Australia
Has the official regulator/authority intervened to help resolve contractual uncertainty around the validity of BI claims?
No.
The Australian Prudential Regulation Authority (APRA) is the independent statutory authority that supervises institutions across banking, insurance and superannuation and promotes financial system stability in Australia.
Whilst it doesn’t appear to have intervened to help resolve contractual uncertainty around the validity of BI claims, on its website APRA states the following in relation to its response to COVID-19:
"…APRA’s primary responsibility in the battle against COVID-19 is to maintain the safety, stability and resilience of Australia’s banks, insurers and superannuation funds and the broader financial system.… APRA has publicly announced a number of actions in response to COVID-19 – such as adjusting bank capital expectations, delaying its 2020 supervision and policy priorities, changing reporting obligations for some of its regulated entities, and temporarily suspending the issuing of new licences…"
In late 2005, following the outbreak of the H5N1 avian flu earlier that year APRA took steps to ensure that institutions had robust planning in place for any future pandemic response.
In October 2006, APRA issued Prudential Practice Guide 233: Pandemic Planning and Risk Management. In May 2013, following a review and update process, APRA, issued Cross-industry Practice Guide (CPG) 233 – Pandemic Planning.
In an article published in APRA's APRA Insight - Issue Two 2020, the following is mentioned in relation to CPG 223:
"…CPG 233 is designed to assist APRA-regulated institutions to consider and carefully manage the risks posed by an influenza pandemic, or any other widespread outbreak of contagious disease that could affect their operations.
CPG 233 outlines key aspects of pandemic plans and how pandemic planning differs from traditional business continuity planning. But while the practice guide makes it clear that APRA expects all its regulated institutions to consider pandemic risks, APRA doesn’t mandate any particular operational approach. As long as regulated institutions meet APRA’s prudential requirements, they have the flexibility to configure their pandemic planning and risk management approaches in a manner best suited to meeting their business objectives…"
Do insurance policies in your jurisdiction generally restrict BI to losses directly resulting from physical damage?
Yes, unless special cover is provided separately.
Are there any court proceedings currently dealing with the validity of BI claims?
Yes:
Insurance Council of Australia (ICA) – Second Test Case
In February 2021, the ICA commenced proceedings in the Federal Court of Australia in relation to business interruption cover related to COVID-19.
The second Test Case follows the First Test Case and the Second Test Case consists of nine separate small business claims lodged with the Australian Financial Complaints Authority (AFCA) as part of its dispute resolution process.
The hearing of the Second Test Case will be from 30 August to 8 September 2021 and will determine the meaning of 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.
Star City Casino Claim
The Star Entertainment Group Ltd & Ors v Chubb Insurance Australia Ltd
The parties are currently awaiting judgment in relation to Federal court proceedings, brought by the Star Entertainment Group against Chubb and other insurers.
Chubb and the other insurers are denying the claim. arguing the “loss” covered by the policy refers only to “physical loss” and Covid-19 does not constitute an “other catastrophe” as covered by the policy.
Have any judgments been given that deal with BI claims in relation to the current COVID-19 pandemic or other contagious/infectious diseases?
Yes:
Judgment in a test case, HDI Global Specialty SE v Wonkana No. 3 Pty Ltd (the First Test Case), was handed down on 18 November 2020.
The court held references to “diseases declared to be quarantinable diseases under the Quarantine Act 1908 (Cth) and subsequent amendments” should not be construed as including diseases determined to be listed human diseases under the Biosecurity Act 2015 (Cth)”.
Consequently, the insureds were not able to rely on exclusion clauses in their policies which referred to the Quarantine Act and not the Biosecurity Act. This finding will result in potentially significant liability for insurers due to COVID-19 related business interruptions.
On 25 June 2021, the High Court refused the insurer’s application for special leave to appeal from the Court of Appeal judgment, for the reason that the judgment was not attended by sufficient doubt to warrant special leave. In effect, this is a strong endorsement of the Court of Appeal’s reasoning, by Australia’s highest Court.
