Certain exclusionary wording will not bar business interruption (BI) cover for Covid-19 losses, after the High Court refused insurers leave to appeal. There is now certainty for some insureds whose losses arose from the government mandated shutdowns however a complete answer to one of the pandemic’s most vexed insurance issues remains problematic.
The Court of Appeal found that the insurers could not deny BI claims based on an exclusion clause which excluded diseases which were “declared to be quarantinable diseases under the Quarantine Act 1908 and subsequent amendments.” As the Quarantine Act (which did not include Covid-19 as a quarantinable disease) had been repealed and replaced with the Biosecurity Act 2015 which did list Covid-19, the insurers argued unsuccessfully that “subsequent amendments” to the Quarantine Act should be construed to include the replacement Act. In a nutshell, said the Appeal Court, the insurers could not re-write the Quarantine Act exclusion because the Biosecurity Act was a replacement statute not an amendment to the earlier Quarantine Act. So far so good for those insureds under the first test case.
The High Court rejected an application by the insurers for special leave to appeal, so the Court of Appeal’s decision stands; insurers cannot deny claims for losses caused by the pandemic by relying on that specific exclusion. More careful drafting by the insurers could have avoided the issue but the insurers’ appeal rights on this first BI test case are now at an end.
The BI Policy is intended to cover income loss to a business including consequential loss of profit and other expenses arising from a physical loss such as a fire. In other words, monetary losses due to periods of suspended operations. Some policies also cover incidents such as Covid-19 related BI. Many insurers argue that pandemics were not envisaged for coverage under most BI policies. There are therefore questions for you and your Lockton broker. Is there coverage for Covid-19 induced loss under your BI insuring clause? Does a particular exclusion apply to deny cover for losses arising from the pandemic? What is the best coverage case to put to your insurer?
The Second Test case, now before the Federal Court, will look at a range of BI policy issues across the definition of a disease, prevention of access to the business premises and proximity of an outbreak to a business. While the first test case posed a narrow question – a single exclusion clause in the spotlight – the second test case will look more broadly at issues of concern to insurers and the Insurance Council of Australia, under a greater variety of policy wordings. It is anticipated that it will be heard this month with any appeal later in 2021. A further test will be the Federal Court class actions against QBE and Lloyds by businesses, refused BI claims, currently being driven by Gordon Legal and funded by Omni Bridgeway.
In brief: The Court of Appeal’s decision, and the High Court’s refusal to grant leave, is not a green light for BI recovery for all insured businesses. It certainly is for those whose policy has not responded due to the specific exclusionary wording, “declared to be quarantinable diseases under the Quarantine Act and subsequent amendments”. It can potentially bolster a coverage case for those claiming a BI loss under different wording, as could the second test case and other pending litigation before the courts. In the meantime, talk to your Lockton broker about your BI coverage; while there still remains uncertainty an initial blow against insurers has been struck by the first test case, clearing the way to develop your BI coverage claim. Any claim, with an indemnity issue, regardless of its complexion, should be continually appraised by you and your Lockton broker because coverage is a constantly evolving paradigm.
HDI Global Specialty SE v Wonkana No 3 Pty Ltd [2020] NSWCA 296.
