Reinsurance News

Australia declines special leave applications in BI test case

14th October 2022 - Author: Matt Sheehan

The High Court of Australia has decided to deny special leave to appeal the judgment of earlier verdicts by the Federal Court regarding the interpretation of policy wordings in business interruption policies that could apply to the COVID-19 pandemic.

The Full Court of the Federal Court delivered its judgment back in February 2022, when it decided to uphold the arguments of insurers in four of the five matters in the test case which were appealed.

The Court found that in those four matters the insurers were not liable to indemnify the policyholders.

In the other case, the Full Court upheld the earlier decision to the effect that cover had been triggered but that there were substantial issues as to whether the policyholder could prove any relevant business interruption.

This latest ruling by the High Court will likely help to encourage more certainty among reinsurance capital providers in deploying to Australia, as there should be some cases where cedents have reserved high for possible COVID recoveries they now won’t get.

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It’s thought that it could also help to free up some trapped ILS capital on aggregate retrocession arrangements that were exposed to all-perils in Australia.

“Today’s decision by the High Court marks a significant milestone in a process that at its heart has been about understanding the extent to which business interruption insurance provides cover under the unprecedented conditions we experienced over the last two and a half years,” said Andrew Hall, CEO of the Insurance Council of Australia (ICA).

“Insurers are pleased that, coupled with the ruling in the first test case, today’s determination provides guidance to the industry and policyholders, to help facilitate fair and consistent determinations on claims.”

Members of the ICA, including those not directly involved in the court proceedings, have committed to applying the principles of the courts’ final rulings in the test cases to all business interruption claims.

The first business interruption test case was resolved in favour of policyholders in June 2021, with the outcome that insurers could not rely on references to the Quarantine Act “and subsequent amendments” in policies to exclude Covid-19 related claims.

The second test case has now resolved further interpretations of aspects of business interruption polices.

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