Frequently Asked Questions

  • Why is the first test case considering the Quarantine Act carve-out

    Many business interruption policies sought to exclude cover for pandemics through a reference to “a quarantinable disease under the Quarantine Act 1908 and subsequent amendments”, however, the Quarantine Act was repealed in 2016 and replaced by the Biosecurity Act.

    In July 2020 insurers and AFCA agreed on a first test case to determine whether references to the Quarantine Act in some business interruption policies excluded claims made as a result of the COVID-19 pandemic.

  • Why is the second test case considering these further issues?

    The second test case will determine the meaning of policy wordings in relation to the definition of a disease, proximity of an outbreak to a business, and prevention of access to premises due to a government mandate, as well as policies with a hybrid of these types of wordings.

    The insurance industry understands the concerns of policy holders who may be waiting for a determination of their claim or resolution of a dispute, however these matters are not clear cut and there is a need to clarify the legal principles used to resolve disputes.

    Essentially, the courts’ determinations will provide the clear direction and guidance required for decisions to be made on similar issues arising in other disputes.

  • Who is running the test cases?

    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 an initial test case considering the application of this exclusion to business interruption cover.

    The first 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 second test case consists of nine separate small business claims lodged with AFCA covering a range of business sectors and locations. The second test case will determine the meaning of policy wordings in relation to the definition of a disease, proximity of an outbreak to a business, and prevention of access to premises due to a government mandate, as well as policies with a hybrid of these type of wordings.

    The Insurance Council of Australia is funding the legal costs for policyholders involved in both test cases.

  • When will the outcome of the first test case be known?

    The first test case was heard in October 2020 and the NSW Court of Appeal delivered its judgment in the test case on 18 November 2020. As part of the agreement to run a test case, insurers and AFCA agreed that the Court’s decision could be appealed. In December 2020 the ICA lodged an application with the High Court of Australia for special leave to appeal the judgment of the NSW Court of Appeal.

    There will be a final resolution of the test case when:

    • the application for special leave to appeal is refused by the High Court; or
    • special leave to appeal is granted and the High Court hears the appeal and delivers its judgment on the appeal.

    Under the terms of a protocol signed by the ICA, AFCA and participating insurers and policy holders, AFCA agreed that it will follow the reasoning of the final judgment in the first test case when dealing with other complaints based on the same Quarantine Act exclusions.

    Once final rulings have been obtained from the courts, insurers are committed to applying the relevant principles in an efficient, transparent, and consistent way when assessing customer claims.

  • When will the outcome of the second test case be known?

    Lawyers representing participating insurers filed pleadings with the Federal Court to commence the second test case on 24 February 2021. Insurers want this second test case brought to the court as quickly as possible so the process can be started to give certainty to policyholders and the insurance industry.

  • The first test case has been decided in favour of policyholders, when will my claim be paid?

    If the High Court decides not to hear the appeal or does not allow the appeal, insurers will not be able to rely on the Quarantine Act exclusion to deny liability in policies written in the same terms as the policies considered in the first test case.

    However, it is important to note there are other issues concerning the interpretation of business interruption policies that need to be resolved to determine whether policyholders will ultimately be covered.

    That is why the ICA and its members have commenced a second test case in the Federal Court of Australia to test the application of further issues of pandemic coverage in business interruption policies.

    For certainty, specific questions about the status of your claim should be addressed to your broker or insurer.

  • Can I still make a claim while the test cases are running?

    Yes, if you have business interruption cover you can lodge a claim with your insurer while the test cases are running.

    If a claim gives rise to one of the issues to be considered by the courts in the test cases, the insurer will inform you that it will not finalise the claim at that time but will do so once final test case determinations have been made.

    Once final rulings have been obtained from the courts, insurers are committed to applying the relevant principles in an efficient, transparent, and consistent way when assessing customer claims.

  • Can I make a complaint to AFCA while the test cases are running?

    Yes, if you have business interruption cover you can lodge a complaint with AFCA at no cost while the test cases are running. AFCA can make decisions on consumer and small business claims up to $1.085 million and, if accepted by the complainant, its rulings are binding on insurers.

    However, if your complaint relates to one of the issues to be considered by the courts in the test cases, AFCA has agreed to await the final resolution of the relevant test case before considering your complaint.

    Under the terms of a protocol signed by the ICA, AFCA and participating insurers and policy holders, AFCA agreed that it will follow the reasoning of the final judgment in the first test case when dealing with other complaints based on the same Quarantine Act exclusions. A similar protocol has been signed in connection with the second test case.

  • How are the outcomes of the test cases likely to affect my claim?

    If the final resolution of the first test case is that the Quarantine Act carve-out applies to COVID-19, then cover will not be available if your policy contains this term. It will depend on the broader policy terms whether you have a claim under another part of the policy.

    If the High Court decides not to hear the appeal or does not allow the appeal, insurers will not be able to rely on the Quarantine Act exclusion to deny liability in policies written in the same terms as the policies considered in the first test case. However, it is important to note there are other issues concerning the interpretation of business interruption policies that need to be resolved to determine whether policyholders will ultimately be covered.

    If your claim relates to a matter under consideration in the second test case, a final ruling in favour of insurers would exclude your claim under that part of the policy, while a final ruling in favour of policyholders would allow your claim. However, these matters are complicated and specific questions about the status of your claim should be addressed to your broker or insurer.

  • If my claim was previously declined, will the test cases change this?

    Potentially, yes. Specific questions about the status of your claim should be addressed to your broker or insurer.

  • My business is not in NSW. Will the test cases affect my claim?

    Although the first test case was decided by the NSW Court of Appeal, the decision is relevant to all Australian claims, regardless which state a business is located.

    The final judgment in the second test case will apply to all Australian jurisdictions. 

  • How will the UK Test Case affect Australian claims?

    The UK 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. The High Court of England and Wales delivered its decision on 15 September 2020. The decision was appealed and the UK Supreme Court gave its judgment in respect of the appeal on 15 January 2021.

    Though the UK test case decision may provide some guidance in Australia, it is not binding on Australian courts or insurers. The wordings of the UK insurance policies which were the subject of that test case differ in significant ways from many of the policy wordings that have been issued in Australia.

    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.

  • What does this mean for my claim?

    As we are still waiting for a final resolution of the test cases there is no change to the status of your claim.

  • Why is the first test case being appealed?

    While the insurance industry is sympathetic to businesses, particularly small and medium enterprises, that have experienced hardship as a result of COVID-19 restrictions, it remains of the view that pandemics were not contemplated for coverage under most business interruption policies and that the Quarantine Act exclusion excludes COVID-19 related claims.

    The insurance industry recognises the importance of seeking clarity on the interpretation of further aspects of business interruption policies and is working with stakeholders and policyholders to provide a resolution as quickly as possible.

    When will it happen?

    The option for an appeal by either the insurers or the insured was agreed to in the original decision to seek an outcome from the courts. If special leave to appeal is granted, the ICA would seek for the matter to be heard in the High Court as quickly as possible.

    What will happen to my complaint to AFCA?

    Under the terms of a protocol signed by the ICA, AFCA and participating insurers and policy holders, AFCA agreed that it will follow the reasoning of the final judgment in the first test case when dealing with other complaints based on the same Quarantine Act exclusions. A similar protocol has been signed in connection with the second test case.

    Once final rulings have been obtained from the courts, insurers are committed to applying the relevant principles in an efficient, transparent, and consistent way when assessing claims.

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