The Insurance Council of Australia (ICA) has announced its decision to contest a recent New South Wales Court of Appeal’s ruling that landed in favour of Covid-19-impacted businesses.
The NSW Court of Appeal’s ruling could see insurers unable to deny claims from policyholders whose business interuption cover included an outdated extension known as The Quarantine Act.
The Quarantine Act was repealed in 2015 and replaced with the Biosecurity Act.
The option for an appeal by either the insurers or the insured was agreed to in the original decision to seek an outcome from the courts and if special leave to appeal is granted, the ICA would seek for the matter to be heard in the High Court as quickly as possible.
The ICA says that, while the insurance industry is sympathetic to businesses impacted by Covid-19 restrictions, it remains of the view that pandemics were not contemplated for coverage under most business interruption policies and that the Quarantine Act exclusion excludes Covid-19 related claims.
Furthermore, the ICA argues that premiums were not collected to reflect the cost of cover for pandemics and reinsurance was not generally available for pandemic cover, nor were reserves established for pandemic-related claims.
It adds that, business interruption policies designed to cover pandemics (predominantly in the entertainment and health sectors) have already been paid out.
“The industry understands that this is a challenging time for many small and medium businesses and is doing what it can to ensure a fair and sustainable resolution that provides clarity,” said Andrew Hall, ICA Chief Executive Officer.
“Business interruption insurance plays a crucial role in providing protection for businesses and enabling them to function with assurance, and APRA data shows that this category of insurance already costs more to the industry than it recovers.”
The ICA intends to file a further test case that explores other policy issues foreshadowed with policyholders but not dealt with in the first test case, including proximity and prevention of access, and is working with stakeholders to finalise the parameters of this second test case.
It adds that he industry will meet the costs of both the policyholders and the insurers in the further test case, as it did in the first test case and will for any appeal.
“Those business insurance policies that were intended to cover pandemics, predominantly in the entertainment and health sectors, have paid out,” Hall added.
“However, if the industry is forced to pay out for risks it has not collected premiums for, or sought reinsurance for, it would compromise our ability to provide the Australian business market with protection against other risks.”