Business interruption insurance claims for COVID-19 losses may be recoverable – but further challenges remain

As discussed in our previous article, in November 2020 the New South Wales Court of Appeal determined that exclusion clauses in Australian business interruption insurance policies for pandemics referring to the Quarantine Act 1908 (Cth), could not be relied upon to deny coverage for the current COVID-19 pandemic given that the Quarantine Act 1908 (Cth) was repealed in 2015 and replaced by the Biosecurity Act 2015 (Cth).

As anticipated, the insurers with the support of the Insurance Council of Australia sought to overturn the decision of the Court of Appeal by application to the High Court. On 25 June 2021, the High Court determined that there was not “sufficient doubt” in relation to the decision of the Court of Appeal and that the original decision was upheld. No further avenues of appeal exist, meaning insurers will be unable to rely upon references to the Quarantine Act 1908 (Cth) as the sole basis to deny liability for COVID-19 related business interruption claims.

Further challenges

The Insurance Council has indicated that further uncertainties with respect to the interpretation of business interruption clauses will need to be resolved before insurers ultimately determine whether or not to pay out claims for affected businesses and has commenced a second test case before the Federal Court for this purpose.

The second test case is intended to resolve uncertainty surrounding:

• the definition of a ‘disease’;
• the proximity of a COVID-19 outbreak to a business required before any exclusion clause applies;
• the effect of Government declarations and directions; and
• the extent to which a policy holder was required to be prevented from accessing their business premises before they may be eligible to recover under the policy.

Key takeaways

Business interruption policy holders should seek advice about submitting claims.

Whether or not a policyholder is entitled to indemnity will depend on their individual circumstances and the precise wording of the particular policy. In many cases the outcome of the second test case will determine whether claims are accepted.

However, businesses affected by COVID-19 should review and seek advice on their policy wording:

• consider lodging their claim now; and
• maintain all relevant paperwork and records to the claim.

The authors would like to thank associate Lachlan Chuong for his assistance with this article.

This article provides general comments only. It does not purport to be legal advice. Before acting on the basis of any material contained in this article, we recommend that you seek professional advice.