- • COVID-19
- • BI Test Case
- • Issues
- • Submissions
- • Industry In Focus
- • Reports
- • Independent strata study
- • Best Practice Workers Compensation Scheme
- • 2015 non insurance in the small to medium size enterprise sector
- • Analysis of demand for home and contents insurance by Dr. Tooth
- • Impact of Removing Stamp Duties on Insurance
- • Too Long; Didn’t Read – Enhancing General Insurance Disclosure
- • QLD Floods
- • Non-Insurance
- • Non-Insurance in the Small to Medium Sized Enterprise Sector
- • National Disability Insurance Scheme (NDIS): Funding the Unfunded Commitment
- • Consumer research on general insurance product disclosures
- • Property based funding options for the NSW Fire Services Levy
Quarantine act test case
Last updated: November 18, 2020
On November 18, 2020, the New South Wales Court of Appeal handed down its decision regarding the Business Interruption test case relating to reference to the Quarantine Act in policies. The court found in favour of the insureds.
The Insurance Council of Australia (ICA) notes the judgment by the New South Wales Court of Appeal. The ICA, in consultation with its members and legal representatives, will urgently review the determination and specifically the grounds on which it could seek special leave to appeal against the decision to the High Court of Australia.
Business interruption cover may protect a business for a financial loss incurred because it cannot trade for a period due to loss or damage to the business itself from an interruption covered by the policy.
In 2005-6 the global insurance industry introduced general exclusions for losses relating to quarantinable or infectious diseases because of stress testing on the financial sector for pandemic scenarios following the SARS virus.
Most current business policies are likely to contain exclusions relating to losses caused by notifiable, quarantinable or infectious diseases. Insurers have designed and priced their policies on the basis that pandemics are not insurable due to the magnitude of potential losses, and the challenges of modelling the risk and ensuring coverage affordability.
In August 2020, the Insurance Council of Australia supported the commencement of proceedings in the NSW Supreme Court to test the application of certain infectious diseases exclusions in business interruption policies: bit.ly/ICABIcase
The Test Case, once finally resolved, will provide certainty for insureds and insurers on the threshold question as to whether a policy containing a carve-out referring to the Quarantine Act will provide cover for losses arising because of COVID-19.
- If the Quarantine Act carve-out is found to exclude COVID-19, then cover will not be available under an infectious diseases benefit for losses arising from COVID-19.
- If the Quarantine Act carve-out does not apply, then cover may potentially be available under an infectious diseases benefit for loss arising from COVID-19. In these circumstances, the customer would still need to satisfy other policy trigger requirements under the infectious disease benefit. To finalise the determination of any such claim, the customer would be required to provide further information as to how COVID-19 affected the business.
If you require specific information on how your policy may respond to a loss arising because of COVID-19, you should contact your broker or insurer.
Update on the Test Case
The NSW Court of Appeal delivered its judgment in the Test Case on 18 November 2020. The NSW Court of Appeal determined that COVID-19 is not a disease declared to be a quarantinable disease under the Quarantine Act and therefore, the Quarantine Act carve-out in the infectious diseases benefit is not enlivened.
The parties are currently considering the decision and have until 16 December 2020 to seek special leave to appeal to the High Court of Australia.
Frequently Asked Questions
Why is the Test Case considering the Quarantine Act carve-out
Business interruption cover may exclude cover for infectious diseases that are quarantinable diseases declared under the Quarantine Act 1908 and subsequent amendments. In 2016, the Quarantine Act was repealed and substantially replaced with the Biosecurity Act 2015. COVID-19 was determined to be a listed human disease under the Biosecurity Act on January 21, 2020.
Who is running the Test Case?
Under AFCA Rules, insurers can request that AFCA allow a complaint to be decided by the courts rather than AFCA. To ensure certainty as to the application of the Quarantine Act carve-out, the Insurance Council of Australia and AFCA agreed to file a test case considering the application of this exclusion to business interruption cover.
The Test Case involves two policies that exclude loss arising from infectious diseases as defined by the Quarantine Act. The Plaintiffs are the two insurers who issued the policies. The Defendants are two business customers who were issued with one of the policies.
The Insurance Council of Australia is funding the legal costs for all parties involved in the Test Case.
When will the outcome of the Test Case be known?
The NSW Court of Appeal delivered its judgment in the Test Case on 18 November 2020.
The parties to the Test Case have a right to seek special leave to appeal the decision to the High Court of Australia.
