Landmark decision in NSW court of appeal confirms the gate is now open for businesses to claim for business interruption insurance coverage as a result of the COVID-19 pandemic.
Silver Lining to Business Interruption Claimants
Businesses relying on business interruption insurance to satisfy claims lodged due to the COVID-19 pandemic have been provided a silver-lined cloud thanks to a determination of the NSW Court of Appeal in late June 2021. In a hallmark case amid the economic impacts of the COVID-19 pandemic, the NSW Court of Appeal handed down a decision in HDI Global Specialty SE v Wonkana No. 3 Pty Ltd  NSWCA 296 which holds insurers liable to pay out claims of insureds for "business interruption". Subsequent to this determination, the High Court rejected an application by the Insurance Council of Australia for special leave to appeal the decision.
Traditionally, business interruption insurance is the subject of claims arising from floods, fire and alike. At large, insurers referred to exclusion of claims under the Quarantine Act 1908 (Cth) which is now superseded legislation. In turn, claims filed by the insured were technically made pursuant to the Biosecurity Act 2016 (Cth), which was not expressly excluded under the same policy documents. It is anticipated the determination will be the catalyst to allow for numerous businesses Australia-wide to commence lodging claims for harm caused by business interruption as a result of the novel COVID-19 pandemic with their insurer.
Where to Now for Claimants
The Biosecurity Act was not explicitly excluded from business interruption insurance claims. However, there is a second test case in the Federal Court that may challenge this position. Consequently, we are seeing that insurers are holding determination of business interruption claims of this kind while the second test case is determined. It is anticipated for this to occur in September of this year.
This is supported by the statements of the Insurance Council of Australia, which says that businesses can expect to wait until the determination of the second test case before claims will be fully assessed in most circumstances. The second test case seeks to clarify, among a number of issues, whether businesses need to confirm a case of COVID-19 within close proximity of the business for losses due to the pandemic to be valid under business interruption insurance conditions.
The move to deny any special leave in the NSW Court of Appeal proceeding is a positive sight for struggling businesses, who may have their claims honoured after the unrelenting economic impact of multiple lockdowns, quarantine and stay-at-home orders in 2020 and 2021. While there remain other test cases afoot, the position taken by the High Court is evidently akin to "cracks" in the dam of lodged claims since the start of the pandemic.
The United Kingdom's test case, FCA v Arch Insurance (UK) Ltd and Ors  UKSC 1 was the first test case regarding business interruption insurance in the context of the COVID- 19 pandemic. The key points in the proceedings include:
- Disease Clauses
Lords Hamblen and Leggatt adopted a view that mere geographic radius of cases was not sufficient to justify a business interruption claim. The Supreme Court of the United Kingdom ultimately found each case sustained is individualistic, and disease clauses cover cases only within a certain radius.
- Prevention of Access/Hybrid Clauses
The Supreme Court found a public authority restricting access to a premises will amount to a "restriction imposed", triggering those policies which adopted clauses for "inability to use" premises.
In order to trigger a claim, the Court took the view that merely one positive case of COVID-19 (within the relevant geographic area covered by the insurance policy) was sufficient to provide causation and a prima facie cause of loss. The Supreme Court also rejected the suggestion of the insurers that the "but for" test (being that a second event would not occur but for the first occurring) was not sufficient in this context to reject a claim.
Trends Clauses & Pre-Trigger Losses
Trend clauses are the reliance on trends to reject claims. In the circumstances, the Court took the view that COVID-19 cannot be excluded as a trend, given the insurance is otherwise for an instance such as the pandemic. Put differently, by way of example, insurers cannot offer insurance for floods, and adopt floods in their policy as an exclusion for claims under that policy.
Whilst not binding in an Australian context, it can be extrapolated that the Supreme Court of the United Kingdom adopted a similar view to that of the NSW Court of Appeal and High Court. The Supreme Court of the United Kingdom took specific note, however, that at large these conditions applied in instances where businesses were excluded from attending or utilising their premises, rather than a generic application to all claims.
Across the Tasman, at the time of this post, New Zealand had not had a business interruption claim filed domestically. However, the Reserve Bank of New Zealand took precautions and warned New Zealand based insurers that decisions in Australia and the UK may cause claimants to come forward. The Reserve Bank of New Zealand also state that whilst New Zealand was ultimately less economically affected than its international counterparts, insurers may face greater claim costs if the New Zealand economy fails to bounce back.
Takeaways for Businesses and Insurers
The revelations in business interruption insurance highlight the need for prompt reviews of policy and assessment of commercial circumstances. Whilst some claimants have come forward, class actions nationwide are building in strength to compel insurers to pay on business interruption cases resulting from the pandemic. If you need assistance to determine if you qualify, or alternatively if you're liable to pay out on a business interruption claim, you should contact our office immediately for a consultation on your circumstances.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.