Ruling in First Australian Test Case for COVID-19 Business Interruption
In this case brought by representative insurers and policyholders arranged by the Insurance Council of Australia, the court considered a contagious disease coverage unique to the Australian market. The court found that the “quarantinable diseases” exclusion to the policy’s contagious disease coverage did not bar recovery for business interruption losses resulting from COVID-19 lockdown orders.
The insurance companies had issued policies in 2019 and 2020 containing coverage for business interruption caused by the outbreak of infectious or contagious disease. However, this coverage excluded “diseases declared to be quarantinable diseases under the Australian Quarantine Act 1908 and subsequent amendments.”
In 2016, the Australian Quarantine Act of 1908 had been repealed by and replaced with the Biosecurity Act of 2015. The Biosecurity Act of 2015 did not retain the concept of a “quarantinable disease” declaration. Instead, under the new law certain diseases could be “listed.” COVID-19 became such a listed disease in January 2020.
The insurers denied coverage pointing to the exclusion of “quarantinable diseases.” First, the insurers took the position that The Biosecurity Act of 2015 amounted to a “subsequent amendment” to the Australian Quarantine Act of 1908. Second, the insurers argued the reference to the repealed law was a mistake subject to legal “correction” by the court.
The appeals court rejected both arguments. The court reasoned that the 2015 repeal and replacement was not an “amendment” to the 1908 law but an entirely new law. While the purpose of the exclusion may have been to remove from coverage outbreaks “which are sufficiently serious to attract a public health response, [the insurers had] not chosen that language to describe the exclusion or how it is to operate.” In other words, the insurers had decided to link the exclusion to a specific legislative act. It was therefore incumbent upon the insurers to update their standard policy wordings when that legislative act was repealed and replaced.
The Insurance Council of Australia is currently considering whether to appeal this ruling to the High Court of Australia.
The Insurance Council of Australia also announced that it may bring a second test case that “explores outstanding policy matters, including proximity and prevention of access, relating to the pandemic and business interruption insurance.” These issues may be more relevant to U.S. business interruption claims than those presented in the first test case.