Businesses that closed due to COVID-19 could potentially claim significant payouts from insurers after the Insurance Council of Australia (ICA) lost a test case in the NSW Court of Appeal.
Last week, the court ruled that clauses in insurance policies that excluded damage from viruses considered quarantinable under the Quarantine Act were invalid because the law was repealed in 2015 and replaced.
The case HDI Global Specialty SE v Wonkana No. 3 Pty Ltd [2020] NSWCA 296 involved a Tamworth Tourist Park that was forced to close during the outbreak of COVID-19.
A unanimous decision of five NSW Court of Appeal judges upheld the tourist park’s argument that COVID-19 was not a disease declared to be quarantinable disease under the Quarantine Act 1908.
Law firm Clayton Utz, who acted for the insured, said: “insureds whose claims have been denied or held-up on the basis of the Quarantine Act exclusion now have judicial support to press their insurers for the prompt finalisation of those claims.”
The ICA argued that reference to the Quarantine Act should be interpreted to mean the Biosecurity Act, which replaced the Quarantine Act in 2015.
Judge David Hammerschlag said that in not amending their policy documents to refer to the Biosecurity Act, one may suspect that a mistake was made – but this suspicion was insufficient.
“If the insurers had made a mistake and they wished to contend that the insureds shared in that mistake when entering the policy, it was open to seek to rectify the policies, but no such application was made,” he said.
He said it would have made commercial sense for the policy to refer to a current law rather than one repealed four years earlier.
The ICA said it was considering appealing to the High Court, and is looking at pursuing a further test case over business interruption claims.
“The industry’s intention is that it would again meet the costs of both the policyholders and the insurers in any legal process, in the same fashion as the first test case regarding the Quarantine Act,” the ICA said in a statement.
“The industry seeks to progress a court resolution of these matters quickly, and regardless of any decision around an appeal on the first test case.
“The Insurance Council will continue to work with all stakeholders and government to provide clarity for all parties and the industry. It will provide an update on these matters as soon as they are settled in coming weeks.”
