EXECUTIVE SUMMARY
Earlier this year, the Insurance Council of Australia and Australian Financial Complaints Authority launched a court case to resolve the uncertainty of pandemic exclusions in policy wordings, following the rejection of multiple Business Interruption claims brought by policyholders as a result of COVID-19.
The case involved two claims brought separately by policyholders Austin Tourist Park in Tamworth and the Thrive Health & Nutrition Store in Melbourne under policies with HDI Global (HDI) and The Hollard Insurance Company (Hollard) respectively.
The decision was handed down on 18th November 2020 in favour of the policyholders. Five sitting judges of the NSW Court of Appeal all determined that, though with varying reasoning:
- COVID-19 is not a disease declared to be quarantinable under the Quarantine Act 1908 (Cth) since that Act was repealed on 16/12/2016, long before COVID-19 was listed as a human disease;
- the Biosecurity Act 2015 (Cth) was a separate Act and therefore was not a “subsequent amendment”;
- the Plaintiff insurer’s policy wordings did not refer to the Biosecurity Act; and
- the references in the Plaintiff insurer’s policies to Quarantine Act were not an obvious mistake capable of rectification.
WHAT HAPPENED?
HDI and Hollard were granted leave to apply directly to the Court of Appeal for declarations that the exclusion clauses in their respective policies applied to COVID-19, in that the exclusion applied to any loss arising from diseases declared to be quarantinable diseases under the Quarantine Act, and were to be read as including diseases determined to be listed as human diseases under the Biosecurity Act.
Both the HDI and Hollard policies contained an additional benefit which provided limited cover where there was no property damage, which otherwise is a standard prerequisite to claim under property damage policies.
The HDI policy deems the occurrence of specified events to constitute “damage to property used by” the insured at the insured location with the result that interruption or interference with the business happening in consequence of such an occurrence is covered. Those events include:
1. …..
3. The outbreak of a notifiable human infection or contagious disease occurring within a 20 kilometre radius of the location;…
…..
The cover provided under part (1) and (3) of this Additional benefit does not apply to any circumstances involving ‘Highly Pathogenic Avian Influenza in Humans’ or other diseases declared to be quarantinable diseases under the Australian Quarantine Act 1908 and subsequent amendments.
The Hollard policy provided that it “…..will cover You for interruption to or interference with Your Business due to”:
….(b) an outbreak of an infectious or contagious human disease occurring within a 20 kilometre radius of the Premises, however there is no cover for highly pathogenic Avian Influenza or any other diseases declared to be quarantinable under the Quarantine Act 1908 (Cth) and subsequent amendments irrespective of whether discovered at the premises, or out-breaking elsewhere.
WHAT DOES THIS MEAN FOR YOU?
Importantly, there is now a solid precedent to argue for coverage of COVID-19 business interruption claims on behalf of our policyholders. This case will be used to challenge insurers’ reliance on the quarantine exclusion if the policy wording references diseases under the Quarantine Act alone, with no reference to the Biosecurity Act 2015 [Cth].
However, there are a few caveats to the above. The decision can be relied upon in NSW but is not as authoritative in other states and territories where it would be used as a guide only. In addition, coverage will be subject to a number of considerations, including the policy providing the additional benefit of cover, sufficient evidence the loss suffered arises from COVID-19, and other policy terms and conditions. Each claim will be assessed on its merits and the construction of the relevant insurance policy.
WHAT’S NEXT?
It is very likely that the insurer Plaintiffs will seek special leave of the High Court of Australia to appeal the decision.
The High Court will consider the application for leave to appeal in matters where new points of law are raised; of high public or general importance; involve questions of law that have been decided inconsistently; or involve administration of justice which requires consideration by the High Court.
If the High Court allows and then hears the appeal, they may quash the decision of the Court of Appeal, or uphold it, or uphold only parts of it.
The insurer Plaintiffs will have 28 days to file the special leave application.
WHAT SHOULD YOU DO?
There is no need to take immediate action as your Honan broker will contact you to discuss your policy coverage, your loss circumstances, and the next steps in making a possible claim.