.
The first and larger class action, organised by Gordon Legal, is against QBE and said to be the first in Australia covering COVID pandemic payouts. The second and smaller class action (mainly due to the fact that there are less policyholders in Australia) is against the international insurance specialist, Lloyds.
What is going to happen?
According to the Insurance Council of Australia’s current (5 July 2021) Business Interruption update, “there are further interpretations of aspects of business interruption policies that need to be resolved to establish whether policyholders will ultimately be covered.
That is why insurers and AFCA agreed to a second test case in the Federal Court of Australia, which has commenced and will be heard from late August 2021.
This second text case will determine the meaning of policy wordings around disease definition, COVID outbreak proximity, the impact of government mandates, and other policy wording matters.
To allow for a comprehensive review of many of the outstanding policy issues the second test case is made up of nine small business claims from a range of business sectors and locations, lodged with AFCA as part of its dispute resolution process.
The vast majority of BI claims will not be able to be finalised until further clarity is provided by the second test case. The industry will meet the costs of policyholders in the second test case, as it did in the first test case.”
Although there are some positive indicators in favour of policyholders, we are still in early days. This is expected to be a lengthy and costly process for all parties involved, with outcomes still unpredictable. As usual, we encourage you to watch this space.
This article was written by Tony Venning,
Managing Director at Crucial Insurance and Risk Advisors.
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