Businesses across Australia are feeling the impact of Covid-19, some more than others. However, for those with business interruption insurance and covid-19 related claims, the test cases appeal in the Full Federal Court of Australia set a precedent for future claims.
The Background
Business disruption cover kicks in when events affect your business operations. It helps your business to recover fast and keep moving forward.
In 2021 two test cases were put before the courts to provide clear guidance on how to interpret business interruption policies in the context of covid-19.
Most importantly, the outcome ensures that all insurers considered any business disruption claims due to covid-19 claims fairly and consistently.
The Business Disruption Test Cases
The test cases considered two critical aspects of the policies, Quarantine Act exclusion and policy wording interpretation.
1. The Quarantine Act
The first case covering the Quarantine Act sought to tackle the many business interruption policies attempting to exclude cover for pandemics through a reference to the Quarantine Act.
In 2020, the court ruled in favour of policyholders. The NSW Court of Appeal upheld the judgement in June 2021. The High Court determined that insurers cannot rely on references to the Quarantine Act to deny liability in policies.
2. The Policy Wording for Business Interruption and Covid-19
The second test case sought to resolve the meaning and interpretation of policy wording. It includes disease definition, covid-19 outbreak proximity and government mandate impacts.
In October 2021, the Judge concluded that in 9 out of the 10 cases, the insuring clauses did not apply and proposed declarations that the insurers are not liable to indemnify the policyholders.
The Appeal
Appeals were lodged against the judgments by policyholders and insurers. All class action cases were adjourned until resolution of the test cases. Insurers have committed to follow the appeal court rulings.
The Outcome of the Appeal
On Tuesday, 22 February 2022, the Full Federal Court of Australia handed down its appeal decision on test cases regarding policy wording.
The Judge substantially agreed with the October 2021 judgements and found in favour of insurers on most policy wording questions.
In 4 out of the 5 cases appealed, the Judge agreed the insuring clause did not apply. The 5th case favoured the insurer and determined that the insured did not suffer a loss.
The judgements ruled that insurers should not consider JobKeeper payments when assessing a loss. Instead, the ruling determined that insurers should calculate interest payments on a different basis.
The parties have 28 days to appeal; otherwise, the judgement is final.
What does this mean for me and my business?
The outcome of the test cases attempts to make policy wording straightforward for policyholders and insurers. It ensures that claim decisions are consistent and helps you understand when and how business interruption insurance protects your business.
The outcome of the test cases provides critical information to risk advisers, like Clear Insurance, who advise on risk mitigation. Most importantly, the outcome ensures we can determine the most appropriate risk and insurance packages for your business needs.
Need advice on the risks of business interruption?
Risk and insurance advisers, such as Clear Insurance, help you develop a good understanding of your business risks and how to mitigate them.
So, their advice guides you on the most appropriate ways to protect your business. Moreover, it helps you reduce the impact of business disruption and maintain critical cash flow.
In other words, it gives you complete peace of mind at claim time.
Start your risk discovery journey with Clear Insurance and contact us today.
General Advice Warning: This advice is general and does not take into account your objectives, financial situation or needs. You should consider whether the advice is appropriate for you and your personal circumstances. Before you make any decision about whether to acquire a certain product, you should obtain and read the relevant product disclosure statement.
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