Property Insurance Update – Australian Business Interruption Claims Begin

09 June 2020

Australian media coverage

You may have seen over the weekend that the media have reported on the Australian insurer response to COVID-19 business closures following developments in the UK. The articles indicate that policyholders are engaging lawyers, approaching litigation funders and lodging complaints with the Australian Financial Complaints Authority. The Age and The Sydney Morning Herald refer to having obtained business interruption policies from Hollard, QBE, CGU, AON Australia and Steadfast and suggested that they “include clauses in some policies that could save thousands of businesses from collapsing if their insurers paid them out”.

Policyholder coverage comments

John Berrill, principal lawyer at Berrill & Watson, found that the policy wordings clearly covered business interruption losses caused by the government shutdown because of the threat of COVID-19. "Some talk about the risk to life or the threat of damage to people or property, while some specifically refer to infectious diseases,” he said. “Others are broader and talk only of access prevention. But the trigger is a government shutdown which is what occurred in Australia in March," he said. Some of the policies purport to limit or exclude cover for shutdowns due to broad pandemics but some prescribe "quantifiable diseases" under the now-repealed Quarantine Act of 1908. The Quarantine Act was repealed in 2016 and replaced with the Biosecurity Act. However, some of the policies refer to the Act as "amended", which is incorrect. Insurers might argue that the intent of the exclusion was to cover the current COVID-19 pandemic but as a matter of insurance law, this argument is likely to fail because the wording is explicit and clear."

Mark Waller, a partner at law firm Clayton Utz, said he had been advising a number of clients on business interruption policies that contained exclusions for "quarantinable diseases under the Quarantine Act 1908 and subsequent amendments". He said the Parliamentary Act was repealed in 2016 and COVID-19 was not a "quarantinable" disease under that Act, therefore the claims should be covered. Mr Waller also said: “Where the policies simply require that the outbreak occur within a specified radius of the premises, the insurance policy should respond, as it is likely that the business will be able to establish that the outbreak is present within that area.”

Dallas Booth, chief executive of the National Insurance Brokers Association, said his organisation had not taken a position on the debate but said he understood the argument of insurers. "There are various legal advices around that have examined the issue, and I’m told the advices tend to agree that the exclusions will be effective, primarily because regardless of the actual words used, that was clearly the intent of the parties. I can understand that position," he said.

The Insurance Council of Australia, which represents general insurers, also maintained that even in the cases where the wrong act is referred to, the intention is clear.

Regulatory response and test case in Australia

The Age refers to the lack of regulatory response in Australia quoting an industry insider as saying we are “months and months behind the UK". The Australian Prudential Regulation Authority and ASIC said they were monitoring the situation. ASIC said it was working with AFCA, APRA and Treasury to "fully understand the complex problem and how best to resolve uncertainty for business and insurers". AFCA has received a request relating to business interruption and was in discussions to approve the issues that would form part of a test case in Australia.

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