High Court favours businesses for pandemic payout

28 Jun 2021

Over the past year, Australian businesses have been attempting to quarantine themselves against the impacts of the coronavirus pandemic, and the High Court’s recent decision bolsters the protection of policyholders like a jab of a COVID-vaccine.

Australia’s first business interruption test case was denied its special leave to appeal by the High Court. This result indicates that insurers will need to respond to business interruption claims on a case-by-case basis, however, most of these claims will not be finalised until there is further clarity from the second test case.

In its first test case, the Insurance Council submitted that pandemics such as COVID-19 are not covered under most business insurance policies, and that loss caused by business interruption due to COVID-19 cannot be compensated due to an exclusion in the Quarantine Act 1908.

The terms of the policies contained an infectious disease extension which covered business insurance losses, but with a specific exclusion for ‘diseases declared to be quarantinable diseases under the Quarantine Act 1908 and subsequent amendments’. The Court of Appeal held that this exclusion did not exclude listed human diseases under the Biosecurity Act 2015 (Cth).

Whilst the Supreme Court in the UK handed down a distinctive judgement regarding a test case, Australia’s High Court did not offer similar reasoning. that the High Court of Australia found that the wording of UK insurance policies, differ in significant ways from many of the policy wordings that have been issued in Australia.

The decision of the second test case is aimed at examining the application of further issues of pandemic coverage in business interruption policies. The outcome of this case will provide clarity to insurers when assessing customer claims.

The outcome of this judgement will clarify the implications of business interruption policies definitions of a disease, proximity of an outbreak to a business, and prevention of access to premises due to a government mandate.

The trial of the second test case is expected to take place in late August 2021 and will provide much needed clarity to stakeholders.

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