Consequences of the decision:
The judgment may open the door for businesses holding policies that were not updated following the repeal of the Quarantine Act in 2015 to make claims for Covid-19 related business interruptions. That does not necessarily mean such claims will succeed. Other issues, such as causation between outbreaks of Covid-19 and the loss suffered, are yet to be decided by Australian courts. Nonetheless, the door is creaking open and the NSWCA decision makes it more likely claims may pass through it.
Melbourne Café Claim
Rockment Pty Ltd trading as Vanilla Lounge v AAI Limited Trading as Vero Insurance (File number: VID481/2020).
A Melbourne Café (Vanilla Lounge) argued that an exclusion clause that refer to “highly pathogenic Avian influenza or any biosecurity emergency or human biosecurity emergency declared” under the Biosecurity Act 2015 does not exclude Covid-19 related business interruption.
Specifically, Vanilla Lounge argued that the Melbourne lockdown was the cause of the business interruption, and the Biosecurity Act had no connection with that lockdown, as the lockdown was ordered by the state government without reference to the federal Act.
In contrast, Vero argued that the reference to the Biosecurity Act encompasses measures taken in response to Covid-19 at all levels of government, including state and territory governments.
On 18 December 2020, the Full Federal Court delivered its judgment.
The Court formulated the question before it to be: “Is it sufficient to exclude coverage under the exclusion in clause 8 in section 5 of Insurance Policy SPX015934895 if the claim is for loss or damage that is directly or indirectly caused by or arises from, or is in consequence of, or the Biosecurity Act 2015 (Cth)?”.
The Court answered “no” but it also rejected the interpretation of the exclusion clause put forward by the insured, accepting the insurer’s submission that the exclusion should be given a wide interpretation.
The implications of the Court’s remark about the width of the exclusion clause are still being worked out.
The matter has now been remitted to a single judge to determine the remaining issues in the proceeding, including to determine how the exclusion clause applies to the individual policyholder’s cover.
Name of regulator, websites and articles of interest
Test Case articles:
https://insurancecouncil.com.au/bi-test-cases/
https://insurancecouncil.com.au/media-releases/second-business-interruption-test-case/
https://insurancenews.com.au/daily/federal-court-sets-second-bi-test-case-hearing-dates
https://www.insurancenews.com.au/local/clarity-on-second-bi-test-case-issues-not-expected-this-year
https://www.caselaw.nsw.gov.au/decision/175d83c4c19face7f3e6bc2c
https://www.smh.com.au/national/insurers-fail-in-high-court-bid-to-avoid-coronavirus-payouts-to-businesses-20210625-p584ba.html
https://www.abc.net.au/news/2021-06-25/insurance-industry-covid-losses-high-court-ruling-business/100244772
https://www.lexology.com/library/detail.aspx?g=5ffadb54-771c-4328-90be-13593313c787
https://www.insurancebusinessmag.com/au/news/breaking-news/whats-happening-with-insurance-council-of-australias-test-case-appeal-243861.aspx
https://www.insurancecouncil.com.au/media_release/plain/587
https://insuranceasianews.com/ica-launches-bi-test-case-with-insurers-says-pandemics-not-insurable/
Regulator:
Australian Prudential Regulation Authority (APRA)
https://www.apra.gov.au/covid-19-how-apra-prepared-for-and-has-responded-to-coronavirus-crisis
Other articles of interest:
Insurance Council of Australia (ICA) - The representative body of the general insurance industry in Australia:
https://www.insurancecouncil.com.au/issues-submissions/covid-19
Australian Financial Complaints Authority (AFCA) - A non-government ombudsman service providing free, fair and independent help with financial disputes.
https://www.afca.org.au/coronavirus-covid-19-pandemic-support-hub
https://www.afca.org.au/coronavirus-covid-19-pandemic-support-hub/insurance
https://www.afca.org.au/news/significant-events/coronavirus-covid-19-declared-insurance-catastrophe
Insurance Business Australia Magazine:
Sydney Morning Herald
Melbourne Café Case
https://www.insurancenews.com.au/daily/another-bi-case-federal-court-considers-vero-dispute
Star Casino Case
https://www.youngwitness.com.au/story/6920009/casino-group-sues-insurer-for-virus-losses/
https://www.gamblingnews.com/news/star-filed-complaint-against-insurer-for-denying-indemnity-claim/
