Insurance Council seeks leave to appeal business interruption test case loss to High Court

The Insurance Council of Australian has announced it will seek to appeal the shock 5-0 loss in the NSW Court of appeal that opened the way to massive claims from businesses.

A woman walks past an empty shop in Melbourne’s central business district. PIcture: AFP

The Insurance Council of Australia has confirmed it will seek leave to appeal to the High Court after its high-profile defeat in the business interruption test case that exposes the industry to potentially massive claims.

The move comes after a shock judgment in November by the NSW Court of Appeal, which found businesses with policies that referred to the defunct Quarantine Act were not excluded from business interruption insurance coverage.

In its announcement on Tuesday, the board of the ICA reiterated its view that pandemics were never intended to be covered by most business interruption insurance policies and that the Quarantine Act exclusion excluded COVID-related claims.

The ICA noted that premiums had not been priced to reflect cover for pandemics and that neither reserves nor reinsurance had been secured to cover potential claims.

“Where appropriately priced business interruption policies were designed to cover pandemics, (predominantly in the entertainment and health sectors), claims have already been paid out,” it said.

The ICA said it was “unfortunate” that several insurers were issuing policies that had not been updated to refer to the Biosecurity Act, which replaced the Quarantine Act.

It said the finding of the NSW Court of Appeals would lead to uneven coverage, noting policy­holders with policies that had an “updated and correct legislative reference” to the Biosecurity Act “would not be eligible to claim under their business interruption policies for COVID-19-related claims”.

Herbert Smith Freehills partner Mark Dawin said it was likely the High Court could be persuaded to grant leave.

However, he noted the ICA needed to persuade two judges of the High Court of the public importance of the case, or the need to resolve differences of opinion between different courts.

“The reason (the insurers) lost is because it wasn’t as if they intended one thing but documented another — they had never turned their mind to it and it wasn’t the Court’s role to amend the words to reflect the deal they wish they had done,” he said.

“So the key issue in the appeal might be whether a Court can amend or interpret a contract to the way a party now says they intended the contract to operate even though they didn’t actually form that intention at the time the contract was made.”

Maurice Blackburn Insurance practice principal lawyer Josh Mennen said the law in question “was not in a state of flux”.

“What I think is the industry just can’t accept when you interpret a policy is you don’t look to a party’s intentions when they wrote the policy, you look at the wording as it applies,” he said.

“They made a bungle, a serious bungle (and) they have to wear the consequences.”

The ICA will continue to be represented by Clyde and Co solicitors, which acted for the two test case insurers in the recent NSW Court of Appeal case.

Clayton Utz will continue to act for the insured parties to defend the appeal.

ICA chief Andrew Hall said the industry understood how challenging conditions were proving for many businesses, but the industry had never priced-in potential pandemic coverage.

“However, if the industry is forced to pay out for risks it has not collected premiums for, or sought reinsurance for, it would compromise our ability to provide the Australian business market with protection against other risks.”

Berrill and Watson Director John Berrill said the appeal was another delay for small businesses “who took out these policies in good faith”.

“We’re just getting delay after delay.

It’s now been nearly six months since the idea of a test case was first mooted and the insurance ­industry decided the best way forward was to lodge a test case only on the narrow issue of Quarantine Act versus Biosecurity Act,” he said.

“All the other issues we say are relevant have been left to one side and now six months later the ICA is saying we intend to lodge another test case.”