Top firms set to move on pandemic insurance claims

Some of Australia’s largest companies are preparing to launch pandemic-related insurance claims that could trigger huge payouts.

Star Entertainment is currently before the Federal Court in a battle with its insurers alleging restrictions on the Casino’s operations by the NSW government to restrict the spread of COVID-19 triggered its policy. Picture: NCA Newswire / Gaye Gerard

Some of Australia’s largest companies are preparing to launch pandemic-related insurance claims in a move that could trigger hundreds of millions of dollars worth of payouts, according to brokers that place the bulk of their commercial insurance.

Marsh, an insurance broker to many of the S&P/ASX 200, said it had been advising customers behind the scenes on their policies and what pandemic-related claims they could make.

The outcome of these claims could add to the already expensive tally of potential payouts provisioned by the insurance sector.

For their part, insurers say they are not exposed to payouts linked to lockdowns given insurers terms don’t cover pandemics.

A recent judgment from the NSW Court of Appeal in a test case in Australia found insurers who had offered policies that referenced the defunct Quarantine Act were unable to block business ­interruption insurance claims.

However, the court also found those who held policies that referenced the current Biosecurity Act were unable to claim.

Marsh said many customers were looking to the outcome of the attempt by the Insurance Council of Australia to appeal the Quarantine Act test case to the High Court of Australia.

However, others are also looking at efforts by Star Entertainment, owners of Sydney’s The Star Casino, to make claims on their policy.

Star is currently before the Federal Court in a battle with its insurers Chubb alleging restrictions on the Casino’s operations by the NSW state government to restrict the spread of COVID-19 triggered its policy.

Marsh Australia chief John Donnelly said there were at least six major Australian businesses known to be looking to make pandemic-related claims, including its client The Star.

Mr Donnelly said five were currently in dispute with their insurers, with The Star the only to take the fight to the courts, but he said this could change quickly.

“The Star case, for major companies, is a bigger deal than the challenges that went to court over the Quarantine Act and Biosecurity Act as the issue is around the denial of access and intervention of government authorities which hasn’t gone to court yet,” he said.

“If (the insurers) went down on a case for a major client, that opens up the potential for major organisations to lodge claims.”

Adelaide’s normally busy streets are almost deserted during lockdown last November. Picture: Getty Images

Listed insurer IAG included a $1.15bn pre-tax earnings impact as a result of its provisioning for potential business interruption claims. Suncorp topped-up its business interruption provisions to $214m.

While QBE, which is exposed to potential claims arising from Australia as well as the insurance industry’s partial defeat in a test case in the UK, has set aside $US785m ($997m) to cover pandemic-linked losses.

Mr Donnelly said the potential claims arising from big business seeking payouts for business interruption could be significant.

“Clearly if the courts rule in favour of insureds on prevention of access or intervention of government authorities, it opens the opportunities for claims far greater than what has been seen at this point,” he said.

“That’s a cloud over the insurance market, but I think it’s unlikely we will have the result of those cases before June.”

But Mr Donnelly said any potential payouts to Australian businesses would likely be “complicated” by the level of government assistance through the JobKeeper supplement and other efforts to preserve business in the face of the pandemic.

“That’s got to be taken into account in business interruption claims,” he said.

Insurers have provisions of billions to cover potential business interruption claims arising from payouts to small business.

No listed Australian insurer has yet acknowledged potential big business claims, but on Friday QBE acting chief executive Richard Pryce said the industry could expect further challenges to their position.

He said the position of business interruption claims in Australia “remains uncertain”.

“The (Insurance Council of Australia) has applied to the High Court of Australia the special leave to appeal the judgment with respect to the initial test case surrounding the incorrect reference to the Quarantine Act,” Mr Pryce told an analyst briefing.

“Regardless of the outcome of the application and any ensuing appeal, there will be further test cases to resolve legal issues surrounding interpretation of common business interruption policy wordings and those cases will take some time to be heard and even longer for the rulings to be handed down.”

He said QBE “has set aside material gross provisions” for potential Australian business interruption claims, considered appropriate to the company’s potential exposure and plausible claims scenarios.

Mr Donnelly said although some Australian insurers held some of the risk for big business payouts, the potential pain would be felt on a global scale.

The insurance industry has long maintained it had not priced to cover pandemics broadly, and Mr Donnelly said even if the insurers won in Australia, international losses would boost premiums here.