Virus interruption insurance case fast-tracked to Court of Appeal

A test lawsuit on COVID-19-related business insurance has been granted a fast track, recognising the high stakes surrounding the case.

Business temporarily shut in Terrigal in NSW as a result of COVID. Picture: Sue Graham

A test lawsuit on COVID-19-related business interruption insurance has been granted a fast track to the NSW Court of Appeal, in recognition of the high stakes surrounding the case.

Justice David Hammershlag of the NSW Supreme Court on Friday granted the escalation request by lawyers acting for both parties in the case, which is aimed at testing the wording of many business interruption insurance policies that refer to the defunct Quarantine Act.

The case, initiated by the Insurance Council of Australia with approval from the Australian Financial Complaints Authority, involves a caravan park in the NSW City of Tamworth insured by HDI Global Specialty SE (Australia) and is likely to set a precedent for hundreds of similar cases.

The escalation to the Court of Appeal short-circuits the inevitable appeal against whatever judgment may have been handed down in the Supreme Court and will now see the case heard by a panel of three judges.

It is now slated for a one-day hearing on October 2.

The case will decide whether the exclusion in business interruption insurance policies that refer to a quarantinable disease under the Quarantine Act should or should not be considered to apply to a listed human disease under the Biosecurity Act.

Should the case be decided in the favour of the insured parties in the NSW Court of Appeal the court would then consider additional questions to determine to what extent a business has been interrupted.

The outcome of a British test case examining similar issues is likely to be considered as part of deliberations on proportionality.

Placing the case before the Court of Appeal means the result can only be appealed to the High Court of Australia.

Most of the submissions will be made in writing and to date the case has been handled by audio link.

The case comes as businesses continue to have their applications to claim on their business interruption insurance policies denied by insurers who claim that the policies were never meant to cover events arising from a pandemic.

At least 30 policyholders who disagreed with their denial by insurers have appealed the outcome to AFCA and the outcome of the NSW case will affect how those complaints are dealt with.

Analysts expect that if the court finds in favour of the insured businesses the losses for the insurance industry could exceed $500m.

Insurance Council Australia CEO Andrew Hall welcomed the case being heard quickly.

“The pandemic and resulting uncertainty have had a devastating impact on Australia, so we are pleased the test case hearing is progressing as quickly as possible, and a judgment can be delivered that provides greater clarity to customers, insurers and regulators in the treatment of pandemic-related claims,” he said.

“In most cases, pandemic exclusions are a threshold issue in Australia given that most insurers have never contemplated coverage for pandemics, have not priced the risk or collected premiums for this risk.

“Globally, insurers generally regard pandemics as uninsurable risks.”

Sydney casino The Star is also before the Federal Court in an attempt to make its insurer Chubb, and several other co-insurers, pay up as part of its claim against its business interruption insurance.

The Star is not attempting to make the same case as is currently before the NSW Court of Appeals.

Court documents obtained by the Australian show the casino operator argues it had been interrupted by the actions taken by governments to limit the spread of the virus, rather than a direct virus hit.