Australia Advances COVID-19 Business Interruption Test Case
The resolution of Australia’s COVID-19 business interruption test case unlikely to shed light on business interruption claims pending in the United States.
In July, the Australian Financial Complaints Authority (AFCA) announced an agreement with the Insurance Council of Australia (ICA) to file a test case asking a court to interpret a commonly used disease exclusion in Australian business interruption coverages. AFCA plans to rely on the reasoning of the resulting judicial decision to resolve other complaints over COVID-19 business interruption coverage. The ICA agreed to fund the litigation on behalf of all parties.
AFCA is a non-governmental ombudsman service helping consumers and small business to resolve disputes with their financial services providers including insurance companies. If the parties cannot agree on a resolution, AFCA has the authority to issue a decision binding the financial services firm.
ICA is the Australian insurance industry’s trade association. Through its Code of Conduct, the ICA also serves as the property and casualty insurance industry’s self-regulatory body.
On August 13, the ICA commenced coordinated test cases in New South Wales based on two complaints pending before AFCA. The cases were brought in the names of the Hollard Insurance Company and HDI Global Specialty and their policyholders Austin Tourist Park and the Thrive Health and Nutrition store.
On Friday, the Supreme Court agreed to a joint motion by the parties for immediate transfer and expediated review by the Court of Appeals. Arguments in the case are expected to begin October 2.
The case involves the interpretation of a business interruption coverage for the outbreak of a contagious disease occurring within a 20-kilometer radius of the insured location. However, this coverage excludes “diseases declared to be quarantinable diseases under the Australian Quarantine Act 1908 and subsequent amendments.”
The policyholders first claim the Biosecurity Act 2015 repealed and replaced (not amended) the Australian Quarantine Act 1908. Because the exclusion references a law no longer in existence, the exclusion cannot apply to bar COVID-19 business interruption claims.
Even if the exclusion is interpreted to encompass the Biosecurity Act 2015, the policyholder’s take the position only those diseases subject to a declaration at the time of policy inception can be excluded. The insurers counter that the exclusion includes any declaration occurring during the policy period. The COVID-19 declaration occurred on January 21, 2020.
Similar to the test cases making their way through the courts in the UK and South Africa, the Australian test case does not touch on the “property damage” question at the center of U.S. business interruption litigation. The closest the U.S. may get to a “test case” would be if the Multidistrict Litigation (MDL) panel decides to consolidate pretrial proceedings in federal lawsuits pending against Hartford Insurance and Lloyd’s syndicates. Even then any federal ruling on coverage would not bind state courts. So, U.S. COVID-19 business interruption litigation seems likely to grind on for the foreseeable future.
