Client update

Client update - Australian business interruption test cases and claims update for COVID-19 related loss

The question of whether business interruption coverage for loss relating to COVID-19 is covered under Australian insurance policies is a live issue that is currently being tested in a number of Australian court proceedings, including two test cases. The two test cases have been endorsed by the Insurance Council of Australia (ICA) and the Australian Financial Complaints Authority (AFCA). 

The test cases are intended to provide policyholders and the insurance industry with clearer direction and guidance required for coverage decisions to be made in response to these claims. 

Test cases

Test Case 1 commenced in the NSW Court of Appeal in July 2020 and considered a narrow issue, being the application of a specific policy exclusion found in some policies which referred to the “Quarantine Act 1908 and subsequent amendments”. 

The Court held that references to the “Quarantine Act” in the exclusions in the policies the subject of the test case could not be construed as “Biosecurity Act”, and therefore did not exclude the claims in the test case.  An application has been lodged for special leave to appeal this decision in the High Court, but no decision has yet been made on whether this appeal will be heard. Oral arguments will be heard by the High Court on a date yet to be determined in 2021. 

Please see our earlier client updates (which can be found on the Aon Newsroom), for further details regarding this test case and its potential implications. 

Test Case 2 was commenced in the Federal Court of Australia in February 2021. It relates to nine separate small business claims from a range of business sectors and locations, involving five insurers and various policy wording. 

According to the ICA, the second test case will determine the meaning of various policy wordings in relation to the definition of a disease, proximity of an outbreak to a business, and prevention of access to premises due to a government mandate, as well as policies with a hybrid of these types of wordings. Click here for a copy of the ICA’s media release and updates regarding the second business interruption test case. 

Policy response and claims

Whether a policy will respond to a COVID-19 related business interruption claim will depend on the precise terms and conditions of the policy (including any relevant exclusions and sublimit) and issues specific to each claim relating to causation and proof of loss. Until the outcome of the test cases is known, there remains significant uncertainty in relation to policy coverage in terms of recoverable COVID-19 Business Interruption losses. Insureds should seek independent legal advice if they require legal advice on policy coverage. 

Due to this uncertainty, most insurers of Australian policies are currently reserving their position on policy coverage in response to COVID-19 related business interruption claims. Aon expects this to continue at the very least until the issues under consideration in Test Case 2 are determined (including any appeal), which means policyholders may be waiting beyond 2021 for any final policy coverage decision to be made. 
Given this anticipated delay, we recommend that any insured who has lodged or intends to lodge a claim, should begin collecting relevant financial records and other relevant documents or evidence in support of their claim as soon as possible, so this information is preserved and readily available.  AFCA has produced an Information Sheet Establishing business interruption loss due to COVID-19 which sets out a helpful list of financial information to assist in establishing business loss. This can be found here.  Aon is here to help any client who wishes to lodge or notify an insurer of their BI claim or an intention to lodge a BI claim. 

Any questions?

If you have any questions or wish to discuss your business interruption claim, or your potential business interruption claim, please contact your assigned Aon claims contact person or member of your Aon account team. 

We will continue to provide updates on relevant developments in relation to this evolving issue on the Aon Newsroom.

Disclaimer: This Alert is not intended to be taken as personal advice and should not be relied upon as such. It is not intended to be comprehensive, nor does it, or should it be construed as constituting legal advice. You should seek independent legal or other professional advice before acting or relying on any of the content of this information. Aon will not be responsible for any loss, damage, cost or expense you or anyone else incurs in reliance on or use of any information contained in this Alert. 

© 2021 Aon Risk Services Australia Limited ABN 17 000 434 720 AFSL No. 241141 (Aon)

For further information please contact:

Emma Casey 
+61 2 9253 7421

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