Business Interruption Insurance and COVID 19

BUSINESS INTERRUPTION INSURANCE AND COVID-19

"If your business or your clients’ business has been impacted by the effects of COVID-19, be sure to seek legal advice on the business interruption policy"

On 8 December 2020, the Insurance Council of Australia (ICA) announced that its Board had agreed that an application for special leave would be made to the High Court of Australia to appeal the decision of the NSW Court of Appeal regarding the application of the Quarantine Act exclusion to business interruption policies.

The primary purpose of the “test case”, which was commenced in the NSW Supreme Court on 13 August 2020, was to seek a decision from a superior court on whether references to a quarantinable disease under the Quarantine Act 1908 should be construed as a reference to a listed human disease under the Biosecurity Act 2015, where the reference remained unchanged in various policies issued to small businesses containing business interruption cover.

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The proceedings [1], which were moved to the NSW Court of Appeal on 4 September 2020, were heard on 2 October 2020. In their case the Plaintiff insurers contended that: 1. The Biosecurity Act constituted a “subsequent amendment” to the Quarantine Act; or 2. The references to the Quarantine Act in the policy were obvious mistakes that should be construed as if they were or included references to the Biosecurity Act. In its recent judgement, the Court of Appeal decided against the Plaintiff insurers, determining that in relation to the first contention, the words “and subsequent amendments” do not extend to include the Biosecurity Act.

[1] The proceedings are HDI Global Specialty SE v Wonkana No. 3 Pty Ltd [2020] NSWCA 296 - a copy of the judgement can be found at https://www.jade.io/article/776372

Among the reasons given, they determined that they should be given their ordinary meaning, which is unambiguous, and does not extend to a new enactment that is replacing the Quarantine Act and its mechanism for identifying certain diseases as serious and contagious.

As to the second contention, their Honours concluded that the insurers “must be taken to have been mistaken in their reference to the Quarantine Act”, or they suspected that a mistake was involved.

The judgement says that, “The question is one of construction, and of the proper limits and extent to which a contractual document, here the policies of insurance, may be construed in a way which involves a departure from the actual words used by the parties, on their ordinary grammatical meaning.” Their Honours conclude that, “orthodox principles of contractual construction are not so flexible as to admit of the insurers’ second argument.”

The plaintiff insurers sought clarification of a second issue, being “If the answer to the first issue is yes, whether the clause should be construed as referring only to diseases that had been subject to a determination under the Biosecurity Act at the time of entering into the policy or to diseases so determined during the life of the policy.”

Given their determination of the first issue, their Honours didn’t answer the second issue. The ICA has taken this latest action because it remains of the view that pandemics were not contemplated for coverage under most business interruption policies and that the Quarantine Act exemption excludes COVID-19 related claims. Its’ latest statement says: “While it is unfortunate that some policies were not updated to refer to the legislation that replaced the Quarantine Act, the decision of the Court of Appeal, if implemented, would mean policyholders with an updated and correct legislative reference would not be eligible to claim under their business interruption policies for COVID-19 related claims, while those whose policy incorrectly referenced the Quarantine Act would.”

This decision may have significant implications for insurers where the quarantinable disease exemption wasn’t updated when the Quarantine Act was repealed, and the Biosecurity Act commenced on 16 June 2016.

The ICA also indicated that they are working with stakeholders to seek clarity on further aspects of business interruption policies, including proximity and prevention of access, relating to the pandemic and business interruption insurance.

We expect that there will be further updates from the ICA and other interested parties on each of these matters.

If your business or your clients’ business has been impacted by the effects of COVID-19, be sure to seek legal advice on the business interruption policy and compile the information you need to prepare a claim. Please give David or Kellie a call if you need assistance to assess the amount of your business interruption claim.

A copy of the latest release from the Insurance Council of Australia can be found at https://www.insurancecouncil.com.au/media-centre.

David Ferrier

Kellie Badge

+61 414 390 517

+61 413 272 930

dferrier@forensicsolutions.com.au

kbadge@forensicsolutions.com.au

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