COVID-19 claims under business interruption insurance – NSW Court of Appeal gives go-ahead in test case

19 Nov 2020

Insurers cannot deny claims by insureds for loss caused by business interruption due to COVID-19 by relying on an exclusion which excludes "diseases declared to be quarantinable diseases under the Quarantine Act 1908 (Cth) and subsequent amendments" (QA exclusion), because that exclusion does not exclude COVID-19, following a decision by the New South Wales Court of Appeal (HDI Global Specialty SE v Wonkana No. 3 Pty Ltd [2020] NSWCA 296; Clayton Utz acted for the successful insureds).

This means that insureds whose claims have been denied or held-up on the basis of the QA exclusion now have judicial support to press their insurers for the prompt finalisation of those claims.

Insurers claimed that the QA exclusion should be construed as extending or referring to "diseases determined to be listed human diseases under the Biosecurity Act 2015 (Cth)" on the basis that: (a) first, the Biosecurity Act was a "subsequent amendment" referred to in the QA exclusion; or (b) second, the references to the Quarantine Act were obvious mistakes which should be construed as if they were, or included, references to the Biosecurity Act.

The Court of Appeal rejected the first argument:

  • consistent with existing High Court authority, the words "subsequent amendments" do not comprehend a reference to an entirely new replacement enactment (ie. the Biosecurity Act); and
  • a reasonable person would not have understood the language in that way (as stated in the judgment of Justices Meagher and Ball, "To suggest that the words "and subsequent amendments" include the enactment of the Biosecurity Act is many steps too far").

The Court of Appeal rejected the second argument on the basis of orthodox principles of contractual construction.

The Insurance Council of Australia, which is the representative body for the general insurance industry in Australia, and which funded the case, has announced that it will urgently review the judgment and the grounds on which special leave to appeal against the decision to the High Court of Australia might be sought. 

Making your claim for COVID-19 losses under business interruption policies

This was a unanimous judgment from the New South Wales Court of Appeal constituted by five judges, including the Chief Justice of the Supreme Court and the President of the Court of Appeal. Insureds whose claims (generally, under policies of business interruption insurance) have been denied or held-up pending the judgment now have the robust judgment of an experienced appellate court on the QA exclusion to support a request for their insurer to finalise the assessment of their claims. If an insured is entitled to be paid a claim, where appropriate they may also be entitled to interest under section 57 of the Insurance Contracts Act 1984 (Cth).

Insureds who have held off making claims because of the QA exclusion should reconsider that position and whether the perceived impediment to making the claim has now been removed.

A number of insurers have previously described the QA exclusion as a "pandemic exclusion". Given the decision of the Court, this is clearly not correct. To use Justice Hammerschlag's words, while it may have made "better commercial sense… to have chosen words to allow for the exclusion of serious diseases which break out during the cover period", that is not the wording which was chosen. Insurers and insurance brokers whose customers have insurance policies that contain the QA exclusion should now write to every insured with that exclusion and clarify that the exclusion does not apply to loss caused by business interruption due to COVID-19 and invite their customers to submit a claim if they have suffered such loss.

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