Insurance companies win COVID business interruption benefit test


Many companies in Canberra have been surprised to wait for the outcome of a crucial test case. Photo: Regional media.

Businesses that intended to rely on their insurance policies to cover the impact of COVID-19 have suffered a severe blow in a test case that means insurance companies can avoid paying billions of dollars dollars in claims.

As the pandemic erupted in early 2020, interrupting everything from travel to commerce, many companies have looked into whether their business interruption insurance policies will cover them for their lost earnings, but the industry Insurance backed down, saying pandemics were not intended to be covered by most business interruption policies.

The case was taken to the NSW Court of Appeals last year in a typical case lost by the insurance industry.

On Friday, October 8, in a second case, the Federal Court ruled in favor of insurance companies, meaning Australia’s largest insurers will not have to pay billions of dollars in compensation to customers suffering related losses to COVID-19.

READ MORE: Business interruption insurance will be tested for COVID-19

Not all legal avenues are closed and there is still a full Federal Court appeal to be heard, but Allinsure director Peter Chamberlain said the outcome of the case was a surprise.

“Many local businesses in Canberra are being affected by this, particularly those in the hospitality, health, beauty and fitness industries,” said Chamberlain.

The case was seen as an important test case that will govern how thousands of insurance claims for losses suffered during the pandemic are handled.

In the court case, a group of small businesses were fighting some of Australia’s top insurers: Allianz, Chubb, Guild, IAG, QBE and Swiss Re, who claimed businesses disrupted by COVID-19 were not entitled to compensation for their losses. were not sufficiently linked to virus outbreaks or government restrictions.

Judge Jayne Jagot ruled on Friday that insurers were not responsible for payments claimed by their clients in the case.

Director Allinsure Peter Chamberlain

Allinsure Director Peter Chamberlain: “We hope that the outcome of the appeal process will provide some level of coverage for our clients. Photo: Michelle Kroll.

She said the clauses in companies’ insurance policies covering infectious diseases, disasters or preventing access due to lockdowns were narrow enough to exclude the circumstances in which their work was interrupted.

She said that while businesses were barred from entering their stores and offices, the fact that it wasn’t because of an outbreak specifically at their premises meant that the policies were not covering the losses that ensued. .

She also said that since not all businesses have been ordered to shut down by the government, insurers have argued that some have done so because it was not viable to stay open during the lockdown. which means they were not specifically required to close as required for a successful payment.

Aware of the repercussions of the case, the court promised that the appeal process would be completed by the end of the year.

Mr. Chamberlain said: “We hope that the outcome of the appeal process will provide some level of coverage to our clients. It would be a nice Christmas surprise.

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Justice Jagot said if her decision was overturned on appeal, any claims by the companies would have to be curtailed by government support to reduce business interruption losses.

“We continue to remind businesses that if you think you can claim a loss of revenue, contact your broker to make a claim,” said Mr. Chamberlain.

In a statement, the Insurance Council of Australia said: “While the insurance industry understands the frustration of policyholders who may be waiting for a decision on their claim or resolution of a dispute, these issues are unclear and it is necessary to clarify the legal principles used to resolve any dispute.

“The way the COVID-19 pandemic has impacted most businesses in Australia has not been direct, but rather largely as a result of secondary actions such as those taken by government authorities.

“Insurers and the Australian Financial Complaints Authority want these issues to be resolved in court as soon as possible. The Federal Court has anticipated and scheduled the decision to be appealed given the complex nature of the case and has already set aside time during the second week of November 2021 to hear any appeals that may be filed by insurers or insured. The insurance industry will continue to bear the costs of policyholders as part of any appeal process. “

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