The insurance industry is considering launching a second test case to try to avoid paying hundreds of millions of dollars to businesses forced to shut because of the coronavirus pandemic.
It comes after insurers lost a test case on Wednesday in which the industry tried to knock out every claim for business interruption insurance lodged due to Covid-19.
Lawyers for businesses said insurers had advised customers that losses from the virus could not be claimed as the disease was a quarantinable one, under the Quarantine Act of 1908. However, the act was repealed in 2015 and the court said the carve-out did not apply to a similar clause in the law that replaced it, the Biosecurity Act.
The Insurance Council of Australia, which funded the original action, said it was considering funding a second case that would focus on different issues.
Such a case would test how many cases would be needed, and how close to a business, to count as an outbreak of an infectious disease and result in a payout.
It would also test whether government closure orders amount to “prevention of access” to business premises, which also triggers a payout.
The UK insurance industry recently lost a case brought by the Financial Conduct Authority dealing with similar issues, although there are differences between British and Australian law.
Separately, the ICA is also considering asking the high court to allow an appeal against the result of the first test case.
“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,” it said.
There are hundreds of thousands of business interruption insurance policies in force in Australia.
The total size of potential claims is difficult to estimate but industry sources say a figure in the many hundreds of millions of dollars is conservative.
Big insurer IAG said on Wednesday that it might need to raise additional money from the stock market to meet the cost of claims.
QBE, which also offers business interruption insurance, said its policies required a number of triggers to be met for customers to claim.
QBE said these claims in Australia were likely to be limited to $5m a claim.
Suncorp said the court decision did not mean Covid-19 claims would be automatically covered for policies mentioning the Quarantine Act.
Customers’ individual circumstances needed to be considered, it said.
Shine Lawyers commercial disputes practice leader Michael Lalji was not involved in the case but gave a different view.
“I expect this decision will open the floodgates to a lot of claims and cost insurers a lot of money,” he said.
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