Insurance claims for COVID-19 business interruption: a win for businesses?
It is undeniable that the COVID-19 pandemic has presented unique and challenging issues for Australian businesses, causing long-term disruption to business. Adding further complexity is that, historically, the insurance industry would not provide relief to businesses affected by a pandemic. Many business interruption policies in Australia sought to exclude cover for pandemics through specific reference to the Quarantine Act 1908 (Cth) (Quarantine Act).
The recent decision of NSW Court of Appeal decision of HDI Global Specialty SE v Wonkana No 3 Pty Ltd [2020] NSWCA 296 (HDI decision) concerned whether a carve-out of infectious disease clauses, that referenced the repealed Quarantine Act, excluded business interruption claims as a result of the COVID-19 pandemic.
Relevantly, before the period of cover for either policy, considered in the HDI decision, commenced, the Quarantine Act was repealed and the Biosecurity Act 2015 (Cth) (Biosecurity Act) came into force. The Biosecurity Act did not provide for declarations of quarantinable diseases. Rather, the director of human biosecurity was able to determine a disease to be a ‘listed human disease.’ On 21 January 2020, COVID-19 was determined to be a listed human disease under the Biosecurity Act.
The court in the HDI decision considered whether references to diseases declared to be ‘quarantinable diseases’ under the Quarantine Act and subsequent amendments, should be construed as extending or referring to diseases determined to be a listed human disease under the Biosecurity Act on the basis that:
the Biosecurity Act constituted a subsequent amendment; or
the references to the Quarantine Act were obvious mistakes which should be construed as if they were or included references to the Biosecurity Act.
Ruling in favour of policyholders, the court unanimously found that the relevant exclusion did not apply to the COVID-19 pandemic. The disease in question had not been declared a quarantinable disease under the now-repealed Quarantine Act, and it was irrelevant that it had been determined a listed human disease under the Biosecurity Act. Accordingly it was not excluded from the disease benefit clauses in the insurance polices the subject of the HDI decision.
The Insurance Council of Australia sought special leave from the High Court to appeal the HDI decision, and, on 25 June 2021, the High Court refused to grant such leave (HDI Global Specialty SE & Anor Wonkana No 3 Pty Limited trading as Austin Tourist Park & Ors S231/2020). Consequently, the HDI decision stands and insurers cannot rely on references to the Quarantine Act to deny liability, provided the policy has been written on the same terms as those considered in the HDI case.
The decision raises other policy construction issues concerning whether the clause should be construed as referring only to diseases that had been subject to a determination under the Biosecurity Act at the time of entering into the policy or to diseases so determined during the life of the policy. This issue will be the subject of a second test case that is scheduled to go to trial in the Federal Court in late August 2021. This second test case will determine the meaning of policy wordings in relation to the definition of disease, prevention of access to premises due to a government mandate and proximity of an outbreak to a business, as well as policies with a hybrid of these types of wordings. Consequently, finalisation of many claims may not take place until further clarity is provided.
Implications
Businesses
The HDI decision is significant for Australian business policyholders that have suffered significant losses due to COVID-19. However, the decision is limited in its application, applying only to a small number of issues affecting Hollard and HDI Global Specialty SE policyholders. Despite this, businesses that hold business interruption insurance should be encouraged by the decision and make a claim to their insurer without delay.
Whether your business holds an appropriate business interruption insurance policy and can claim in light of the HDI decision, is a matter of analysing the wording of the relevant policies, and the application of principles of contractual construction.
Insurers
As a consequence of the HDI decision, insurers cannot rely on references to the Quarantine Act to deny liability in policies written in the same terms as the policies considered in the first test case.
It is vital business owners obtain regular legal advice in order to stay up to date with all relevant legislative changes.
If you are a business owner and have a query relating to any of the information in this article, or you would like to speak with a member of either our business law or dispute resolution teams at Harwood Andrews with respect to your own policy, please don’t hesitate to get in touch.
Ben Broadhead
Principal
T: 03 5226 8549
M: 0413 561 332
E: bbroadhead@ha.legal
Jessica Allen
Associate
T: 03 5225 5209
E: jallen@ha.legal
Hugo Le Clerc
Lawyer
T: 03 5225 5213
E: hleclerc@ha.legal
