One of the major issues that has arisen for businesses as a result of the COVID-19 pandemic is whether they are covered for business interruption by their business insurance polices.
A business insurance policy containing clauses for business interruption cover will typically insure against the interruption of, or interference with, the business as a consequence of certain loss or damage. They may also include cover for the outbreak of an infectious or contagious human disease.
The outbreak of COVID-19 in March 2020 forced many Australian businesses to seek financial relief via their business interruption policies. Not surprisingly, the insurance industry sought to argue that pandemics are not intended to be covered under most business interruption policies.
In a test case in the NSW Court of Appeal, the insurers sought to utilise an exclusion contained in the relevant policies, whereby cover is excluded for 'highly pathogenic avian influenza or any other diseases declared to be quarantinable disease under the Quarantine Act.' The difficulty for the insurers was that the quarantine act had been repealed in 2016 and replaced by the Biosecurity Act 2015. The court ruled in favour of policyholders. In its decision, the Court of Appeal found that the exclusion did not apply as a consequence of the fact that COVID-1 was a 'listed human disease' under the biosecurity act, not the quarantine act.
The decision of the NSW Court of Appeal was appealed to the High Court of Australia. To appeal to the High Court, it is necessary for the Court to grant leave to appeal. In June 2021, the High Court refused the insurers application for special leave to appeal, effectively upholding the decision of the NSW Court of Appeal.
What this decision means for businesses is that an insurer will not be able to exclude a claim for business interruption where the exclusion clause refers to the quarantine act.
But, it does appear that this might just be the first step by insurers to limit their exposure to business interruption claims as a result of COVID-19. There is a second test case running in the federal Court of Australia, in which the court is being asked to determine a number of issues, including the meaning of policy wordings around disease definition, COVID outbreak proximity – including issues with border closures – and the impact of government mandates.
For primary producers and regional businesses that have been affected by the COVID-19 pandemic and may have a claim on business interruption cover, it is, unfortunately, a case of 'watch this space'. The issue does, however, highlight the need to make sure you know what you are covered for when it comes to your insurance more generally.
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.