High Court confirms business interruption insurance exclusion

Authors: Holding Redlich partner Howard Rapke and senior associate Jessica Tsiakis
Publication: Lawyers Weekly
Publisher: Momentum Media

We have all seen the following headlines over the last several months: “Insurers to fight Court’s decision on Business Interruption Insurance”, “Law firms prepare class actions”, and “Insurance sector could face $1b exposure”. Whether or not business interruption insurance claims will be met by insurers is clearly an argument worth having – for insurers and insureds alike. Both sides have a lot to lose, write Howard Rapke and Jessica Tsiakis.

No part of Australia has been immune to the financial impact of the COVID-19 pandemic, with varying levels of government-mandated shutdowns and reduced trading hours affecting businesses nationwide.

Understandably, many businesses turned to their business interruption insurance policies for financial relief and a much-needed cash injection for survival. After all, premiums had been paid, those premiums were accepted and businesses expected to be covered. Insurers, however, denied COVID-19-related business interruption claims, claiming policies were never meant to cover pandemics.

In November 2020, the NSW Court of Appeal disagreed. The court found that insurers could not deny business interruption insurance claims based on an exclusion clause in policies that referred to the repealed Quarantine Act of 1908.

Not willing to give up the fight, insurers sought leave to appeal the decision to the High Court of Australia.

On Friday, 25 June 2021, the High Court rejected the leave application delivering businesses some welcome certainty in uncertain times.

Although a significant roadblock to successfully claiming under a number of policies has now been removed, the High Court’s decision does not mean that insurers will automatically or voluntarily pay claims where the applicable exclusion references the Quarantine Act.

Loss must still be established and that loss must be as a consequence of a COVID-19-related disruption.

The insurance industry also has another test case pending before the Federal Court. That case is seeking to clarify, among other questions, whether businesses need an actual confirmed case of COVID-19 within close proximity to their business or whether losses can be more broadly linked to state-ordered lockdowns or closed borders.

This test case has not yet been heard.

We expect pushback from insurers to continue, however, the clarity provided by the High Court’s decision on Friday is welcome news for businesses and strengthens the possible basis for a claim significantly.

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