COVID-19 Business Interruption Losses and Recent Court Decision - Biosecurity Act references
20 November 2020
Businesses around the world have faced significant disruption from COVID-19. One area of focus has been the adverse impact COVID-19 is having on business revenues and the role Business Interruption Insurance cover may play.
Business Interruption (BI) Cover
Property policies typically cover losses from physical damage to insured property from a covered peril. In the absence of physical damage, BI losses are generally not covered.
However, there are some policies, which provide BI cover from non-damage causes, including arising from closure or evacuation due to infectious, contagious or notifiable diseases within a specified radius of the insured premises.
Since 2006, non-damage BI clauses in Australian policies have typically been subject to an exclusion for statutorily declared or notifiable human diseases (Disease Exclusion
). This is because insurers and reinsurers have not been prepared to underwrite pandemic related business interruption risk.
The Disease Exclusion has been amended over time to reflect the relevant statutory regime for listing human diseases.
The Quarantine Act,
which lists a number of diseases such as SARS, was repealed in 2015 and replaced by the Biosecurity Act
, which introduced a regime for diseases to be “listed human diseases”.
Most insurers updated their policies to amend the Disease Exclusion to refer to listed human diseases under the Biosecurity Act. The Aon Vertex Wording was amended to reflect this change in legislation.
However, some insurers continued to refer to the Quarantine Act and subsequent amendments
. Those insurers have contended that such a reference should be interpreted as a reference to the Biosecurity Act as the clear intention of the exclusion is to exclude pandemic related BI losses.
Test Case Decision – Business Interruption Policies With Exclusion Referencing Repealed Quarantine Act
A test case to consider the application of an infectious disease exclusion was filed in the Supreme Court of New South Wales (Test Case). The Test Case relates only to policies which refer to the “Quarantine Act and subsequent amendments”.
The test case process was endorsed by the Australian Financial Complaints Authority (AFCA) and the Insurance Council of Australia (ICA).
On 18 November 2020 the Court of Appeal delivered its judgment and found in favour of policyholders. The outcome of the Decision (subject to any appeal which may or may not proceed) is that insurers will not be able to rely on the most common Quarantine Act exclusions.
This does not mean that policyholders, affected by the judgment, are automatically entitled to indemnity under their policy. Other exclusions may operate, and causation and proof of loss may impact individual BI claims depending on the insured’s particular policy terms and conditions and particular circumstances.
For policyholders with a Quarantine Act Disease Exclusion, see our Client Alert of 19 November 2020 here.
What does this mean for policyholders subject to Biosecurity Act language?
The Test Case has no impact on policyholders with a Disease Exclusion with a reference to the Biosecurity Act.
Aon has provided an earlier client alert date 7 October 2020 here
Aon is continuing to closely monitor the situation in Australia and in other jurisdictions where courts have become involved in the consideration of this important and complex topic. We will advise clients on an ongoing basis of any relevant developments.
With regard specific notified claims, Aon’s focus will continue to be on providing appropriate support to our clients as defined in our terms of business agreements and will advocate on behalf of clients in relation to any valid notified insurance claim.
If you have notified a BI claim which relates to COVID-19 please contact your assigned Aon claim’s contact to discuss any specific questions you may have. Aon clients can also contact a member of their Aon account team for a broader discussion on business interruption or any other aspect of your insurance cover at any time.
: This Alert is not intended to be taken as personal advice and should not be relied upon as such. It is not intended to be comprehensive, nor does it, or should it be construed as constituting legal advice. You should seek independent legal or other professional advice before acting or relying on any of the content of this information. Aon will not be responsible for any loss, damage, cost or expense you or anyone else incurs in reliance on or use of any information contained in this Alert.
© 2020 Aon Risk Services Australia Limited ABN 17 000 434 720 AFSL No. 241141 (Aon