There will be a final resolution of the Test Case when:
- - the time period for seeking special leave to appeal has lapsed without an application for leave being made; or
- - an application for special leave to appeal is refused by the High Court; or
- - special leave to appeal is granted and the High Court hands down its judgment in the case.
The Test Case has been decided in favour of insureds, when will my claim be paid?
When there is a non-appealable final resolution of the Test Case, insurers will be in a position to advance their assessment of claims which involve a Quarantine Act carve-out.
Even once the Test Case is determined, your insurer may require additional information from you to finalise the assessment of your claim. If this is the case, your insurer will contact you to ask for the specific information that you will have to provide to substantiate any claim you have submitted.
If you have any specific questions about the status of your claim, you should speak to your broker or insurer.
Can I still make a claim while the Test Case is running?
Yes, if you have business interruption cover, you can lodge a claim with your insurer while the Test Case is running.
What will be the status of my claim while the Test Case is running?
If your business interruption cover contains a Quarantine Act carve-out, insurers will await the final resolution of the Test Case before considering how the Quarantine Act carve-out will apply to your claim.
Once there is a final resolution of the Test Case, insurers will assess claims that contain a Quarantine Act carve-out on a case-by-case basis.
Can I make a complaint to AFCA while the Test Case is running?
Yes, you can make a complaint to AFCA, provided you are eligible to do so.
If your complaint relates to a policy that contains a Quarantine Act carve-out, AFCA has agreed to await the final resolution of the Test Case before considering how the Quarantine Act carve-out will affect your complaint.
How is the outcome of the Test Case likely to affect my claim?
If the final resolution of the Test Case is that the Quarantine Act carve-out applies to COVID-19, then cover will not be available under an infectious diseases benefit for losses arising from COVID-19 where the policy contains a Quarantine Act carve-out. It will depend on the terms of your policy whether you may have a claim under another part of the policy.
If the final resolution of the Test Case is that the Quarantine Act carve-out does not exclude COVID-19, then cover may potentially be available under an infectious diseases benefit for loss arising from COVID-19, subject to satisfaction of other policy trigger requirements and proof of loss. In these circumstances, your insurer will probably need further information from you to assess your claim, including:
- - Whether an outbreak of COVID-19 has occurred in the vicinity or a specified radius of your business
- - How your business has been affected financially by COVID-19
- - The cause of any financial loss to your business, and
- - The details of the loss claimed.
Your insurer will contact you to ask for the specific information that you will have to provide to substantiate any claim you have submitted.
If my claim was previously declined, will the Test Case change this?
If the final resolution of the Test Case is that the Quarantine Act carve-out does not exclude COVID-19, then your claim may need to be reassessed and cover may potentially be available under an infectious diseases benefit for loss arising from COVID-19.
In these circumstances, your insurer will contact you or your broker to discuss the process for reassessing your claim.
My business is not in NSW. Will the Test Case affect my claim?
Insurers and AFCA have agreed to follow the final determination of the Test Case when considering similar claims made by customers in other states and territories.
If the judgment of the New South Wales Court of Appeal is not appealed, it is likely that other courts will have regard to the NSW Court of Appeal Test Case in considering similar cases. If the judgment of the New South Wales Court of Appeal is appealed to the High Court of Australia, any decision will be binding on courts in all States and Territories.
How will the UK Test Case affect Australian claims?
The Financial Conduct Authority commenced a test case in the United Kingdom in June 2020 to assess how insurance policies issued in the UK may respond to COVID-19 related claims (FCA Test Case). The High Court of England and Wales recently issued its decision. This decision is now the subject of appeals in the UK Supreme Court.
Though the UK Test Case decision may provide some guidance in Australia, it is not binding on Australian courts or insurers. The UK case examined different issues to the Australian test case because UK policies have different policy wordings to policies issued here. It is also important to recognise that the COVID-19 situation is different between the UK and Australia, including the number of infections and the responses of governments.
I have been financially impacted by COVID-19. Are support measures available?
Insurers are committed to assisting their customers, including those experiencing financial hardship through the COVID-19 crisis. Insurers are providing a range of relief and support measures, packages and case-by-case assistance.
If you would like to find out more about support measures that may be available, you should speak to your broker or insurer. The Insurance Council of Australia has also published information on how COVID-19 may affect your insurance policies: https://www.insurancecouncil.com.au/issues-submissions/covid-19.