In June 2021, the High Court upheld the NSW Court of Appeal’s decision for the first COVID-19 business interruption (BI) test case, which prevented the insurers from denying liability on the basis of a reference to the repealed Quarantine Act 1908 in many of the BI policies. This was considered a significant win for policyholders.
Following the outcome of the first test case, the much anticipated primary decision regarding the second BI test case was handed down by Jagot J of the Federal Court of Australia on 8 October 2021.
Second BI Test Case
The second test case relates to business interruption claims submitted by various small businesses. Each of the insurers had declined the claims, which led to the disputes being lodged with the Australia Financial Complaints Authority (AFCA) and subsequently the proceedings in the Federal Court. The second test case focused on insurance policy definitions including:
In the second test case, it was identified that the relevant provisions of the insurers’ BI policies fell within four classes:
Unlike the first BI test case, the primary judgement for second test case largely went in favour of the insurers. A few considerations which limited the coverage of BI policies include:
Nevertheless, the second test case decision suggests that some policyholders may still be eligible to claims, e.g. under the quasi-hybrid and infectious disease clauses, if the necessary factual circumstances could be proven.
As expected, the decision by the Federal Court was appealed, and the hearing by the Full Court of the Federal Court concluded on 12 November 2021.
The ICA hopes for the matter to be concluded by the end of 2021. However, there may be a special leave application for a High Court appeal following the Full Court of Federal Court’s decision, which may further delay the final outcome.
So what does this mean for insurers, brokers and their customers?
Whilst the initial outcome is an important step to closing out the coverage issues, until the court outcome is finalised, there continues to be a level of uncertainty in the industry. Actuarial reserving estimates are unlikely to fully reflect the second test case outcomes until after there is clarity of the appeals outcomes.
From an operational perspective, industry insights from the UK continue to show that insurers that prepare ahead of time will fare the best at “crunch time”, when policyholders or their brokers begin to lodge claims.
Prepare and Protect: Enhance brand reputation and customer experience through claims readiness
Further to our previous blog, below are some of the more specific considerations for insurers to address to navigate through the uncertainties while the final court outcome is still pending. We have taken the view that these considerations can result in insurer brand and trust enhancing experiences with their policyholders.
At Deloitte, we have the global experience and expertise to help organisations design and implement efficient and compliant solutions to uplift claims handling processes. Please get in touch if you would like to discuss how we may assist you.