Insurance industry launches High Court Appeal in $10bn fight

Insurers are taking what they say is a $10bn fight over business interruption policies.

Insurers will appeal a crucial decision on business insurance and COVID to the High Court of Australia. Picture: Getty Images

The Insurance Council of Australia has warned the industry faces $10bn in claims if it fails in a high-stakes battle over business interruption payouts.

The insurance industry suffered a stunning legal defeat in the first round of the fight over whether policies which referenced the defunct Quarantine Act blocked pandemic-related claims for insurers.

The ICA filed an appeal to the High Court of Australia, seeking to challenge the judgement on the question of contractual interpretation, arguing the court should find insurers made a mistake in the fine print of their disclosure documents.

The High Court filing came as residents from Sydney’s northern beaches been told to stay at home from now as the northern beaches virus cluster grows to 17, with a testing blitz underway.

Lawyers for the insurance industry argue that references to the terms “and subsequent amendment” should be read as a reference to the Biosecurity Act rather than the earlier Quarantine Act.

“Contrary to the view of the (NSW) Court of Appeal, the words ‘subsequent amendments’ are broad enough to encompass not merely alterations to the text of the Quarantine Act but its repeal and replacement by a different Act,” the lawyers said.

The lawyers also argue there was no evidence when the test case businesses took up their policies that they knew their policies referenced a defunct act and were therefore covered for pandemics.

“There is no evidence suggesting that the parties knew of the repeal of the Quarantine Act and thus no foundation to suggest that they chose to refer to that Act notwithstanding knowledge of its repeal,” they said.

“The parties’ reference to the ‘quarantine act 1908 and subsequent amendments’ was thus simply an incorrect way of expressing that to which they sought to refer.”

The insurance industry has long maintained that business interruption insurance policies which were sold to businesses were never priced to reflect the expected costs of a pandemic.

Insurance giant IAG has been forced to raise $750m to cover potential costs arising from the appeal to the High Court going against them.

Macquarie analysts estimate IAG may be hit for as much as $225m in relation to losses from business interruption.

Berrill & Watson director John Berrill said the insurance industry was facing an uphill battle in its appeal to the High Court.

“They’re going to struggle on the first issue for no other reason, one thing that will inform the High Court grant of leave is that the Court of Appeal found 5-0 against the insurers position,” he said.

But he said the latest court action only extended delays for thousands of small businesses which had been waiting for payments.

“Depending on when this is heard it’s almost certainly going to end up at least 12 months, if not more, from when the test case was launched to when a decision will be made,” he said.

Class action law firms are circling Australia’s largest insurance companies after the stunning loss of an industry test case over liability for pandemic-related losses has left them open to costly claims from policy holders.

Law firms including Maurice Blackburn and Shine have in recent weeks revealed plans to launch possible class actions on behalf of insurance holders who suffered business interruption as a result of lockdowns linked to the pandemic.

The NSW Court of Appeal in a 5-0 judgment last month found in favour of two insured businesses whose income had been crunched as a result of the lockdowns.

In its judgment, the court found COVID-19 was not to be considered a disease declared to be quarantinable under the quarantine act and exclusions under the respective insurance policies were “not delivered”.

The judgment could open the door to thousands of claims. Many insurers, including Suncorp, QBE, Insurance Australia Group, HDI, Chubb and Lloyds, are exposed.