Australia’s general insurers like Suncorp, IAG and QBE are still hoping they can avoid a multi-billion dollar set of claims for business interruption claims caused by the 2020 Covid pandemic lockdowns.
That was after the High Court on Friday refused to hear an appeal from the industry about one set of claims.
Up to 250,000 business owners had taken out business interruption policies that the insurers say were intended to exclude pandemics and instead typically applied to things like blackouts and floods.
However, the exclusion clauses referred to an outdated piece of federal legislation dealing with pandemics. They named the Quarantine Act, which was repealed in 2016 rather than the Biosecurity Act that replaced it.
in late 2020, the NSW Court of Appeal found that insurers cannot deny claims by insured businesses for loss caused by business interruption due to COVID-19 by relying on an exclusion which excludes “diseases declared to be quarantinable diseases under the Quarantine Act 1908 and subsequent amendments”, because that exclusion does not exclude COVID-19.
After that loss, an insurer called HDI Global Speciality, with the backing of the Insurance Council of Australia went to the High Court on Friday to ask the court to hear an appeal aimed at overturning the Court of Appeal decision.
Their barrister argued the intention of the policies was clearly to refer to whatever piece of legislation listed pandemics despite the exact words in the contract and said an estimated 250,000 businesses and $10 billion in claims would be affected by the case.
But the High Court rejected the attempt. There wasn’t “sufficient doubt” with the Federal Court’s ruling that the words of the contract meant what they said to warrant a full hearing, Justice Patrick Keane said.
The decision only affects contracts that have the specific exclusion clause with the outdated wording.
The Insurance Council said after the High Court decision saying in a statement on Friday that most payouts would still have to wait for the outcome of another test case before the Federal Court, which was examining other parts of the contracts.
ICE CEO Andrew Hall said policyholders should contact their broker or insurer and keep all their paperwork in the meantime. “Once finalised, insurers are committed to applying the courts’ decisions in both test cases in an efficient, transparent, and consistent way when assessing claims,” Mr Hall said.
In other words, the insurance industry is keeping to its reputation for using the fine print of insurance arrangements to wriggle out of responsibility.
Despite the High Court decision, insurance industry executives told a parliamentary committee on Friday the ruling on its own would not lead to a large number of claims being paid.
Suncorp chief operating officer for insurance Paul Smeaton said the company had received 728 claims for business interruption insurance, but only 78 referred to the Quarantine Act, which was at the heart of the case on Friday.
Insurance Australia Group chief executive Nick Hawkins said the company had assessed it could be on the hook for more than $1 billion in business interruption insurance claims. However, most of these claims will depend on the results of the second test case.
But there was no sign of that second test case last November when IAG hastily raised $750 million in new capital in November last year immediately after the NSW Court of Appeal decision was handed down to give it the firepower to meet an expected wave of Covid claims.
According to the ICA, the second test case in the Federal Court case will look at “other issues concerning the interpretation of business interruption policies that need to be resolved in order to determine whether policyholders will ultimately be covered.”
“That is why insurers have commenced proceedings in a second test case in the Federal Court of Australia to test the application of further issues of pandemic coverage in business interruption policies.
“The second test case will determine the meaning of policy wordings in relation to the definition of a disease, proximity of an outbreak to a business, and prevention of access to premises due to a government mandate, as well as policies that contain a hybrid of these type of wordings.”
Fairfax Media reported on Friday that law firm, Gordon Legal is preparing several class actions against insurers over several policies.
Partner Andrew Grech accused the insurers of stalling payouts by running the test cases. “They’re hoping that by attrition there will be less of these businesses around to make claims,” Mr Grech said.
The share of the three main insurers – IAG, Suncorp and QBE all rose on Friday, but were down for the week.
IAG rose 0.2% on Friday but lost 3.4% over the week, Suncorp shares were up 1% on Friday but down 2.7% for the week and QBE shares added 0.8% but lost 3.8% for the week.
Investors were certainly worried by the High Court hearing and the potential damage a loss could cause. They don’t seem to be reassured about the second test case.
